Tories beware the tax credits nudge

Tories say marriage tax breaks will keep families together. So won’t the two-child tax credit policy split them up?

This article was published in Progress Online today:

‘There is something special about marriage,’ said David Cameron on one of the occasions he announced one of his ‘nudges’ – the marriage tax allowance. Gordon Brown had axed the tax break, then called the married man’s allowance, back in 1999 in favour of a new system of tax credits to lift families out of poverty.

Conservatives and rightwing thinktanks regularly cite the correlation, while neglecting to question causality, between the length of relationship and existence of a wedding certificate. Any marriage, it would seem, is better than no marriage. But not all marriages are equal. The ideal Tory marriage, the one rewarded by marriage tax beaks, has a spouse who goes out to work and a spouse who stays at home or works part time.

The tax breaks are only paid to married couples (and those in civil partnerships) with a homemaker who transfers his or, more likely, her tax-free allowance to the basic rate taxpaying breadwinner. Marriages where both partners work and pay tax or where neither works are not rewarded, whether or not they have children. It is not, as the name suggests, paid to the widowed, separated or single or cohabiting couples, no matter how stable and committed they are.

Limiting child tax credits to two children further defines this ideal Tory marriage. Not only does Cameron want to ‘benefit those who choose to stay at home or work part-time in order to care for their families’, he’s now setting out how many children this family should have. If he drew a picture it would surely look like an illustration from a 1964 Peter and Jane story with a mummy at home and daddy who goes out to work and two children. Even by the 1970s Peter and Jane’s mummy went to work.

The marriage tax allowance does not just ‘send a signal’, it is also worth £212 a year – nearly a week’s take-home pay for someone working full time on minimum wage. And with Cameron stating that he plans to expand the tax breaks it could become significant for many families. It could pay to get and stay married.

Like the marriage tax allowance, Iain Duncan Smith’s ‘two-child policy’ is intended to change people’s behaviour and is worth up to £2,870 per child per year. The April 2017 start date is designed to send a message that anyone who has a third child after this date is reckless and forfeits their right to support. But it will not just affect the Daily Mail fodder of those who accused of wilfully having child after child just to receive tax credits, it will also catch families that already have three or more children and suffer a loss of income and need to make a new claim after 2017.

If giving married people more money leads to more people getting and staying married, then the logic would follow that giving families less money, will lead to more families breaking up. A family with three or more children, whenever they were born, cannot avoid this cut – unless they start giving away their children or split up and become two families. The Conservatives should beware. Sometimes policies and nudges do change behaviour.