Marriage tax penalty remains while Child Benefit cliff edge eased

Mar 13, 2024

The Chancellor failed to end the marriage tax penalty in his budget last week, but he did tackle the child benefit cliff edge.

Jeremy Hunt said current child benefit policy is to “withdraw Child Benefit when one parent earns over £50,000 a year. That means two parents earning £49,000 [each] a year receive the benefit in full but a household earning a lot less than that does not if just one parent earns over £50,000”.

The Chancellor was right to highlight this unfair situation. The dual-earning couple takes home a total of £98,000 and keeps full child benefit, but a single-earner couple whose household income is £50,000 starts to lose it.

The immediate change in the budget raises the threshold at which some child benefit is lost (known as the High Income Child Benefit Charge) from £50,000 to £60,000. It also increases the point at which it is lost completely from £60,000 to £80,000, so the taper isn’t as steep.

This is good news for families. However, the unfairness for double-earner households is still there. A single-earner household would have child benefit reduced from £60,000, whereas a household with two earners both on £59,999 wouldn’t lose a penny of child benefit. The Chancellor has pledged to address this last unfairness in future, committing to “consult on moving” “to a household-based system to be introduced by April 2026”.

Regrettably, the Chancellor passed up the opportunity to address the marriage tax penalty. A single-earner married couple can earn £12,570 tax-free, but a dual-earner couple earns £25,140 tax free – twice as much. This is because the tax-free allowance is based on the earnings of the individual, not the household. Someone earning below £12,570 can transfer just 10% of their tax-free allowance to a spouse paying tax at the basic rate.

At C4M we have been calling for a fully transferable tax-free allowance for married couples (which is broadly equivalent to taxing married couples as a household). At the moment, an individual’s earnings above £50,270 are taxed at 40%. This means that a single earner on £60,000 might be paying somewhere around £11,500 in income tax, whereas a couple each on £30,000 will be paying more like £7,000 between them – yet the household income is the same.

It should be a priority for the Government to end this unfairness for single-earner households, which is the same unfairness Mr Hunt described in relation to child benefit. Doing so would also support marriage and parenthood – the bedrock of a healthy, happy society. The Government must stop making excuses and right this wrong.