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Split Up Your Marriage To Survive The Downturn

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http://www.thisismoney.co.uk/tax/article.h..._id=11&ct=5

Families £10,000 better off if they split

Steve Doughty, Daily Mail

2 August 2009

Some middle income families would be nearly £10,000 a year better off if the parents were to split up, according to research.

The growing penalty that Labour's taxes and benefits pile on to couples who stick together is bearing down increasingly hard on families with middle range earnings, it found.

A husband and wife with two children and earning nearly £35,000 a year between them - well above the average income - are now the biggest losers for keeping their family together.

If they were to live apart they would be better off by £186 a week - an increase in the money they can spend of nearly 60 per cent.

The analysis of the price that couples must pay for staying together was carried out by the charity Care, based on tax and benefit tables produced by the Department for Work and Pensions.

It showed that the notorious 'couple penalty' which Labour has built into the benefits system is growing and that, increasingly, it is putting pressure on people on middle incomes to break up with their partner or to avoid living together with them in the first place.

The couple penalty - mainly caused by Labour's flagship tax credit benefits, which are heavily biased in favour of single parents - is now coming under political criticism. Tories have promised to even up benefit rules so that couples are no longer much worse off than single parents.

Labour MP and former welfare reform minister Frank Field said yesterday: 'It is vital that we find a way of addressing welfare need without creating perverse incentives for the parents of children on low to modest incomes to live apart.'

The benefit bias against couples has usually been thought to act to persuade people on the lowest incomes to stay single.

The high penalties now being imposed on middle income couples suggest that growing numbers of middle class people may now be affected by financial pressure to live without a husband, wife or partner. The Care analysis was based on the taxes and benefits that would be paid by 98 couples on different earnings and with different numbers of children.

It found that 76 out of the 98 would be better off apart, up from 75 families in a similar analysis last year. On average, they would be better off apart by £68 a week. The average cost to the Treasury - and taxpayers - of extra benefits to a couple who choose to live apart is £8,007, up four per cent on last year's cost to taxpayers. The worst losers from staying together are a couple with two children who live in private rented accommodation. If one earns £520 and the other £150, and they have child care costs of £120 a week, the couple can expect to have a disposable income of £308 a week after they have paid tax and claimed due benefits.

But if they broke up and lived in two different rented flats, their joint disposable income would rise to £494 a week. A typical couple among the 98 cases examined would have a disposable income of £303 a week - but if they parted and claimed the £68 couple penalty they would be more than 20% better off.

Nola Leach, Care's chief executive, said: 'It is very disappointing to see that, far from being eroded, the number of families negatively impacted by the couple penalty has actually increased for the third year in a row. Rather than using taxpayers' money to create fiscal incentives that make it more likely that children will grow up in a home with only one resident parent, we should at the very least ensure that parents are not disadvantaged by living together under the same roof with their children.'

How couples lose out:

1. The financial bias against couples has been growing since the 1990s when the married couples tax allowance was abolished

2. Tax credits, introduced by Labour in 1998, are based on children and take account of only one working adult per household, so favouring single mothers

3. Last year Labour MP Frank Field calculated that a single mother on the minimum wage with two children under 11 would get a weekly income of £487 if she worked 16 hours a week. A two-parent family with one earner would have to put in 116 hours of work on the same pay to get the same money

4. David Cameron has vowed to give back tax breaks to married couples if the Conservatives win the next election

So much for a solution to "Broken Britain" and it's time to get "Back to Basics".

Edited by AvidFan

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