James Somerville-Meikle is Head of Public Affairs at the Catholic Union.
The economic cost of this pandemic is all too clear for many. But personal finances and household budgets are not the only things feeling the strain.
For some people, this past year has pushed relationships to their limits – with more time spent at home, greater stresses and anxieties, and an emotional cost impossible to calculate.
Among the alarming reports and grim statistics of the past year, the increase in people seeking divorce guidance from Citizens Advice and law firms reporting an increase in divorce applications should be some of the most worrying signs of the long-term impact of this virus.
As the Chancellor prepares to deliver his Budget next month, the state of people’s marriages might not be foremost on his mind, but there are good reasons why Rishi Sunak should make supporting families a priority.
In 2016, the Relationships Foundation estimated that the cost of family breakdown to the taxpayer – the various extra costs of supporting single parents and managing the fallout from relationship breakdown – was £48 billion. A figure that is sadly likely to be even higher in the wake of the pandemic.
While money alone cannot and should not be enough to keep a marriage together, a greater focus on how the tax and benefit system can support families is long overdue and is needed now more than ever.
Government spending has tended to focus on picking up the pieces from relationship breakdown, rather than supporting the family unit in the first place. If the Chancellor wants to avoid spiralling welfare spending as a legacy of the pandemic, then the Treasury needs to look more closely at the tax burden faced by families not just individuals.
One of the most pressing questions facing the Chancellor is the future of the £20 per week uplift to Universal Credit and tax credits. The policy has helped millions through the pandemic, but it has cost billions – £6.1 billion according to the Office for Budget Responsibility.
The temporary change has meant that someone on the basic rate of Universal Credit over the past year has received an extra £1,040 than they would have done without the uplift (an increase of 29 per cent on the pre-pandemic rate).
It’s a testament to the extraordinary times we live in that this hike in payments barely made the news when it was announced in March last year, but it is certainly making headlines now that the end of the year-long extension is in sight.
In some ways perhaps this was inevitable. Once something is given – no matter how temporary – it is hard to take away. People who have felt the benefit of the higher rate of payments will also feel the loss if and when they come to an end.
The challenge facing the Chancellor is how to avoid one of the biggest and most generous changes to social security in our history ending up looking like daylight robbery.
The £20 uplift has undoubtedly helped to get more money to some of the people most in need during the pandemic. But the problem with making changes to the basic rate of Universal Credit and tax credits is that everyone is treated the same, regardless of who they are or their circumstances. A working mum with three children gets the same benefit from an extra £20 a week through tax credits as a single man with no children.
If the Chancellor is looking for a way to rebalance welfare spending in the wake of the pandemic, then a more targeted approach, focusing on support for families and those with childcare responsibilities seems like an obvious solution. It would also be a big step towards delivering the manifesto commitment of making Britain the greatest place in the world to start a family.
There are oven-ready policies that the Chancellor could introduce in his Budget that would help families, and arguably be a greater help to children in the long term than the £20 uplift.
Perhaps the most obvious option would be to scrap the two-child cap on the childcare element of Universal Credit and tax credits. The policy was introduced in the Budget in 2015 and meant that from April 2017, support provided to families through Universal Credit or tax credits would be limited to the first two children.
The Child Poverty Action Group estimated in April 2020 that 230,000 families had been affected by the policy, and that an additional 60,000 families could be affected as a result of the pandemic. The policy has been roundly criticised by faith groups, including the Catholic Church, The Muslim Council of Britain, and Board of Deputies of British Jews, on account of its discriminatory approach to larger families.
The justification for the policy was that parents claiming Universal Credit or tax credits should face the same choices about the number of children they can afford as those supporting themselves solely through work. But the economic crisis caused by the pandemic has shown how quickly families can fall into difficulty. Even in normal times, no parent can be sure that their financial security will withstand unpredictable events such as illness, death, or redundancy.
Another possible source of inspiration for the Chancellor could be moving towards fully transferable personal allowances. Currently, 10 per cent of the current personal allowance of £12,500 is transferable between couples. Going further and making personal allowances fully transferable would remove the tax penalty suffered by single earner couples and help families keep more of the money they earn.
A fully transferable personal allowance would not be cheap. David Goodhart estimated in 2016 that the cost to the Treasury would be in the region of £5 billion – a significant amount of money, but still less expensive than the £6 billion cost of maintaining the uplift in Universal Credit and tax credits.
The Chancellor could also look at increasing child benefit, which has been largely frozen since 2010. The Child Poverty Action Group has estimated that increasing child benefit by just £10 per week would reduce child poverty by 450,000 as well as helping to stimulate the economy to recover from the pandemic.
There are options available to the Chancellor for this Budget and the rest of this Parliament to create a tax and benefit system that finally supports the family unit. The pandemic has shown the importance of having strong families alongside a social security system for those who need it.
Helping families keep more of the money they earn will not solve all of their problems, but it would certainly help. Let’s use this moment to build back better for families.