FAMILIES could become worse off as they earn more under the government’s new marriage tax breaks, tax analysts at the Institute for Fiscal Studies warned yesterday.
The policy will allow couples to share their tax-free income allowance, at an expected cost of £700m to the state coffers.
If the higher earning partner is a standard-rate taxpayer and the other partner earns below the tax-free allowance, the remainder of their allowance will be transferred to the higher earner.
It will benefit 28 per cent of married couples, the IFS said, around one-third of whom are retired. They will each gain up to £200 per year.
But their report warns that workers hitting the £42,285 income threshold for the tax break will suddenly become up to £200 worse off, creating a disincentive to earn more at that margin.
It believes the measure is more symbolic than practical, as it gives a maximum of below £4 per week to the couples affected, and only impacts a small proportion of married couples in any case.
“It is difficult to escape the conclusion that an income tax system which makes some people worse off after a pay rise has something wrong with it,” said the report. “Simpler ways to provide more support to working low- and middle- income married couples would include a higher work allowance for married couples in Universal Credit.”
The Prime Minister and backbench MPs are thought to be in favour of the scheme, though the chancellor is understood to be less keen as it puts a hole in his spending plans.