Family Allowances (European Community) (Hansard, 16 November 1977)

§ Mr. Robert Sheldon

It is not generally possible to calculate the "value" of child tax allowances in term of tax reduction attributable to the allowances because, unlike family allowances or equivalent cash benefits, this depends on the marginal tax rate, and hence on the income and family circumstances, of the individual taxpayer. However, for the United Kingdom an estimate has been made on the assumption that the taxpayer is liable to tax at the basic rate and that he had sufficient income to take full advantage of the allowances.

Overseas countries tend to have a larger number of rate bands than the United Kingdom, where most taxpayers are liable at the basic rate only: the value of tax allowances therefore varies more widely. The position is further complicated where reliefs for children are restricted to a limited band of income, as in Belgium, or where relief is given through a "family part" system, as in France and Luxembourg. Accordingly, 272W with the exception of Ireland and Italy, as noted below, the only information which can be given for the other EEC countries is an account of the tax provisions for children at October 1976. Amounts are converted at then prevailing exchange rates.

The details take no account of cash family benefits not paid through the tax system, any tax payable on such benefits or—for the United Kingdom—the "claw-back of family allowances through the tax system.

On this basis the information is as follows:

United Kingdom

Tax allowances for 1976–77 were £300 for children under 11, £335 for children aged 11 to 16, and £365 for children aged over 16, For the majority of taxpayers liable at the basic rate—then 35 per cent.—only, these allowances have been calculated as worth about £8.75, £9.77 and £10.65 a month, respectively on the assumption that the taxpayer had sufficient income to take full advantage of the allowances. As from April 1977 these allowances are being phased out in favour of tax free child benefit.

Ireland

A tax allowance of £240 was given for each child in the tax year 1976–77. The standard rate—equivalent to United Kingdom "basic rate"—the marginal tax rate for the majority of taxpayers—was 35 per cent. in that year, giving a value of £7 per month for each child at this level.

Denmark and Germany

There were no child tax allowances in these countries for taxpayers generally.

France

The French tax system gives tax relief for children through a "family part" system. Each child is equivalent to one half part. For instance, a married couple with four children would be entitled to four family parts—one for each spouse, ½ for each child. The taxable income of the couple is divided by four in this case and then taxed as though it was income of a single taxpayer; the resulting tax is then multiplied by four to give the tax due from the couple. Because of the progression of the income tax rates, this system reduces the tax payable by a family with children; but the effect will depend on the taxable income of the taxpayer, and the size of his family.

Luxembourg

Luxembourg has a mixed system, of "family parts" on the French model, of tax credits consisting of a lump sum plus a percentage of taxable income, and of simple lump sum tax credits. Which system applies depends on the number of children and the level of 273W taxable income. The simple lump sum credits apply only to high income earners. At most income levels, the effect of the reliefs varies depending on income.

Netherlands

For 1976, the level of child tax allowances ranged from about £16 a month for one child, to a total of about £36 a month for five or more children. The value of these allowances depends on the marginal rate of the individual taxpayer.

Italy

Tax credits are given at a monthly rate for each child ranging from about 84p for the first child to about £8.50 for the ninth child and subsequent children. The "cash value" is equal to the tax credit, so long as the taxpayer has sufficient income to take up the tax credits in full. The tax credits operate as tax reductions; they are allowable only to the extent of the taxpayer's liability.

Belgium

Tax relief is given by allowing a percentage reduction of the tax otherwise due on the first slice of income. For example, a married taxpayer with two children is allowed a 20 per cent. reduction on the tax due on his first £5,600 of income—£470 a month. A married taxpayer with seven children is allowed full remission of tax on his first £8,500 —£700 a month.