Tax credits penalise two-parent families

Two-parent families are being penalised in Gordon Brown's attempts to cut child poverty though tax credits, research presented to Parliament will state today.

The Work and Pensions Select Committee, which is investigating the Government's record on the issue, will hear how lone parents gain disproportionately from tax credits.

The carers' charity Care will suggest that the system acts as a financial disincentive to separated couples who may want to reunite. Using the Government's methodology for calculating poverty levels, Care said thatin 2002/3 a lone parent who worked 16 hours a week on the minimum wage would lose around £36 a week in tax credit if they decided to live with their child's father. They would lose £40 a week from next year.

The figures assume that the mother's partner earns £300 a week and take into account rent and council tax.

Of the 3.8 million children in poverty, 1.45 million were in two- parent families in work in 2001/2. Some 360,000 children were in lone parent families in work. Care claims that the tax credit system is failing to lift working two-parent families out of poverty because no account is taken of the second adult, except for aggregating income.

The poverty statistics, together with normal, income-related state benefits, do take account of the second adult but the Treasury has never explained the anomaly, according to the charity.

Don Draper, who will give evidence for Care, said the tax credit regime was leaving many two-parent households in poverty whereas a comparable lone-parent family would be lifted well clear of the breadline.

"What we are suggesting is that arrangements for couples should be levelled up so that they do not end up worse off compared with lone parents," he said. Care also casts doubt on the Government's claim that it is on track to reduce the number of children in low income households. "The Government would have been more likely to have achieved its target if the Chancellor had dealt with the two-parent family anomaly rather than increasing child credit for all families," Mr Draper said.

A Treasury spokeswoman said that the charity's figures may have failed to take into account savings from shared utility bills. Overall, the poorest fifth of families, whether in single or two-parent families, were £2,900 a year better off now than in 1997.