Tax disaster: Rachel Reeves urged to adopt Reform policy as families paying £4k extra to 'unfair' HMRC

Earlier this week, Farage unveiled a wave of new policy ideas to encourage family formation in the UK, with the axe of the two-child benefit cap and tax breaks for households with children now being on the agenda for Reform.

The Centre for Policy Studies (CPS), a conservative-leaning think tank, claimed the party leader's call to reform marriage allowance rules are sensible "but only if the party can make the rest of their policies add up".

Specifically, Farage suggested a fully transferable marriage allowance should be introduced to the tax system which would allow one spouse to transfer their unused personal tax allowance to the other.

According to the CPS, this policy change will make sure that households with the same total income pay the same amount of tax, regardless of how that income is split between partners.

Currently, taxpayers are able to transfer £1,260 of their tax-free personal allowance to your husband, wife or civil partner. It is estimated this reduces the tax bill by up to £252 in the tax year.

As it stands, a household with a single earner making £50,000 pays approximately £10,480 in income tax and National Insurance to HMRC. In comparison, a dual-earner household with each partner earning £25,000 pays about £6,691.

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This means households with two earners are losing almost £4,000 in hard-earned cash to the tax man compared to single-earners despite the salaries for each family being identical.

Due to this stark difference, the CPS is sounding the alarm that the current tax system is "penalising traditional family arrangements". Furthermore, the think tank noted that dual-earner households are benefiting from the status quo

Daniel Herring, a tax and fiscal researcher at CPS, said: "Families often function as integrated economic units, pooling resources and making collective decisions about earning, spending and caring responsibilities.

"The tax system should reflect this reality rather than treating each individual in isolation, as if family financial decisions happen in separate bubbles. In terms of fairness and moving the tax system towards neutrality, Reform’s proposals are excellent policy."

Based on the think tank's analysis, a single-earner family with two children pays 21.4 per cent of their gross income in taxes in the UK, compared to 20.8 per cent in France, 19.8 in Germany, and just 5.1 per cent in the United States.

Despite this endorsement of marriage allowance reform, the CPS called into question the viability of Reform's other "unaffordable" tax policies, including raising the personal allowance to £20,000.

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Responding to Farage's speech, Labour Party spokeswoman Ellie Reeves MP slammed Reform for "engaging in fantasy economics", comparing the party to the maligned fiscal agenda of former Prime Minister Liz Truss.

Conservative Shadow Chancellor Mel Stride said: "Today Nigel Farage abandoned hardworking families who live within their means. He thinks taxpayers should pick up the bill for people on benefits to have whatever family size they choose. That simply isn't fair or economically credible."

Furthermore, Liberal Democrat leader Sir Ed Davey claimed Reform UK was promising the British public "huge unfunded spending pledges and only vague promises of fantasy savings".

Analysis from the Institute of Fiscal Studies (IFS) found that Farage's signature tax policy of raising the personal allowance would increasing the annual income tax allowance to £20,000 could cost between £50billion and £80billion annually.