TCW
Thursday, February 29, 2024
TCW
HomeCulture Wars35 years on, why are the Conservatives still taxing marriage and the...

35 years on, why are the Conservatives still taxing marriage and the family?

-

TWO recent articles in TCW struck a chord: Robert James’s Time for the Tories to face the catastrophe caused by their anti-marriage appeasement of the Left and Who’d want Liz Truss’s To Do list? by David Wright.  

The former’s thrust on the damage caused by the breakdown of traditional families was spot-on. But it didn’t make the obvious demand that the income tax system should be altered to favour the formation and support of traditional families. The latter’s broadly admirable agenda for a genuinely conservative Prime Minister listed simplifying the Byzantine tax code, but didn’t mention any essential reforms to Income tax.  

So how could income tax be reformed to encourage marriage and the formation of traditional families? None of us needs any think-tank research to tell us that a traditional family headed by a husband who is clearly a man and his wife who is clearly a woman is it the best environment in which to bring up children.  It is, to use Douglas Murray’s expression, something we all knew until yesterday.   

First, let us have a look at the way things were in the 1970s. When I was a newly-married young man, there was no separate taxation of husbands and wives. A married woman’s income, if she had one, was added to her husband’s and taxed through his PAYE.    

There was a Married Man’s Allowance, which added roughly 50 per cent to the universal Single Person’s Allowance to which he was entitled. There was also a child allowance of approximately 30 per cent of the Single Person’s Allowance per child.   

In 1979, when the average annual salary was about £5,800, a married man on such a wage with a wife and two children could expect around £2,550 in tax allowance before such additional allowances as Mortgage Interest Relief and Life Insurance Premium Relief.   

If he was also making tax-deductible pension contributions, he could easily have more than half his income free of income tax. This is how single-earner households used to manage to meet their bills and raise their children.  

Then, with the Thatcher revolution in the 1980s, came the separate taxation of husbands and wives, the removal of the Married Man’s Allowance, the ending of child allowance and the introduction of child benefit paid directly to the mother.   

It was done at the behest of the feminist lobby to give wives financial privacy, but completely ignored the obvious fact that two people living together and raising a child or children formed an economic unit under one roof. And it was the so-called Conservatives who did it.  

This immediately created a fiscal divide between single-income households and dual-income households.  In the early 1990s I had what I thought was a good income, but my wife had given up work for personal reasons.   

I looked at a neighbouring couple, both of whom worked, and wondered why their standard of living was so much higher than ours despite their combined gross income being roughly the same as mine.   

It was clear that they had the benefit of two personal allowances and two basic rate tax bands, whereas in our house we had only one personal allowance, one basic rate band and a large proportion of my income was subject to tax at the higher rate.   

I wrote to my then MP, Sir David Mitchell, to point out how the income tax system favoured dual-income households (including childless same-sex couples) and provided some figures to illustrate my points.   

At the time, the difference in net income between single-income households and dual-income households in which each spouse or partner earned the same was between £7,000 to £8,000 per year at my income level, a ‘not inconsiderable sum’ as the then Prime Minister John Major would have described it.    

The reply from Sir David was sympathetic, but nonetheless a brush-off. About the same time, the Chancellor, Kenneth Clarke, said in the House of Commons that the tax system did not discriminate against married couples. It demonstrably did and it still does.  

It’s not just those working single-income households who are treated unfairly by the tax code; it affects pensioners too. Suppose one retired spouse has a small occupational pension and a limited state pension because he or she gave up work to stay at home with the family. Those pensions combined may be well below the Personal Tax Allowance.   

During a working life, the other spouse made as high pension contributions as possible in the knowledge that his or her pension was going to have to support two people in retirement. He or she does not have the ability to transfer a part of his or her pension to the other spouse and may well be paying large amounts of income tax at the higher rate.   

Of course, the couple may choose to divorce – in which case the pension would be split and the tax bill thereby reduced because they would between them have two full Personal Tax Allowances and two Basic Rate bands. No doubt there are some couples who have done precisely this while continuing to live together.  

This situation is brought about because in the 1980s, when separate taxation of married couples started, the feminists lobbied against a proposal to allow unused Personal Tax Allowances to be passed between spouses when one of them didn’t work. That would have been the right thing to do.   

I could go further and say that unused basic-rate tax bands should have been made transferable too. Perhaps then we would not have seen the damage to the traditional family which Robert James wrote about.  

Let’s take a look at how other countries approach this. In France, income tax is levied on households and not on individuals, so most married couples file joint income tax returns.   

Total income is split according to how many people live in a home – one share for a single person; two shares for a married couple and half a share each for the first two dependent children with one full share for the third and each subsequent child. Thus the income of a married single-earner taxpayer with three children would be divided in four and each share subjected to the income tax schedule.   

The result would be that a married man and his wife with three children would pay not a cent in income tax until their income exceeded 40,900 euros and the rate would not exceed 11 per cent until their income rose above 104,280 euros. That said, there are substantial social charges in employment deducted at source (over 20,000 euros at 100,000 euros gross income) but the main point is that the personal tax system adequately recognises marriage and the family.  

In Germany, all resident individuals are taxed on their worldwide income. No one pays any tax until income exceeds 10,347 euros. For a married couple, that is doubled to 20,694 euros and the tax rates start at 14 per cent. The rate increases progressively until 58,596 euros, when it reaches 42 per cent. Again, that figure is doubled for married couples so they don’t reach 42 per cent until they earn 117,192 euros.   

The tax rate stays flat at 42 per cent until 227,825 euros or 555,650 euros for married couples. Above those figures, the rate is 45 per cent. But note, you have to be earning more than half a million euros to be paying tax at 45 per cent as a married couple. And there is no stripping away of the personal allowances as there is here in the UK. Again, the tax system recognises marriage.  

In the US, everyone pays some federal income tax, but it is ten per cent until 10,275 dollars, then 12 per cent to 41,775 dollars and then 22 per cent to 89,075 dollars. Just as in Germany, for married couples filing jointly these bands are doubled to 20,550, 83,550 and 178,150 dollars of joint income. Once again, marriage is recognised and supported by the tax system.  

Back in the ‘Old World’, in Victor Orban’s Hungary there is a flat income tax rate of 15 per cent paid by everyone on aggregated income from all sources. From this can be deducted the Family Allowance for dependent children of 66,670 Hungarian forints (HUF) for one child, HUF 133,330 for two and HUF 220,000 if there are three or more children per month per child.   

That is a progressive allowance which at the current exchange rate of HUF1,000 = £2.08 means the equivalent of nearly £1,400 is allowed against the income of a married couple with three children before it is taxed.  In Hungary, the average salary is the equivalent of £2,370 per month so that is serious support for marriage and the family through the tax system. In addition, since January 1, 2020 women who are currently raising or who have raised four or more children will pay no personal income tax on certain types of income as specified by law.  

Dare we hope that Liz Truss will do something to reform the tax system in favour of married couples and their children? To her credit, she is the first in situ PM to say she wants to introduce a household taxation and has promiseda review to ensure people are not penalised for taking time out to care for their children or elderly relatives. 

Her plans would allow households to share personal taxation, would build on the existing tax break for married couples and would consider allowing people to transfer their full £12,750 personal allowance to their partner, which would be worth up to £2,514 a year per couple. 

These pledges go back to July and the leadership contest, but she followed through in the first days of her premiership and hasn’t backtracked yet – although with Jeremy Hunt now in charge of the nation’s finances, nothing is certain any longer. 

That optimistic aspiration apart, however, things have unravelled in a spectacular fashion following Kwasi Kwarteng’s mini-budget. The intentions were good in the short-lived abolition of the 45 per cent rate and more was promised.   

Unfortunately, it fell foul of those social democrats who hide in conservative clothing, the result of Cameron’s open primaries and the catastrophic centralisation of candidate selection.    

Since Jeremy Hunt, the fourth Chancellor in four months, has set about undoing Kwarteng’s handiwork, those of us who had hoped that we would now see genuine conservatism and real reform of personal taxes could be doomed to disappointment.   

That other spiteful act in the dying days of the last Labour government, the disincentivising tapering to zero of the personal allowance above £100,000, may not be removed. That too will affect more and more single-income households as inflation and fiscal drag pulls them into the zone.  

The blatant tax discrimination against marriage and the family rolls on. It’s been 35 years now. It is time for it to stop, Ms Truss. Or should it be Mr Hunt whom I address? After all, it seems now that he controls the Prime Minister. Meanwhile, over at the Social Democratic Party, the leader William Clouston shows that he gets it. More conservative than the Conservatives? In many respects yes. Who would have thought it?  

If you appreciated this article, perhaps you might consider making a donation to The Conservative Woman. Unlike most other websites, we receive no independent funding. Our editors are unpaid and work entirely voluntarily as do the majority of our contributors but there are inevitable costs associated with running a website. We depend on our readers to help us, either with regular or one-off payments. You can donate here. Thank you.
If you have not already signed up to a daily email alert of new articles please do so. It is here and free! Thank you.

Iain Hunter
Iain Hunter
Iain Murray Hunter is a former RAF officer/fighter pilot and retired airline pilot.

Sign up for TCW Daily

Each morning we send The ConWom Daily with links to our latest news. This is a free service and we will never share your details.