Back to the Future
An extra £20 a week for married couples. That was the essence distilled by the press from nearly 900 pages of social and family policy proposals from the Conservatives. In fact it was not quite that simple. But is it even a good idea?
Up to seven years ago a married couple did get an extra tax allowance. But that was scrapped in 2000 unless at least one spouse was born before 6 April 1935. The Social Justice Policy Group – chairman the old Tory Leader Iain Duncan Smith – did not suggest bringing that back. Instead it wants a married couple to be able to share their personal tax allowances with "the aim of supporting marriage and making it easier for couples to come together and stay together." The proposal seems to be based on the belief that the tax system somehow discriminates against marriage. In fact it doesn’t.
The new allowance would work like this. At the moment a married couple is treated as two individuals for tax calculations. So each gets a personal tax allowance and can have an income of £5225 before any tax is due. Many married people have less income than that and cannot use this tax allowance in full. Smith’s Group says that any unused part of that allowance should be transferable to the other spouse.
The maximum benefit would be the tax due on £5225 which at next year’s basic rate will be £1045 a year or about £20 a week. Of course, low income couples where neither spouse paid tax would gain nothing. Nor would couples where both paid basic rate tax already. The gainers would be couples where one spouse had an income and the other did not. And the biggest gainers of all would be people who paid tax at the higher rate of 40% but whose spouse had no income at all. They would save £2090 a year tax or about £40 a week. And it would be easy for wealthy people to move their income around to make sure that the relief benefited them to the maximum.
The Institute for Fiscal Studies calculates that introducing a transferable allowance of this sort would cost about £3.2 billion a year. Which is about the same as knocking a penny off the basic rate of tax. Or perhaps adding £6 a week to the state pension. Or, if reducing child poverty is the goal, boosting child benefit by £8.30 a week for every family.
Husbands and wives already have one major tax advantage over unmarried couples – no Inheritance Tax on what they pass to their spouse. That exemption costs more than £2 billion a year. Do they really need another?
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