Comment: Why there should be a married couple’s tax allowance
The Conservatives have pledged to give married couples an additional tax allowance, although the details are still being worked out.
By Peter Saunders
The main reason for the policy is to show support for marriage. David Cameron knows that nobody is going to get married, or avoid divorce, just to benefit from a tax allowance of a few pounds a month. But just as Labour’s official indifference has underpinned the continuing erosion of marriage, the Tories hope that giving it official support and recognition in this way might just help shore it up.
It certainly can’t do any harm. The Conservatives are right when they say that married parents stay together much more successfully than those who merely cohabit. They are also right that children, on average, are a lot better off if their parents stay together than if they separate. If the state has a duty to safeguard the interests of children, then the case for encouraging married parenting is a strong one.
But there is another reason, too, why we should support tax relief for married couples (or at least for married parents), and that is that our current, extremely individualistic, tax system discriminates unfairly against them.
It is – or should be – a basic principle of any tax system that individuals should not be taxed until they have earned enough to maintain themselves. This is the rationale for the personal tax allowance of £6,035, available to every adult. Its value has been badly eroded over the years by inflation, but in principle, this personal entitlement is official recognition that every individual needs a minimum core of earnings just to keep body and soul together. Not until you have earned this subsistence income should you be taxed.
But what happens to your personal subsistence entitlement if you have young children and you leave work to look after them? With no earnings of your own, your personal tax allowance becomes worthless.
This didn’t used to be the case. Between 1909 and 2000, if you were married and were supporting a non-earning spouse, you received an enhanced tax allowance. If a husband and wife were both earning, they would be taxed as separate individuals, each with their own personal allowance. But if only one was working, the spouse at home could effectively transfer part of his or her tax-free earnings entitlement to the one who was working. He or she would then claim a Married Couple’s Allowance, which was bigger than the personal allowance.
This arrangement recognised that a working spouse has to spread his or her earnings across two adults rather than one. A single income has to secure two people’s subsistence, so the tax-free earnings threshold needed to be higher to reflect this.
But in 2000, the Married Couple’s Allowance was scrapped, and non-employed parents were stripped of their right to a tax-free allowance. Today, if both parents go out to work and put their children into childcare, the government gives them each a £6,035 tax-free allowance, as well as heavily subsidising their child care costs. But if they prefer to look after their children themselves, sacrificing one income and foregoing all the child care subsidies, the government penalises them by making the stay-at-home parent forfeit her (or his) right to a tax-free income.
Opponents of David Cameron’s proposal to reintroduce a Married Couple’s Allowance say the state should not favour one pattern of family life over another. But existing arrangements unfairly favour couples who both work over single-earner married couples. It is unfair that parents who both choose to work get two allowances, while a family dependent on a single income only gets one.
The key argument for reintroducing a Married Couple’s Allowance is therefore an equity argument. But how exactly should this allowance work?
There is a strong case for restricting it to parents with dependent children. If a childless couple want to get by on one income, there is no reason why the rest of us should help support their living costs, for they could both be working. The current inequity only applies to parents who sacrifice one income to raise their children at home.
How old should the children be before it is reasonable to expect both parents to start earning their own money again? The answer to this can be found in the welfare system. Under new rules, single parents will be expected to leave Income Support and find a part- or full-time job once their youngest child reaches seven years of age. It is reasonable to apply the same criterion to married couples. This suggests that, once children pass the age of 7, the Married Couple’s Allowance should cease, for at this point, both parents could return to the workforce.
There is also the question of whether the Married Couple’s Allowance should be given to unmarried parents too. If one cohabiting parent chooses to raise their children at home while the other works, they will have to share a single income between them, just as a married couple does. So should they also be allowed to pool their allowances into a couple’s allowance?
The answer is no, because the unmarried couple has entered no legally-binding agreement to support each other financially or to pool their resources. They may choose to support each other, but there is no enforceable agreement that they should. If couples want to claim the right to pooled tax allowances, they must first demonstrate a commitment to sharing their domestic economy. The way you do that is to get married, or sign a civil partnership.
Comparing tax systems around the world, Britain is out of step, for most other western countries allow married couples to pool their tax allowances in some way. Our tax system is also out of synch with our own welfare system, which routinely assesses people’s financial situation by looking at their family responsibilities, not just at their own circumstances.
A Married Couple’s Allowance is therefore practical and equitable. On this issue, the Tories are 100% right.
Peter Saunders is a Policy Exchange author and professor of sociology
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