Transferable Tax Allowances

Guto Bebb Excerpts

Wednesday 28th November 2012 Westminster Hall

[Guto Bebb (Aberconwy) (Con)]

It is a pleasure to serve under your chairmanship, Mr Turner. I congratulate my hon. Friend the Member for Peterborough (Mr Jackson) on instigating this excellent debate. Most of the statistics and comments that I was planning to make have already been made by other Members, so I will not repeat them. It is important that we, as Members of Parliament, try to be true to the manifesto commitments upon which we stood. Certainly during the numerous campaign meetings that I had in my constituency, the transferable tax allowance was discussed, as was the Liberal Democrats’ policy of increasing the personal allowance. As a Government, we have invested hugely in increasing the personal allowance, but as yet there has been no move towards a transferable allowance. It is important that we get a signal, either next week or certainly before the next Budget, about such allowances.

The historical situation shows quite clearly that the situation for marriage within the tax system has changed quite dramatically over 40 years. We have gone from a situation in which the marital status of an individual was acknowledged by the tax system to a situation in which we have an individualistic tax system. We cannot complain that we have an individualistic society if we have a tax system that basically says that a stable family life has no value, and that is something that we must deal with. Historically, the figures show that the increase in taxation for a single person from the mid-1960s to 2011 has been very slight, moving from 23% to 25% of tax. Very low-income and high-income families have seen their tax burden fall, while the squeezed middle—one-earner families in particular—are penalised by the tax system, with their tax contribution doubling over a period of 40 years.

The signal being sent out by the tax system has been that stable families, or the old-fashioned 1950s family, as the Deputy Prime Minister described them, are the ones who are being penalised. Effectively, their choice is being penalised by the tax system, whereas every other choice seems to be applauded.

I wonder about the position of our Liberal Democrat colleagues, whom I defend on a regular basis because they have been very good at supporting the Conservative party on important changes on welfare reform and on dealing with the deficit. However, I have been surprised by their response to the issue of recognising marriage within the tax system. Of all parties, the Liberal Democrats look to Europe for a lead in so many areas. They should look at all the other countries in the European Union and ask themselves, “Why do they recognise marriage within the tax system and we do not?” We are alone with only Mexico in the OECD in not recognising marriage within the tax system, and I do wonder, even from the Conservative Benches, whether we should, on this occasion, take a lesson from our European partners. If they can recognise marriage within the tax system, we should try to do the same.

Again, on an international basis, it is the average-income family that is penalised in this country in comparison with other countries, and that is a message that is coming through strongly when we read the newspapers and the letters from constituents who are now seriously complaining about the impact of increased prices in the shops and the increased costs of family life. That frustration is increased by the fact that they also feel they are not being supported by the Government in any way, shape or form. Explanations for that will be given by the Treasury, but it is important to recognise that the pressures being faced by families also reflect the fact that they are not, in their view, being supported in the decisions they have made in trying to provide their families with a stable environment.

We should consider a transferable allowance. As for the costs involved, I recognise the fact that even a small contribution towards making a change would be comparatively low cost compared with the cost of increasing the personal allowance. I have supported an increase in the personal allowance, but some of the analysis that has been made of the costs involved indicates that a lot of the benefits being derived from that increase have actually gone towards those in the higher percentages of the income distribution scale. Those in the top half of the income distribution scale have benefited pro rata to a higher extent from the increase in the personal allowance than those in the lower part. Interestingly, the research being done by organisations such as CARE shows quite clearly that if we target a transferable allowance, most of the benefits would go to those in the bottom half of the income distribution scale, which is something that we should take into account. As my hon. Friend the Member for Congleton (Fiona Bruce) stated, this is a social justice issue; it is trying to ensure that if the Government are supporting people within society, then that support should be targeted at those most in need.

CARE has highlighted one big problem with our tax system, which is that we seem to view individuals in relation to their income without taking into account the costs that they face, which come from their responsibilities —whether they have dependants and whether they are a single-earner families. Again, while a transferable allowance would be a small step, it would show quite clearly that the Government value some of the choices that people make in society to ensure that their children have the best start in life. Certainly, there is some merit in the comments made by my hon. Friend the Member for Peterborough about targeting a transferable allowance initially at those with children under the age of three or those with children under the age of six. In that way, we could perhaps start the process of having a transferable tax allowance once again.

As I said, the case that has been made today is very strong. There is certainly agreement within Westminster Hall this morning that marriage is an institution that we value and that we, as a society, should put a premium on. That is in no way a condemnation of any other choice that people make, but the tax system that we have at this point in time is actually stating that it places less value on marriage than it does on other options. That is the key point. We are not asking here for marriage to have a special status; we are simply asking for marriage to be treated in a way that is appropriate and in keeping with the way that the tax system treats other options. That would send a very strong signal to society and to our constituents.

I will close by saying that I fully endorse the comments made by all the speakers so far, and I look forward to hearing the comments of the Treasury Minister.

--- Later in debate ---

[Catherine McKinnell]

What is rather counter-intuitive about the arguments being put forward today is that this tax incentive, small though it is, would be targeted at the very families that are not in dire straits. Members seem to be turning their backs on children in families that are facing the difficulties they have described. Unmarried couples, including those with children, have lost out on tax credits—many have had their tax credits cut because they cannot find more hours of work—or have been hit with housing benefit cuts, but they will not benefit from these changes. If a marriage ends for circumstances entirely out of somebody’s control, or if they are widowed or have to flee the marriage because of violence, they will lose the proposed benefit, but it could still be available to the perpetrator of the domestic violence, who could get married again. Nor would this benefit be available to married couples where both partners are working, unemployed or low earners.

Hon. Members have mentioned analysis by the Institute for Fiscal Studies, but that analysis shows that this benefit will be available to only 32% of married couples. This policy is meant to recognise marriage in the tax system and to send an important signal that we value couples and the commitment people make when they are married. Do Members believe that only 32% of marriages should be valued, while the other 68% are of less value and less worthy?

[Guto Bebb]

Will the hon. Lady give way?

[Catherine McKinnell]

Unfortunately, I do not have much time. I appreciate this is an important subject, and I would like to give Members more time, but I want to finish my comments.

I strongly disagree with the hon. Member for Enfield, Southgate, who attempted to dismiss out of hand any notion that this policy recognises not marriage in general but just one type of marriage, where one partner is the breadwinner and the other stays at home. He dismissed the Deputy Prime Minister’s comments that such things are a throwback to the Edwardian era, but that is a sincere concern for many people.

I appreciate the comments of the hon. Member for Strangford (Jim Shannon) and the sincere manner in which he made them, but I disagree with him. Designing the system in a way that penalises all couples and families that do not fit in with one specific model, regardless of need, sends out a strong signal—intentionally, it would seem—that one type of family is worth more than another and that one type of parent is worth less than another. That is a very dangerous signal to send to children. It is unfair and out of touch, and is not the best way to support families in the tough times of 2012.