Five problems with the Tories' married couple's tax allowance

Including, only a third of married couples will actually gain, it discriminates against single parents and it reduces work incentives.

With Tory MPs continuing to agitate for the introduction of a married couple's tax allowance, Treasury minister David Gauke has written a letter to backbenchers reassuring them that the government "will legislate for this in this Parliament". 

The policy, as outlined in the 2010 Conservative manifesto, would allow individuals not using all of their personal tax allowance (because their income is less than the current threshold of £9,440) to transfer up to £750 of this unused allowance to their spouse or civil partner, reducing the latter's tax bill by up to £150. It would apply only to couples where the higher-income member is a basic rate taxpayer, with gains tapered away from higher earners. The proposal was included in the Tory manifesto and the coalition agreement provided the Lib Dems with the right to abstain, so Tory MPs are understandably angered by the government's tardiness. But as I show below, there are at least five good reasons why George Osborne (one of the most socially liberal MPs) shows every sign of wanting to abandon it. 

1. Only a third of married couples will​ benefit 

Despite the broad promise to "recognise marriage" in the tax system, most married couples won't gain from it. In 2010, the IFS estimated that just four million out of 12.3 million married couples would benefit (at a cost of £550m), including only 2.5 million of the 8.7 million married couples with someone in work. The remaining 1.5 million gainers are mostly married pensioners. As the IFS noted, "The policy is not, therefore, a general recognition of marriage in the tax system, as it affects only 32% of married couples and 29% of non-pensioner married couples." 

The policy could, of course, be redesigned so that all or most married couples benefit but this, not least for the fiscally conservative Osborne, would be prohibitively expensive. 

2. It discriminates against single parents, widows and widowers and more

In his recent GQ article, Andy Coulson described the perception that David Cameron does not like single parents as "electoral halitosis", but this policy unambiguously discriminates against them. Among those who also don't gain from the policy, as Don't Judge My Family notes, are widows and widowers, people who leave abusive relationships and working couples (discussed below). Is Osborne comfortable with tilting the tax system against them? In addition, if, as previously suggested, those in civil partnerships benefit from the measure, it will become even harder for the government to argue against introducing them for heterosexual couples (a policy that, unlike equal marriage, really would undermine marriage). 

3. It will reduce work incentives

Through policies such as reserving childcare support for dual-earner couples, Osborne has sought to increase work incentives, but this measure will reduce them. Since only those couples with one earner with an income above the personal allowance will benefit, it will encourage actual or potential second earners to stay at home. 

4. There's no evidence that marriage improves child outcomes

One of the main justifications for the policy is that marriage is beneficial for children. As Iain Duncan Smith has argued, "You cannot mend Britain’s broken society unless you support and value the institution which is at the heart of a stable society". But while children born to married couples have better developmental outcomes than those born to cohabiting couples, there's no evidence that this is due to marriage itself. Instead, as the IFS and others have argued, it is more likely due to the fact that better educated and higher-earning couples are more likely to get married. The right has confused correlation and cause. 

5. It will further complicate the tax system

Osborne has made much of his commitment to simplifying the tax system, but this proposal will create a new layer of complexity. To summarise, it will introduce a transferable allowance restricted to a third of married couples, capped at £750 and tapered away from higher-rate taxpayers. As the IFS points out, "Simpler ways to provide support to low- to middle income married couples would include introducing a married couples’ ‘premium’ into working tax credit and pension credit." 

David Cameron speaks with scientists before opening the Li Ka Shing Centre for Health Information and Discovery at Oxford University on May 3, 2013. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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