Finance Bill

Lord Browne of Belmont Excerpts

Monday 16th July 2012 Lords Chamber

[Lord Browne of Belmont]

My Lords, I spoke in this debate last year to express my concern that, despite numerous statements by the Prime Minister before and since the general election about the importance of recognising marriage in the tax system, nothing has happened. It is a great sadness to me that, one year on, that is still the case.

Let us be very clear: the commitment to recognise marriage was in the Conservative manifesto and made it into the coalition agreement, so it is not a policy that has been dropped because of the coalition. The Liberal Democrats have formally been given the right to abstain and, in embracing the coalition agreement, have consented to this. This should ensure a majority adequate to secure the passage of the measure, given that not only Conservative Members of another place will vote for the proposal. There is therefore no reason why the Government should not action their commitment and every reason why they must.

Of course I understand that the coalition agreement pertains to the period 2010-15, so I am not suggesting that the Government have reneged on their commitment. What I am saying is that, given the importance of this commitment, it is a great shame that it has not been given greater priority. Moreover, because of developments since 2010 and the time that it will take to introduce a transferable allowance, I consider that it is now imperative that the introduction of the allowance be made a top priority for 2013.

UK residents find themselves in a relatively unusual position. Only 20.9% of people living in OECD member states are subject to individual taxation without spousal allowances or credits. Most of these live in just two countries—the United Kingdom and Mexico. Among highly developed large economies, the UK is alone in operating a tax system that ignores spousal obligations.

Given that we fail to recognise marriage in the tax system, it is hardly surprising that many married couples in the UK are treated less well than they would be in other developed countries, on average. When the commitment to recognise marriage in the tax system through a transferable allowance was made in 2010, the latest available figures demonstrated that the tax burden on a one-earner married couple with two children and on average wage was 33% greater than the OECD average. Consequently, UK residents faced a greater disincentive to marriage than did most people living in the developed OECD world.

That is of importance for two reasons. The first is child development. The social science evidence is very clear: marriage provides a much more stable environment for child development than cohabitation, so there is no public policy merit in making it harder for people to marry here than in other developed countries. This is hugely important, because the evidence also shows clearly that children raised in stable two-parent homes do much better on average, according to every relevant benchmark, than children raised in single-parent homes. I do not say this to criticise in any way single parents, who for the most part do an excellent job in what sometimes are extremely difficult circumstances, and I believe that they deserve our full support. Rather, I say it because we need to ensure that public policy does not make it more difficult for couples who want to marry to do so in the UK than in other developed OECD countries. If we do not make this change, “broken Britain” should come as no surprise to us.

The second reason is choice. In approaching choice, I am aware that some people find the idea that fiscal policy has anything to do with marriage ridiculous. They assert that people get married for love and they give the impression that any reference to fiscal consideration in the context of marriage is somehow crass and insensitive. These people, who usually in my experience are very well off, make the basic mistake of confusing two different decisions. As I said in last year’s debate, of course people do not fall in love for fiscal reasons. However, when they fall in love and decide that they want to be together, they face a choice: do they marry or cohabit? It is in making that decision that fiscal considerations are very real, particularly if you are on a low to modest income. Statistics demonstrate that 90% of young people aspire to marry, so why then is the marriage rate at an all-time low and the cohabitation rate at an all-time high? Clearly, people have not stopped falling in love and deciding that they want to be together.

I do not want to suggest for a minute that increasing cohabitation is just, or even primarily, the result of fiscal policy—undoubtedly there are other significant cultural factors—but I suggest that fiscal policy is a contributory factor for the evident disconnect between the aspiration to marry and the level of marriages. The fact is that people in the UK fall in love and decide that they want to be together in a context where the option of marrying is more difficult than it is for most people living in the developed OECD world.

Bringing ourselves into line with international best practice and recognising marriage in the tax system will help to make it no more difficult for those who aspire to marry in the UK to do so than is the case for most OECD residents. Moreover, I contend that the case for recognising marriage in the tax system is even stronger today than it was in 2010. Analysis of the latest OECD figures carried out by CARE and presented in Taxation of Families 2010/11 reveals that a one-earner married couple with two children and an average wage now face a tax burden that is 52% greater than the OECD average, a significant increase on the 33% figure for 2010.

This deeply disturbing deterioration impels us to delay no longer the introduction of the transferable allowance. The Prime Minister, who has talked so much about supporting marriage, cannot allow a situation to develop in which the tax disincentives to marriage increase significantly under his premiership. He must ensure that, at least in terms of fiscal policy, it is no more difficult for couples to marry in the UK than it is across the OECD on average.

Before I conclude, I wish to touch on the extremely important subject of Her Majesty’s Revenue and Customs and the IT changes that will need to be implemented in order for the transferable allowance to be given effect. It has been suggested that it could take a year or more for HMRC to make the necessary changes. In the light of this, there are five key questions for the Minister.

First, has the Treasury asked HMRC to assess how long it will take to make the requisite IT changes to introduce the transferable allowance? Secondly, if the answer to the above question is yes, how long did HMRC estimate and, if the answer is no, will the Minister urgently ask them to make an estimate? Thirdly, has the Treasury instructed HMRC to start making the necessary IT changes to facilitate the introduction of the transferable allowance? Fourthly, if the answer to the third question is no, will he urgently ask HMRC to begin making the necessary IT changes? Fifthly, when do the Government intend to bring forward legislation to formally introduce the transferable allowance?

I look forward to the Minister’s reply. If he does not have all the information to hand today, I would be most grateful if he would write to me and place a copy of the letter in the House of Lords Library.