Transferable Tax Allowances

David Gauke Excerpts

Wednesday 28th November 2012 Westminster Hall

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a pleasure to serve under your chairmanship, Mr Turner.

I congratulate my hon. Friend the Member for Peterborough (Mr Jackson) on securing the debate, on making such a forceful, passionate and well-informed speech and on ensuring that there would be significant participation—at least among my hon. Friends. I congratulate all those who made speeches: the hon. Member for Strangford (Jim Shannon), and my hon. Friends the Members for Congleton (Fiona Bruce), for South West Bedfordshire (Andrew Selous), for Aberconwy (Guto Bebb) and for Enfield, Southgate (Mr Burrowes).

The debate has demonstrated the degree to which members of my party value commitment and how important we believe the institution of marriage to be to society. That point came across clearly, and, as has been pointed out on several occasions, the Conservative party said, in our 2010 manifesto, that we would recognise marriage and civil partnerships through the tax system. We want to send a clear message that marriage is important and commitment is valued, and that we want to encourage and support hard-working families.

In the past two and a half years, the Government have taken a lot of action to help hard-pressed families in difficult economic times, and I want to say a word or two about some of the steps we have taken before returning to the specific issue of marriage. The Chancellor has said, in his principles for good taxation, that our tax system should be fair, rewarding work and supporting aspiration, and that it should ask most from those who can most afford it. In the context that the Government inherited a difficult financial position in 2010, we have taken steps to bring Britain’s tax system into line with those principles. First and foremost, we chose to focus on tackling the deficit and promoting growth. Among other things, we have focused our efforts on reforms that are intended to ensure that work pays—that point was raised by several hon. Members—including through the introduction of universal credit and our successive increases in the personal allowance.

Given the current economic climate, it is more important than ever that we recognise the wide variety of pressures faced by working families, and we have taken action to help them. For a start, our policy on the personal allowance has helped low and middle earners by improving rewards for work and putting money in their pockets. We have said that raising the personal allowance to £10,000 is our priority for the income tax system, and we stand by that. In the June 2010 Budget, we announced a £1,000 increase in the personal allowance for those aged under 65. We talked about making real-terms steps through the rest of the Parliament to achieve our goal, and those were not idle words, because a further increase of £630 followed at the 2011 Budget. This time, the benefits were passed on to higher rate taxpayers, which meant that there was a real-terms increase of £42 for every taxpayer earning up to £115,970. We promised that we would raise the personal allowance by at least the equivalent of the retail prices index until our objective of £10,000 was reached, but both those increases were significantly above inflation, thus making a real-terms difference to hard-working people.

Those two announcements have taken the personal tax allowance from £6,475 in 2010-11 to £8,105 in 2012-13, and basic rate taxpayers have gained £210 a year in real terms. In the 2012 Budget, we went further and announced an increase of £1,100 from April 2013. That is both the largest real-terms increase in the past 30 years and the largest ever cash increase in the personal allowance. The increase will take the allowance to £9,205 from April 2013, which will provide a real-terms gain of £170 for most basic rate taxpayers in 2013-14. The £10,000 goal is now within touching distance.

Other policies, such as on cutting fuel duty, on council tax, and on keeping interest rates low, have of course helped hard-pressed families. We have provided extra funding to support family support services. The Department for Education set up a relationship support division worth £30 million over four years, which will encourage stability—the very thing that several hon. Members have raised in the debate—and provide support for couples who are experiencing difficulty in their relationship. We hope that that will help some couples to stay together, and that when that is not possible, for whatever reason, it will lessen the impact that the breakdown of parents’ relationships can have on children.

We have touched during the debate on child care. The Government have taken steps to help families with three and four-year-olds by increasing the child care support that they get in a week, as well as to extend support to 260,000 disadvantaged two-year-olds. Indeed, we are looking at what we can do to improve the affordability and accessibility of quality child care.

Universal credit has been touched on in the debate. We are reforming the benefit system to ensure that work pays. Entitlement to universal credit will be based on household income and a single payment will be made to the whole household. That will support family budgeting and ensure that there is no penalty for families, whether one parent chooses to stay at home or both choose to work. Families will be able to keep their benefits for longer before withdrawal at a single rate, which is a much needed improvement on the current system of multiple earnings disregards, as multiple withdrawal rates can leave families confused and trapped out of work.

[Mr Stewart Jackson]

Will the Minister disabuse the Opposition of the notion that the policy is about giving married couples an unfair tax break? It is about nudge behaviour, so that they can make a proper choice between cohabitation and marriage, which is a different thing.

[Mr Gauke]

My hon. Friend was right to point out that the previous Government recognised marriage in the context of inheritance tax, which is generally applicable to wealthier households, yet seemed resistant to any recognition of marriage in the tax and benefits system that would help poorer households.

Marriage and civil partnerships are about commitment and stability. They represent a firm promise to stick to something and keep working at it. We want to rectify the way our tax and benefits system relates to that. Studies have shown that married couples are less likely to split up than cohabiting couples, and stability is vital to children. An unstable home life can have a detrimental effect on their happiness and development, and that has been shown by numerous studies, some of which have been quoted today. A recent example is the “Understanding Society” survey by the Institute for Social and Economic Research, which found that parents’ happiness in their relationships had a quantifiable effect on the happiness and well-being of their children. Family is one of the most important influences on a child’s development. The family is where one learns a sense of responsibility. It is where people learn how to behave and how to treat others, and about the things that are important in life.

We are committed to finding ways to support marriage in the tax and benefits system. My hon. Friends will be aware that at the general election we set out a policy of allowing married couples and civil partners to transfer up to £750 of unused tax-free personal allowance when the recipient is a basic rate taxpayer. There is, as we have heard, a reference to that in the coalition agreement, with a statement that the Liberal Democrats can abstain on transferable allowances. None the less, the Government—from the Prime Minister downwards—have made it clear that we remain committed to recognising marriage in the tax and benefits system. I reassure hon. Members that considerable work has been done to examine ways of doing that, and we have heard various ideas about where we should focus our attention during the debate.

During difficult economic times, we want to provide real, tangible support to families. We remain committed to recognising marriage in the tax and benefits system, the case for which was powerfully made by several of my hon. Friends. Our policies have helped hard-working families. It is true that we are prioritising increasing the personal allowance, which increases the rewards for work for those on low and middle incomes, but we remain committed in the way that I have set out.