The real issue for married taxpayers

The promise of large-scale tax reductions has not, understandably, been a major feature of the election campaign, but the Conservatives do seem to have created some controversy with a proposal which would confer a very modest benefit of about £3 per week on some married couples and civil partners. Does the proposal give a message of support for the traditional family? Or is it an insult to one-parent families?

Actually both questions miss the point. The real taxation anomaly is nothing to do with marriage or civil partnership: it’s about the taxation of household income. Let us explain. For many purposes, including tax credits and virtually all state benefits, the law looks not at the income of an individual but at the income of the household, regardless of whether the individuals in it are married, in civil partnership or co-habiting. But, anomalously, this rule does not apply when it comes to assessing tax: for tax purposes it’s every man (or woman) for himself.

The result is that two couples with the same level of household income can find themselves with very different tax bills according to whether they happen to be one- or two-earner households. For example, a two-earner household where each partner earns around the national average of £24,000 has household income after tax of around £37,000. An otherwise identical household with the same income but all earned by a single earner (perhaps a wife whose husband stays at home to look after young children) is some £2,300 worse off. In the context of that level of tax discrimination against one-earner couples, it seems astounding that a proposal to give a tax benefit of £150 (which would still leave over £2,000 of the two-earner advantage still in place) should bring forth such shrill objections.

What is yet more curious is the fact that this discrimination generally bears more heavily on wage slaves than on those who have investment income. Where income arises from investments it is often relatively easy to procure that household income is split evenly between a couple so as to get the “two-earner bonus”; it is where the household earnings arise wholly from employment that the one-earner penalty hits home hardest. And when such one-earner households realise that their taxes fund subsidised child-care for precisely those two-earner households which already enjoy lower tax bills one can, perhaps, understand their puzzlement at the furore over the proposed £3 per week...

David Whiscombe
Director, BKL Tax
Member, UK200Group Tax Panel