Tories Re-Propose UK Marriage Tax Breaks

by Robert Lee, Tax-News.com, London

07 October 2010

UK Prime Minister David Cameron has put tax breaks for married couples back on the coalition government's near-term agenda as he and Chancellor George Osborne deflect criticism of recently announced plans to cut child benefit payments for middle-class taxpayers.

Cameron told the BBC on Tuesday that he has "always supported the idea of supporting marriage through the tax system, specifically supporting the idea of a transferable tax allowance," and suggested that new measures would be introduced in the current parliament, which runs until 2015.

Cameron's comments are surprising given that the marriage tax break appeared to have been effectively shelved due to opposition from coalition partners the Liberal Democrats. However, it has been suggested that the idea has been resurrected to pacify growing anger over plans to restrict child benefit payments.

In his keynote speech to the Conservative Party conference earlier this week, Chancellor George Osborne announced that child benefit payments would be withdrawn from higher rate taxpayers (currently, the 40% higher rate income tax kicks in on income above GBP37,401 per year) from 2013, a move that would save the state GBP1bn annually. He said that there are currently 1.2 million households where higher rate tax is applied which qualify for child benefit, and that the 6.6 million households with no higher rate taxpayers who receive the benefit will remain unaffected by the change.

The proposal means that child benefits will be taken away when one household partner earns more than GBP42,000 per year and critics, including some from within Osborne's own party, have complained that this will unfairly hit stay-at-home mothers, especially as households where both parents are earning just under the threshold will still be entitled to child benefits.

Clearly these plans still need fine tuning, but it is probably inescapable that the government will have to introduce some form of tapering mechanism to smooth the phasing out of child benefit entitlement and make the system somewhat fairer, although this would undoubtedly make it more complex at a time when the government is attempting to simplify the welfare system. The possibility of 'means testing' the benefit for higher rate taxpayers is also an option, but Cameron himself admitted that such a system is "incredibly bureaucratic and expensive and, frankly, quite intrusive".

Cameron and the Tory top brass have denied that the resurfacing of the marriage tax break on the government agenda is designed to soften the blow of child benefit cuts, but the original proposals will also need work if taxpayers affected by Osborne's announcement are to be compensated in some way.

According to the Tories' election manifesto, launched in the run up to May's general election, one member of an eligible couple would be able to transfer GBP750 of their tax-free personal allowance to their partner in order to reduce their partner’s income tax bill. This would have given couples a tax break of up to GBP150 per year, but was restricted to basic rate (20%) taxpayers. The independent Institute for Fiscal Studies estimated that this plan would cost about GBP550m in lost revenues.

The proposal, however, was attacked form many quarters for discriminating against single and unmarried taxpayers, and was opposed by the Conservatives' future coalition partners, the Liberal Democrats. While the marriage tax break proposal was included in the eventual coalition agreement, Liberal Democrats will be allowed to abstain against such a measure in parliament should it come up for a vote. Therefore Cameron not only risks alienating middle-income taxpayers with the benefit cuts, but could also unsettle the hitherto harmonious coalition government with the marriage tax break.

Recommended