Tuesday, January 05, 2010

Mr Cameron, have you forgotten 1993 so easily?

I am somewhat surprised by Dave's faux pas over proposals to reintroduce the Married Couple's Allowance. However, ever wanting to be helpful, I thought that I should provide a refresher course on taxation for him.

Our story starts in the late 1980's, when I was a fresh-faced young Tax Officer (Higher Grade). It had come as something of a surprise to realise that, for tax purposes at least, married women were considered to be chattels of their husbands, and that their income was aggregated with that of their husbands when calculating the liability to tax. Ironically, the tax system seemed designed to discourage marriage. The introduction of independent taxation swept away all of this though, and credit should go to a Conservative administration which passed the legislation.

Unfortunately, by 1993, the economy was in a slump, and money was needed fast. The then Chancellor, Norman Lamont, and his Special Advisor, one David Cameron, hit upon the wizard wheeze of altering the Married Couple's Allowance to restrict it to 20% with effect from 5 April 1994. This increased the tax take from higher rate taxpayers and could fairly be described as a measure which increased tax fairness.

However, the Conservatives didn't stop there. Kenneth Clarke, who had inherited the poisoned chalice from Lamont, further reduced the value of the Married Couple's Allowance to 15% from 5 April 1995. It did impact equally on everyone and effectively increased tax bills by around £75 per couple.

By 1999/2000, the relief was down to 10%, making it increasingly marginal in value relative to the costs of administering it and, given Labour's emphasis on providing targeted support through tax credits, it should have come as no surprise when Gordon Brown abolished it altogether for under-65's the following year.

It is clear that the conversion of the Conservative Party to a position favouring tax allowances for married couples is a recent one. After all, if one of the key figures behind its abolition is now taking a contrary stance, you have to wonder about their sincerity.

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