New Clause.—(INCOME TAX: RELIEF IN RESPECT OF WIFE.) (Hansard, 30 June 1966)

§ Mr. John Lee (Reading)
I beg to move, That the Clause be read a Second time.
I hope to set a record this evening by stating my argument in the shortest possible time, because the Clause deals with a singularly uncontroversial matter. I want merely to draw attention to an anomaly in the law which has existed for a long time. It is an 2289 anomaly that is well known to people who concern themselves with tax law. It is one which should have attracted a great deal of attention and interest on the part of lady Members of Parliament.
From the tax point of view, it is much more advantageous to live in sin, if one is a working person, and if one's male lover is working, than it is to be a married woman and to be employed. This is an extraordinary situation when it is remembered that our society regards marriage as socially desirable. It is a tax situation which most people have deplored for many years.
I do not know what the cost of the new Clause would be. I dare say that my right hon. Friend the Chief Secretary will have something to say upon that aspect. When this matter was examined only a few years ago, it was found that the cost of the change would have been very small. My sole purpose tonight is to draw attention to the anomaly. Even if a concession cannot be granted now, I hope that a concession can be given within a short time so as to put right something which must be the cause of a great deal of offence to many people.

§ Mr. Diamond
My hon. Friend the Member for Reading (Mr. John Lee) certainly moved the Clause with commendable brevity. I want to respond in a similar way and tell him some of the reasons, both in terms of cost and in terms of logic, why the Clause could not be accepted.
My hon. Friend says—we have heard this before—that it is cheaper to live in sin in certain circumstances than it is to live a respectable married life. Fortunately, my responsibility is limited to explaining the Income Tax position, and I would not dream of offering a comment of any kind on any moral issue.
As my hon. Friend no doubt realises, the general expenses of a married couple are not necessarily—let me put it at its minimum—twice those of a single person. This is recognised in the difference between the allowance for a single person of £220 and the allowance for a married person of £340, as opposed to the £440—double the single allowance—proposed by my hon. Friend.
I recognise that my hon. Friend is on solid ground in drawing attention to the fact that the additional amount— 2290 the difference between the married and the single allowance—is perhaps a little on the low side. It is now somewhat less in percentage than it earlier was. Therefore, there is, perhaps, something to be said for an improvement in the married man's allowance, but my hon. Friend is mistaken in believing that this would not be expensive. It would be extremely expensive, as I shall shortly explain, and would for that reason be quite out of the question this year, when I am afraid there is no money to spare, as has been pointed out, for tax reliefs.
8.0 p.m.
My hon. Friend did not go at length into the second part of his proposal dealing with the wife's earned income allowance, but as this is of general interest, I will comment on it. A married woman, if she has an earned income of her own, will receive special earned income allowance, known as the wife's earned income allowance. This amounts to seven-ninths, which is the balance after the two-ninths to which a married couple would, in any event, be entitled. She gets an additional seven-ninths of earned income, with a maximum allowance of £220, which is set off for Income Tax purposes——

§ Mr. Diamond
—but not for Surtax purposes, as the hon. Lady the Member for Finchley (Mrs. Thatcher) was, I am sure, about to remind me.
As my hon. Friend the Member for Reading also no doubt recollects, a special set of reduced rate reliefs is also available against a married woman's earnings. That applies on the first £100, having been given the earned income relief and the wife's earned income allowance. There is a tax at 4s. in the £ on that, while on the next £200 it is at 6s. in the £.
The new Clause would abolish the wife's earned income allowance but leave untouched her right to special reduced rate reliefs. This would give a married woman who is earning the same basic reliefs as those of a single person. The special reliefs for wife's earnings take into account the fact that extra expenditure is involved in keeping the home going when she goes out to work. My hon. Friend's proposal would reduce this 2291 advantage for a family with a working wife over the single woman or widow and it would also greatly reduce the disparity between a family where the wife works and the family where she stays at home.
The cost of my hon. Friend's proposal would be substantial. Since the new Clause is in two parts, I will give the cost in two parts. The proposed increase in the married man's allowance, from £340 to £440, would cost the Exchequer £320 million in 1966–67 and £400 million in a full year. The abolition of the wife's earned income allowance would yield £210 million in 1966–67 and £265 million in a full year. Thus, the net effect of the full Clause would be £110 million in 1966–67 and £135 million in a full year. That is a very substantial cost indeed and the effect of the Clause would be to give appreciable benefits to couples where the wife did not go out to work, the cost of which, in effect, would be offset by extra taxation on all couples where wives earn £220 a year or more, and in some cases where they earn less than that.
Having regard to the fact that, within reason, the tax system wants to take account of the economic situation of the country, and to encourage married women, particularly teachers and so on, to return to work in appropriate circumstances, I think it right that the allowances should be framed as they are. However, my hon. Friend has done a service in drawing this matter to our attention. I am always glad to remind the Committee and the public of the extent to which married women earning income are treated with appropriate (generosity for tax purposes in terms of their allowances.
I am grateful to my hon. Friend for raising the matter, but I am sure that he appreciates, having regard to the cost involved and the arguments I have deployed, that I cannot recommend acceptance of the new Clause.

§ Mrs. Thatcher
The hon. Member for Reading (Mr. John Lee) does not believe in doing things by halves. I can well understand that he wants to give more in benefits in respect of the allowances to wives who stay at home, but I was absolutely appalled to learn that he 2292 would be prepared to withdraw the wife's earned income relief to do it. I know exactly what would happen. Many of the women on whom the nation has spent a great deal of money, in giving them professional training, would no longer find it worthwhile to go out to work.
The hon. Member for Reading was not with us last year when we deployed this argument extensively at a time when married women were put in a slightly worse position by virtue of the previous Budget because if they had young children and had to employ women to look after them, and had to pay the employer's part of the National Insurance stamp, the relief for that part of the stamp was withdrawn. If one adds to that the effect of this year's Budget, under which some married women must pay an extra 12s. 6d. in Selective Employment Tax, for which they cannot get tax relief—then if one took another swipe at them by withdrawing the £120 personal earned income relief, the hon. Member for Reading would find that he would be very short indeed of teachers, nurses and many married women who go out to work but for whom the incentives are not over great at present.
Like the Chief Secretary, I recognise that this is not a year in which to give extensive tax reliefs. But, equally, it is not a year in which to withdraw the reliefs which have already been given. In the Budget this year the Treasury, through its S.E.T. proposal, has already had a crack at married women who go out to work. Let us not do anything worse by withdrawing the earned income relief. When I looked at the new Clause I thought that it was a typical bit of Socialism, for it would give something with one hand and take more away with the other. For that reason, I could not support it.

§ Mr. John Lee
I am grateful for the courteous and comprehensive explanation given by my right hon. Friend the Chief Secretary and also for the comments, though they were slightly more controversial, of the hon. Member for Finchley (Mrs. Thatcher).
Although not entirely satisfied, I understand the difficulty and beg to ask leave to withdraw the Motion.