TAX TREATMENT OF MOBILITY ALLOW ANCE PAID TO WIFE (Hansard, 14 July 1977)

§ Mr. Newton
I beg to move, That the clause be read a Second time.

§ Mr. Deputy Speaker (Mr. Bryant God-man Irvine)
With this we may discuss Amendment No. 16, in Clause 22, page 14, line 14, at end insert—

§ Mr. Newton
The clause was debated in Standing Committee and the vote upon it resulted in a tie, after another amendment on the same point had been negatived without a vote, and the Financial Secretary undertook then to look at the point. We hope to discover tonight that he has done so to good and favourable effect.
I hope that the Minister will forgive me if I say that there seemed to be a little confusion in Standing Committee about precisely what we were seeking to do. At times the argument seemed to get confused with the taxability of mobility allowance, or whether it should be regarded as investment income or earned income. Taxability is not, of course, at issue on the clause, though it is a controversy in other ways. We all agree, however, that it should be treated as earned income rather than investment income.
954 The point of the clause is simply: whose earned income should it be regarded as in the case of a married woman?
At present, as I think the House will know, where a mobility allowance is paidv to a married woman, it is income treated as the husband's earned income, and the wife's earned income relief is not available to set against it. A comparison can, therefore, be made between a wife who goes to work and can earn up to£860 a year without paying tax, and a disabled wife who receives, or may receive, a mobility allowance significantly less than£860 but who will then find that that allowance is taxed at her husband's top marginal rate.
I believe—and I think that the hon. Member for Islington. South and Finsbury (Mr. Cunningham) agrees with me—that this is wrong. The clause seeks to change it.
I emphasise that I an not arguing that all social benefits paid in respect of a wife, just because they are treated as taxable earned income, should be allowed to be set against the wife's earned income relief. There is a clear distinction which can be applied, which is whether they are paid by virtue of the husband's contributions or whether they are paid to the woman in her own right. If they are paid on the husband's contributions, I think it is probably reasonable that the wife's earned income relief should not be available.
That position might alter if we were to make a complete change in our tax system and the way in which we tax married couples. Some suggest that they should be treated completely separately, but that is not the position at present. On the present position, I think it is reasonable that where the allowance is paid on the 955 husband's contributions it should be taxable, as it were, on the husband's income, but where it is paid on the wife's own contributions or where it is a non-contributory benefit—that is, where contributions have nothing to do with the matter —it should be regarded as the wife's income in every sense, and the wife's own earned income tax allowance should apply just as much as if she had earned the money at work.
This is already recognised in the case of a retirement pension paid on the wife's own contributions, which can be set against her own earned income relief. It seems to me that one should follow through that logic to the non-contributory mobility allowance.
In my view, the justice of the matter is absolutely straightforward, and I hope that the Minister will recognise it by accepting the new clause.

§ Mr. George Cunningham
I do not think that there is any need at this time of night again to go over the ground that we went over in Standing Committee. The hon. Member for Braintree (Mr. Newton) has set out the position exactly as I would wish to set it out.
My right hon. Friend the Financial Secretary undertook in Standing Committee to have consultation about the proposal that the hon. Gentleman and I made there. He had that consultation, and I am most grateful for the discussion that we have had. I think that he was satisfied that there is, to put it at the lowest, no breach of normal tax principles involved in doing what is proposed here. Perhaps indeed, as I certainly believe, consistency in the application of those tax principles requires that we should do what is proposed in the clause and my amendment, which have precisely the same effect.
I hope and expect, therefore, that my right hon. Friend will now be happy to advise the House to accept the proposal.

§ Mr. David Price
support everything that my hon. Friend the Member for Braintree (Mr. Newton) and the hon. Member for Islington, South and Finsbury (Mr. Cunningham) have said. As in all tax principles, the greater subsumes the lesser. I was net privy to the dis- 956 cussions on the mobility allowance and this one aspect of it in Standing Committee, but I can now make one point that was not made then.
I declare an interest in the matter of the mobility allowance paid to a wife. As the House knows, my wife is a beneficiary of mobility allowance.
There is a reason why I think we must look at the question again, and not only in respect of married women. It is that benefit in kind is taxable, which is a normal principle of the tax laws in this country, but until we moved from hardware mobility support for the disabled to support in cash such support was never taxable. Those who received trikes and four-wheeled vehicles were never taxed on them as benefit in kind, as they technically could have been.
I think it right that we have moved from assistance in the form of hardware to cash assistance, and I have always congratulated the Government on this, as it gives greater freedom. But I do not believe that it is a change of kind that should involve a difference in the tax system. Therefore, I see the clause as dealing merely with one aspect of the greater problem.
I understand that my hon. Friend's clause is not entirely objectionable to the Government, but I hope that they will reflect on the point I am making, that there has been a change of tax treatment although there has been no change in the reality, the substance, of what is being done. I am sure that the Under-Secretary of State for Health and Social Security with special responsibility for the disabled, whom I am glad to see here tonight, will agree that what the Government have done is to try to extend the parameters of public help for mobility for the disabled, but in essence that help is the same. Therefore, I cannot see why it should have a different tax treatment.
I am sure that the Government will accept my point that if we should tax benefit in kind, mobility for the disabled is not an area in which to do it.

§ Mr. Robert Sheldon
The hon. Member for Braintree (Mr. Newton) pointed out that the taxation of the mobility allowance was not at issue here, and I agree. There are many problems in that regard, which we have discussed in Committee and elsewhere.
957 The clause and the amendment seek to allow the wife's earned income allowance to be set against the mobility allowance. My hon. Friend the Member for Islington, South and Finsbury (Mr. Cunningham) put the point very cogently in Committee. The hon. Member for Braintree says that if the benefit is not given by virtue of the husband's contribution it is right that the wife's earned income relief should be available. I think that that is absolutely right, and it is the principle that we must abide by. I am pleased to have the support of the House on that.
As my hon. Friend said, there is no breach of the tax principle in the amendment, and I am happy to accept the points made by him and the hon. Gentleman. I prefer the wording of the amendment, which will go some way to meeting the particular problems of those concerned, and suggest that the House accepts it.

§ Mr. Newton
I do not mind whether it is the clause or the amendment so long as the principle is accepted. I am very grateful to the Financial Secretary. I beg to ask leave to withdraw the motion.