ABOLITION OF AGGREGATION OF INCOME

HC Deb 09 May 1988 vol 133 cc84-114

Mr. Norman Lamont

I beg to move, That the clause stand part of the Bill.

It may be for the convenience of the House if I deal with clause 98 at the same time.

It must be rare for so short a clause as clause 31 to introduce such a fundamental change in the structure of our tax system. The clause repeals the rule deeming a married woman's income to belong to her husband for tax purposes, which has determined the tax treatment for married couples since 1805. The rule has become increasingly anachronistic as the role of married women in society has changed, and it is widely resented by wives who find that it denies them independence and privacy in their financial affairs. Making the husband responsible for tax on the couple's combined income forces the wife to disclose her income to him, including details of any investment that she may have and the amount of her savings income, however small. That situation is simply no longer acceptable.

The correspondence received by the Inland Revenue shows that the present system is unacceptable. One lady recently wrote to an inspector of taxes saying: I trust there will be no objection to your writing to me personally as I am now old enough to reply to my own letters. We have moved a long way from the days when the Inland Revenue never wrote to married women, and things have changed since the day when a tax officer concluded a letter to a husband announcing a meeting about the wife's tax affairs: Please bring this letter and your wife with you. Another lady gave her opinion of the present state of affairs when she received a statement from the Inland Revenue by writing back: I feel that all your letter would have needed was a penny black to add that final touch of Victoriana, don't you agree? Speaking from memory, I believe that another lady wrote as follows: My husband played no part in creating my savings though he is only too willing to spend them. There has been a strong feeling for a long time—reflected in the position taken by the various parties—that the present rule was unsatisfactory.

The rule also imposes a tax penalty on marriage which can result in a married couple paying more tax than two single people in otherwise similar circumstances, just because they are married, and it can discourage a married woman from working if her husband is liable to higher rate tax. At present, a couple share a single basic rate band against their combined incomes and the wife does not have a full personal allowance of her own. Also, the wife's earned income allowance cannot be set against any savings income that she may have, so this is taxed at her husband's rate from the first £1.

The clause sweeps away this unfair and antiquated system and in so doing it recognises married women as taxpayers in their own right for the first time. From April 1990, a husband will no longer be responsible for his wife's tax affairs. They will each be taxed independently and take individual responsibility for returning their own income, when called upon to do so, and for paying their own tax. As a result, married women will be able to have complete privacy in their tax affairs. Tax offices will communicate with them directly about tax matters and all repayments of tax overpaid on their income will be made to them. The present separate assessment provisions will therefore be redundant.

As individual taxpayers, the taxable incomes of husband and wife will be worked out separately. They will each have their own personal allowance, and any other reliefs for which they qualify in their own right, and their own basic rate band. The tax penalty on marriage and the disincentive to work will thus be removed and there will be no need for the present wife's earnings election arrangements. As a result, 1.6 million wives will have less tax to pay on their income than under the present system. Three quarters of them have incomes of less than £5,000 a year, and 700,000 of them are elderly.

The elderly obtain a particular benefit from independent taxation because of the change in the taxation of national insurance pensions which elderly married women receive on the basis of their husband's contributions. These pensions are currently taxed at the husband's rate. Under independent taxation such a pension will be treated as the wife's income, and her personal allowanceage—related if she is 65 or over—will be available to set against it. That is a very significant change for thousands of elderly couples.

Elderly married men also benefit because a pension of this kind, and any other income that their wives may have, will no longer be treated as the husband's income for the purpose of the income limit on age allowance. As a result, 130,000 more elderly married men will qualify for age allowance. More than 90 per cent. of elderly couples who pay tax at present will be better off, and 160,000 will be taken out of tax altogether.

We believe that it is right that husband and wife should enjoy the benefits of independence and privacy which independent taxation will bring, and that the discrimination against marriage inherent in the present system should be abolished. But it would be wrong and unrealistic for the tax system to take no account of marriage. That is why we have provided in clause 32 for a married couple's allowance and retained the rule that transfers of assets between husband and wife are not chargeable either to capital gains tax or to inheritance tax. Our approach throughout has been to treat husband and wife as individuals rather than as a single unit in determining the liabilities on their separate incomes, while continuning to recognise the special nature of their relationship in a legal and social context.

Independent taxation will be introduced in April 1990—the earliest practical date. Hon. Members may recall that other proposals that have come before the House, such as those for transferable allowances, could not be implemented until 1993, so it is a significant advance to be able to implement this reform from April 1990. In the meantime, the Inland Revenue will be preparing for the change by setting up new tax records for married women, making changes to computer systems and training staff in the new procedures. It is all to easy to underestimate what is involved in all that. Taxpayers will need to take no immediate action and most will have to do nothing extra. During 1989, the Revenue will take the initiative in contacting taxpayers when information is needed to help set up the new system and launch it smoothly. Since the change will not take effect until 1990, taxpayers and their advisers will have time to familiarise themselves with the new legislation before it is implemented.

The revenue cost of independent taxation is estimated at £500 million in 1990–91 and £1 billion the following year. The full-year Inland Revenue staff requirement to operate the new system once it is up and running will be of the order of 2,000 to 2,500. Those are substantial costs, but I make no apology for them because we believe that the policy is right in principle arid demands the commitment that we have demonstrated that we are prepared to make. The bulk of the revenue cost arises from treating married women fairly for the first time as independent taxpayers and would arise under any form of independent taxation.

Clause 98 extends the principle of independent taxation to capital gains tax. April 1990 is the earliest possible date for introduction. Because of the aggregation of capital gains and income, it is impossible to bring forward the capital gains tax side by itself, and there might be some criticism from hon. Members if we did. But it is clearly right that, having had independent taxation on income, we should also have an independent allowance on capital gains, and if one accepts the principle of independent taxation for men and women, that principle should apply equally to capital gains tax.

These are far-reaching proposals, and I commend them to the Committee.

8 pm

Mr. Nicholas Brown (Newcastle upon Tyne, East)

I hope that it will be helpful if I say at the outset that the Opposition will not divide the Committee on clause 31, but we shall divide on clause 98.

We do not wish to divide on clause 31 because it sets out the principle, not the detail and, as is fairly well-known, the Labour party is strongly committed to moving towards truly independent taxation. We favour creating a taxation system that treats married women as equals, not as dependants of their husbands. Married women are entitled, if they want it, to privacy in their financial affairs, and the resources that are available for redistribution through the taxation system should be distributed so that the poorest feel the benefit the most and first.

How typical of this Government and this Budget that even on an issue where there is no difference in principle between the two sides of the House, they have managed to ensure that the wealthy will benefit disproportionately from the changes. The Minister said that the proposals will help pensioners. So they will, but they will especially help pensioner couples with an income between them of £21,000.

One quarter of my electorate are over pensionable age, which is not untypical of many metropolitan constituencies. No doubt those who have incomes of £10,600 each will be grateful to the Government, but I did not meet many people with that sort of income during last week's local government election campaign. The 90 per cent. of pensioners will gain little out of the proposal—the poorest 90 per cent.—said what they thought of the Government. Pensioners who I met asked about housing benefit, not about income tax. Even those who stood to gain from income tax cuts were well aware that they could lose 85 per cent. of that in housing benefit reductions.

Disappointingly for the Government, no pensioner said to me on last week's election trail, "Mr. Brown, we have always been Labour but now that we have retired we thought that we would each take our £40,000 business expansion scheme tax relief through the Government's disaggregation proposals, so we feel obliged to vote Conservative." That was not being said on the doorsteps of Tyneside last week. Perhaps popular capitalism has not yet reached the streets of Walker, but it is much more likely that many people elsewhere, as well as in the north-east, do not have the money to take full advantage of the new opportunities. In Walker, that probably applies to Conservative voters, too—all 114 of them.

It is an interesting reflection on the way that the Budget has been received in different parts of the country that in 1974 the Conservative party controlled Newcastle city council. Yet today, out of 78 councillors, the Conservatives have only six and do not have complete control of a single ward. The defeated former councillor who led the Conservative group before the election summed it up thus: "We've been massacred. They voted against the Government." I do not know whether the Minister agrees with that analysis. I see him smiling, but I promise not to take his smile as an endorsement of that view.

The story is similar throughout the north-east. Those who have not benefited from the Budget are making their protests known. The reasons are straightforward. The main beneficiaries of the changes are the wealthy. About £77 million will go to 120,000 couples where the husband earns more than £30,000 per annum. What sort of targeting is that? How can it be fair to start tax reforms with concessions to the rich, leaving the poor?

The proposals are especially advantageous to couples who derive income from investments, because there is scope for transfer of assets, making maximum use of the separate allowance which is worth about £75 a week to non-pensioner couples who are in a position to take advantage of it.

The other principal objection to the Government's proposals is that the changes do not represent truly independent taxation. It does not matter how the Government try to dress up the issue for presentational purposes; the wife's position is still bound up with that of her husband. It is not just a question of nuance. As the Minister made clear, the intention of the proposals is that the married couple's allowance should go automatically to the husband. The wife will have no automatic right to any excess allowance. It will be for the husband to allocate. The transfer applies only if the husband gives written notice to say so. The Opposition will try to amend the Bill to remove that indefensible anomaly.

Interestingly, when the European Communities Select Committee in the other place considered its response to the memorandum from the Commission to the Council of Ministers on income taxation and the treatment of men and women, it concluded that the aim of equal treatment was best served by a system of fully independent taxation. It is not clear whether that is the Government's view, and today's proposals are the first step in that direction, or whether the Government will content themselves with the concessions that have been made to the better-off. The latter seems to be more in line with present Government policy.

Clause 98 provides for separate taxation for husband and wife for capital gains purposes. The important, if obvious, point to make is that one must pay capital gains tax before one can benefit from the changes, and fewer than one in 100 taxpayers pays capital gains tax. I do not wish to trespass on tomorrow's debate, but in the context of disaggregation, it is clear that substantial sums will be gained by married couples who, from 1990, can each use their capital gains tax allowances of £5,000. The Government are not arranging the allowances so that the change is neutral in terms of the public purse. Although the beneficiaries are reasonably wealthy, even from a Conservative point of view, there should be—there would have been in the days of the old Conservative party—a case for neutrality.

As my hon. Friend the Member for Dunfermline, East (Mr. Brown) said in the debate on clause 49, such decisions represent public expenditure that should more properly be focused on the Health Service, public sector housing, the social security system and the issues that matter to the many rather than to the already advantaged few. The Government have followed a twisted and rather shabby road to arrive at their present proposals. Impelled by social changes, outside even this Government's control, the Chancellor produced his famous Green Paper in 1986, cautiously advocating a partially transferable allowance. I have always suspected that the real thinking behind it was that the Government believed that it might reduce unemployment.

As it transpired, the Government made light of their Green Paper proposals in the 1987 general election campaign. They did not make light of the Labour party's proposals. They attacked the Labour party ruthlessly for supporting the principle for which the Minister is now trying to take credit. After the election, the Green Paper was put to one side and we were presented with something different—today's proposals.

The failure to provide a structure that is genuinely independent and the shameless further advantages given to the wealthy few make the proposals unacceptable to the Opposition and to many people, especially women, outside the House.

For those reasons, I urge the Committee to vote not against the principle in clause 31 but against the giveaway in clause 98.

Miss Ann Widdecombe (Maidstone)

It is often said that jewels come in small packages. In this short clause, we have a long-awaited jewel. Despite the comments of the hon. Member for Newcastle upon Tyne, East (Mr. Brown) about women outside the House and how they would view the proposals, women have been waiting for this for a long time and I have heard nothing but praise from outside the House and within it.

This is not just an important financial measure for some couples; it is an important social measure. It is the correction of a social injustice that has been ignored by Governments of all parties for far too long. I congratulate the Government on their courage in, despite the cost, finally putting right the injustice.

Clause 31 gives dignity and independence to a wife. There is no reason why a wife's income should be regarded as her husband's property when it is many years since we have regarded the wife herself as the husband's property. Furthermore, it recognises the role of the married woman as a person in her own right and it is long overdue. However, it is also just for the married man. Why should he be responsible for his wife's taxation and, particularly, for paying tax on his wife's income when that may exceed his own in these happily liberated days?

Mr. Nicholas Brown

I wholly agree with the tenor of the hon. Lady's speech, but why should the husband then be responsible for the allocation of the allowance?

Miss Widdecombe

I do not intend to address clause 32, because I am dealing strictly with clause 31. I have considerable sympathy with what the hon. Gentleman has said and have expressed that sympathy outside the Chamber. However, I am prepared to accept, pending a further consideration of the matter, that, if making that difference will delay the process by several years, I should prefer that we went ahead. However, I join the hon. Gentleman in hoping that this will be just the first step and not the final step and I hope that I have put his mind at rest. I shall keep to clause 31 because we can thrash out clause 32 in Committee. Clause 31 is social justice for both the man and the wife.

The hon. Gentleman made considerable play of the fact that the reforms benefit principally the better off. That may he so, but I need a great deal of convincing that the better-off woman is less entitled to her dignity and independence than the less well-off woman. Although the hon. Gentleman castigated the Government he did not come up with a system that would have allowed independent taxation for everybody and did not benefit the better off.

Mr. Nicholas Brown

I hope that I made it clear that it would have been possible for the Government to adopt a position of fiscal neutrality in dealing with unearned income. I hope that I gave the House the impression that I would have endorsed that approach.

Miss Widdecombe

Unearned income, whether it belongs to the wife or the husband, is still an independent source of income and should be treated in exactly the same way as we are now treating earned income. The hon. Gentleman mentioned targeting, whereby one can introduce independent taxation in such a way that one does not create some benefits for the better-off, while creating substantial benefits for the less well-off. I shall address that point later because it is crucial.

8.15 pm

Ms. Marjorie Mowlam (Redcar)

Will the hon. Lady give way?

Miss Widdecombe

If the hon. Lady wishes to intervene on that point later, I shall be willing to give way to her then.

The elderly will benefit substantially from the measures. It is all very well to say that only the well-off elderly will benefit from the measures, but we are encouraging the elderly to be independent. We want to see our pensioners enjoy a reasonable standard of living. Surely it is not sensible to penalise them merely because they happen to be somewhat better off than other pensioners. If we introduce the measure and make incomes independent, it will benefit people across a wide range of incomes, but the largest benefit will be a social one.

I wish to deal with a benefit that has perhaps not been discussed so much. Let us take the case of a part-time working wife with a high-earning husband. There may be some difference between myself and Opposition Members about what constitutes high earning, but let us assume that the husband will pay a higher rate of tax if he adds on his wife's part-time earnings than he might if he had only his own earnings to take into account.

Under the present system of aggregation, even if the wife is earning only a modest part-time income, when it is aggregated with the husband's salary and taxed from £1 at the higher rate, the value to that couple of the wife's part-time income is severely reduced. In many cases, a husband and wife will conclude that it is simply not worth the wife's time to make the considerable effort to arrange to have the children looked after and to go out to work because the family will enjoy only a tiny proportion of what she receives.

That acts as a social disincentive to the working wife to have some financial independence. She may not wish to go out to work full time, despite the social pressures to do so. She may not wish to stay at home and bring up the family full time. She may want some independence and some income to call her own, yet there is a positive disincentive under the aggregation system. The new measure will benefit a certain type of wife who can work only part time and earn a modest wage and may not be well qualified. Once again, the clause remedies a considerable social injustice.

It is wrong that, as a society committed to the family, we should have tolerated for so long a situation that acts as a disincentive to marriage. However, one can well understand how two people, wishing to start a family, to take on responsibility for the expenses of that family, to provide that family with a home and to give their children the advantages that they want to give them, will say that, for financial reasons, it might be better not to marry. That decision is not taken just by very high earners. It is taken by those earning fairly modestly who reckon that, with an aggregation of incomes, perhaps in a couple of years' time, when their lot has improved, they will suddenly find themselves in the next tax bracket. The new proposal, together with the change in mortgage relief for unmarried couples, has acted as an incentive for marriage and is socially desirable.

The capital gains tax provisions are logical steps to take, but I understand why Opposition Members do not like them. If we are accepting independent taxation and if we are treating a wife's income as completely separate from the income of her husband, with the husband's income being completely separate from his wife's, we must be logical and look beyond the narrow range of earned income. If we do not, we shall create an anomaly whereby a woman is a person in her own right while she is earning but if she has any other income that becomes the property of her husband.

Any system of taxation that separates one set of income from another and allows only partial independence is perpetuating the injustices that women have suffered for the past 180 years and which they would have continued to suffer but for the courage of my right hon. Friends the Chancellor and the Financial Secretary to the Treasury.

On social grounds, never mind the cost to the Treasury, we have before us a long overdue measure. If it offers a financial benefit for the better-off, it benefits also the less well-off. It provides social justice straight across the scale. We have no ethos that states that individuals are less entitled to social justice as a reflection of their circumstances.

Ms. Mowlam

The hon. Lady has talked about those who are financially better-off benefiting as opposed to the less well-off. As my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) said, we must consider tax changes in relation to national insurance contributions and benefit changes. If these factors are taken together, especially the benefit changes that are squeezing people with lower incomes, it is clear that many people are not benefiting. Many are faced with double jeopardy. That is why I disagreed with the hon. Lady's earlier comments.

The hon. Lady has spoken about the needs of women in part-time employment. Will she support my campaign to ask the Chancellor of the Exchequer to consider tax relief for workplace nurseries? If the Government are serious about getting women back to work, it is clear that that would be a positive step forwards.

Miss Widdecombe

The changes in benefit that the Government have introduced in a series of measures are geared to achieve the sort of targeting that the hon. Member for Newcastle upon Tyne, East said was desirable. That is gearing specifically to help those who are the least well off and who are least able to provide for themselves. The benefit changes, taken with the raising of benefit thresholds and the lowering of income tax rates, will certainly help those who are paying only the basic rate of tax. They will help also the many who have been taken out of the tax system. All these measures will benefit the less well off. I think that the Government have it right. I believe that their scale of social justice is right. It applies regardless of income.

Ms. Mowlam

rose—

Miss Widdicombe

I shall respond to the second question raised by the hon. Member for Redcar (Ms. Mowlam) before she asks a third. I would not wish to do her the injustice of forgetting her second question. I regret that I cannot support the hon. Lady's campaign for tax relief on workplace nurseries. At first sight it might appear to be an entirely reasonable request. If an employer is providing a workplace nursery, he is providing a benefit. To grant tax relief on top of that is to introduce a double benefit.

I do not wish to reduce child care by calling it a perk, but it is a benefit provided by an employer. Unlike a company car or a uniform, for example, it is a benefit that is solely for the employee's comfort while at work. Unless an employer cannot recruit without providing that benefit, he is not gaining a benefit. The benefit lies with the employee. I cannot see the justice, social or otherwise, of allowing women who have access to workplace nurseries to have the benefit of tax relief while their companions, their sisters—other women—do not have access to that benefit and have to make their own arrangements through playgroups or whatever.

Although I honour the principle behind the hon. Lady's campaign, I find it inconsistent with justice for all women. It would benefit some disproportionately while being completely out of kilter with the tax system, which provides that tax is paid on a benefit and relief is not gained on it. I cannot support the hon. Lady's argument. Am I right in understanding that she has a third question?

Ms. Mowlam

I did not have a third question. I merely wish to give an example to contradict the first of the hon. Lady's arguments. There are specific examples in my constituency of pensioners who in 1990 will have their income tax reduced and who will lose housing benefit as a result. In the end, they will be worse off. There are concrete examples that contradict the claim that the system will work to the benefit of pensioners and people on benefit. The same will hold for many single parents with children. I can give examples of that at a later stage to prove that the hon. Lady's claims do not match reality.

Secondly, I do not believe that the hon. Lady's argument holds on tax relief in terms of workplace nurseries. Tax relief could be extended to other nursery facilities. My campaign is merely a foot in the door. The reality is that many women who want to work take on low-paid work, including part-time jobs. It is not equal pay for equal value. My proposal would be one way of easing the conditions that now prevail.

Miss Widdecombe

I am grateful to the hon. Lady for her third and fourth questions. I have no doubt that there will be a fifth and a sixth.

The hon. Lady is right when she says that women take on jobs that are low paid and then have difficulty in making the necessary nursery provision. But there are women in low-paid jobs who do not have any sort of nursery provision made available to them. The logic of the hon. Lady's position will soon be that everyone who works must have some provision made for the care of his or her children. I do not want to denigrate those who work and have a child. It is a major part of women's liberation this century that we have come to realise that that is a reasonable thing to do.

However, it is a decision of individual responsibility. The individual must decide. "Am I going to have a family? If I am, am I going to work? If I work, what will be the consequences? If I do not, what will the consequences be?" It is a matter of personal responsibility, and the state cannot pick up the tab for every individual's decision. If we are to encourage independence, independent decision-making and independent financial provision for women, they must have independent responsibility. They should not have a basic issue such as child care dealt with for them.

The hon. Member for Redcar claims that some pensioners will be worse off in 1990. I, too, have received representations on that subject. Pensioners who will be most worse off are those who already have capital assets to the fairly substantial tune of £8,000, or assets in a property in which neither they nor a dependant relative live. In those circumstances it cannot be said that we are hitting the least well-off pensioners. However, we are very much off the point. I do not know what this has to do with clause 31, which is directed to independent taxation for women.

Clause 31 is not merely a financial measure. It is one of the greatest pieces of social justice that we have seen in legislation for the past two decades.

Mr. Beith

The inclusion in the Finance Bill of the proposal for independent taxation for women is to be welcomed and is long overdue. I have criticised the Chancellor of the Exchequer for not taking the opportunities open to him in many areas because of considerable buoyant reveues, but he has taken the opportunity open to him in this area. However, I will argue that he might have acted slightly differently. It is right to place on record that he has done what women for many years believed should have been done.

It is perhaps right to call the proposals for women's taxation "social justice". However, if Conservative Members, like the hon. Member for Maidstone (Miss Widdecombe), claim the term "social justice", they should apply it rather more fully in the rest of the Budget than they have done so far. In almost all other respects, the Budget denies the most basic principles of social justice.

8.30 pm

The present system of the taxation of married couples cannot be defended. Its most obvious fault, which clause 31 will correct, is that it treats a married woman's income as if it were her husband's. It treats her discriminately, as if she were an unequal partner in the marriage. That would be ended by clause 31, and so it should be.

However, other problems arise from the present pratice involving women's taxation. The present married man's allowance is not only by its very title illustrative of a now challenged concept of equal partnership in marriage; it also represents a situation in which allowances go, in very large measure, to those who perhaps need them less than others. Primarily they go to two earner couples who represent less than one quarter of the population, but who receive 43 per cent. of the benefit of the allowances.

The Government's chosen solution has been to preserve the married man's allowance, but to change its name to a married couple's allowance. They have revealed that by the obvious fact that the allowance will still reside with the man until he takes the step voluntarily to transfer it to the woman. The Government have chosen to preserve the married man's allowance under a different name. That has the effect not merely of reducing the independence that should be given to the woman, thereby negating one of the main effects of the clause, but of preserving a form of benefit that is not particularly well targeted.

It is very difficult to argue that there should be a specific allowance for being a married couple. I believe that marriage is an excellent institution. I am strongly in favour of it and I have benefited greatly by being a party to it. However, I do not need specific tax allowances to induce me to join it. Conversely, I do not believe that the tax system should be rigged against marriage as it has been in a number of ways, not least in relation to mortgage tax relief, as the hon. Member for Maidstone explained.

There is little argument in logic or principle for a married man's or a married couple's allowance as such. The alternative solution for independent taxation would have been the ultimate abolition of the married man's allowance—or married couple's allowance, as it is to be known—with transitional protection and having two single non-transferable allowances. That would release resources that could be targeted on those most in need through cash benefit, particularly child benefit for those couples with children whose needs are greater. The Government should have taken that step.

If the Government are suggesting that using transitional provisions to protect the existing beneficiaries and allowing the effects of inflation over the years to complete the change is somehow an inappropriate way of proceeding, I remind them that that is what they are doing with the breadwinner wives. One of the anomalies of the present system is that where the wife earns but the husband does not, the couple receive 2.6 personal allowances—the married man's allowance plus the wife's allowance. However, that is not true the other way round. If the husband earns, but the wife does not, they receive only 1.6 personal allowances. That is illogical and not consistent with independent and equal treatment of married men and women. Clearly, breadwinner wives will lose through the 1990 changes.

Many wives are breadwinners because their husbands are unable to work, unemployed or disabled and there is obviously a case for transitional protection. The Government have granted that by effectively freezing the 2.6 personal allowances in cash terms until what is now the equivalent of that allowance becomes equal to the value of the married couple's allowance. The Government have built in a transitional protection of the kind that I have argued that they could introduce if they chose to abolish the married man's allowance. In other words, they have set a precedent for the procedure which I believe would be a better way to proceed towards independent taxation.

If independent taxation means anything, it must mean independent taxation of investment income as well as what is called earned income. That is one of the reasons why the change is expensive. It means that wealthy couples with considerable assets will be able to rearrange their affairs so as to derive a very considerable benefit. That leads me to ask why the Government have not taken some steps to create a forestalling provision to discourage or prevent people from simply rearranging assets to maximise benefits and transferring benefits between partners to benefit from the position.

The Government's answer is that it would he very complicated to make that provision. That is presumably why the official Opposition have not tabled an amendment to deal with the problem in that way. If it is not dealt with through the measures to prevent the transfer of investments from one partner to another, it appears that Labour Members are arguing about investment income—and certainly in relation to capital gains tax—and that they will have to vote against the whole proposal because of the benefit that it will confer on people who possess considerable assets. That is illogical. It is difficult to accept that, because some people will benefit a great deal, it is wrong to have independent taxation for investment income or capital gains tax.

Mr. Nicholas Brown

I hope that the hon. Gentleman is not implying that that is the official Opposition's view. It is not.

Mr. Beith

I distinguished between investment income and capital gains tax because what I have described appeared not to be the position in relation to investment income but appeared to be the case for capital gains tax and therefore the reason why the official Opposition intend to vote against clause 98 involving the application of the same principle to capital gains tax.

Mr. Brown

I am grateful to the hon. Gentleman for giving way because I do not want there to be any misunderstanding about the official Opposition's attitude. If we are to support the principle of disaggregation, it must apply to earned and unearned income. The point that I made in an intervention earlier is that, were that to apply to unearned income, it should be applied in a fiscally neutral way. If it is done in any other way, it is, in effect, an item of public expenditure. We contend that where money can be put back into tax concessions, it should go to the poorest rather than to those who are significantly wealthier than average citizens.

Mr. Beith

That might be fiscally neutral but it is not neutral for the individuals concerned. It will mean treating parties to a marriage differently because they are married. It is a complete departure from the principle of independent taxation.

I understand why the Labour party wants to make that qualification and I understand the anxiety with which Labour Members viewed the investment income aspect. However, I am not willing to be dragged along that road. I do not accept that the proposals should not be accepted because they cannot be done in a fiscally neutral way. None of this can be achieved on a fiscally neutral basis. We have all accepted that the mere introduction of independent taxation in any form, for earned as well as unearned income, is not fiscally neutral. It costs money. The Chancellor happens to be able to afford to do some of these things in this Budget.

Obviously, Labour Members and Social and Liberal Democrats must judge this measure against others—for example, the way in which the Budget has piled benefits on the wealthy and penalties on those who are considerably disadvantaged. That makes this part of the Bill look particularly heavy and adds to the tilting of the Budget. The fact remains—[Interruption.] The hon. Member for Rhondda (Mr. Rogers) appears to want to make an intervention. I would have given way to him, because he appeared to be saying, sotto voce—although the hon. Gentleman's version of sotto voce would fill the Albert hall—that I was trying to have it both ways, to have the penny and the bun. He was suggesting that I was trying to take a neutral stance. Far from it. That is what the Labour party is trying to do. It is trying to say that it is in favour of independent taxation, but, because it will benefit some people in large measure, it will not apply the principle logically and fully.

Mr. Dafydd Wigley (Caernarfon)

As to the hon. Gentleman's point about whether or not fiscal neutrality could be achieved, in the context of capital gains and the split that we now have proposed of £5,000 each for men and women, surely if that were reduced to £3,000 for each individual, in terms of the likely uptake it would have gone some way to meeting the hon. Gentleman's point. It would also have encouraged men to transfer resources to their wives if they were geared up to using in full their £6,000 relief.

Mr. Beith

That could possibly be considered. I am not sure whether the hon. Gentleman is arguing for a general reduction in the disallowed portion, or again, for a particular discrimination against married people. I do not understand how one can argue that allowances should be less for people simply because they are married.

I do not believe that marriage needs a large tax cushion; but I am against people being discriminated against because they are married and against people being invited to enter into a relationship other than marriage because that it is fiscally advantageous for them to do so. That is contrary to all the principles of independent taxation and public policy—which ought to be supportive of marriage. The Labour party is mistaken if it feels that it has to vote against such principles.

If the introduction of any element of independent taxation was difficult because the revenue to the Government was so small, that might be a different matter, but that is not the situation. The Government could have introduced fully fledged independent taxation by the route that I suggested—targeting more help on people receiving child benefit. I hope and believe that I have the support of Labour Members at least in respect of that issue.

The Government could have done many other things to make the Budget fairer, while still keeping within the revenue and resources available to them. The Opposition should not oppose the logical extension of independent taxation into the area of capital taxation. I shall argue later that there are other ways in which the capital taxation system could do more to distribute capital and achieve greater social justice. However, we should not attempt to do that by denying the principle of independent taxation.

Mr. Andrew Mitchell (Gedling)

I am grateful for this opportunity to take part in the debate on clause 31, although I feel that I am in a sense guilty of tokenism before I even start, surrounded as I am—the only male Member on the Government Back Benches—by Tory ladies. Nevertheless, I shall press on.

The Government's decision to end the system of taxation which has blatantly discriminated against married women must be widely welcomed by almost everyone. Indeed, as a relatively new Member of the House, I am astonished that this testimonial to the values and customs of a by gone age has lasted so long. Perhaps within the House it has increasingly been seen as an intolerable measure, because a larger number of the younger male Members are married to professional women who pursue careers which in the past have more usually been associated with men. Whatever the reason, the Government are to be congratulated, not only on making the necessary reform, but on creating the economic strength and success required to allow such costly reforms to be implemented. It is a reform that will cost about £1 billion.

In preparing for the Committee stage of the Bill I found myself flicking through the Income Tax Act 1918, where-in I noticed that "an incapacitated person" means any infant, married woman, lunatic, idiot or insane person. It is time our tax laws recognised that things have moved on and that the present archaic system has become a fiscal embarrassment.

8.45 pm

Some hon. Members have tonight criticised this reform on the grounds that it grants an extra tax advantage to be enjoyed by all who are married, regardless of their income. I shall deal with that, but even if it were true—which it is not—I would still support the reform. It is right that society should recognise and support the institution of marriage through its financial and fiscal regulations. For far too long the dice have been loaded against those wishing to get married, and in favour of those wanting to cohabit. How often have we heard people getting married declare that they will be much worse off materially as a result, or making it clear that they "cannot afford" to get married? The Budget makes major progress in eradicating this injustice and supporting the structure of marriage itself.

Ms. Mowlam

I am listening carefully to the hon. Gentleman's arguments on marriage and the Bill. Can he explain why, in the Committee on the poll tax Bill, he supported joint and several liability for cohabitees?

Mr. Mitchell

The two are not anomalous, but it would probably he better, Mr. Walker, if I did not try your patience by going down that route and talking about the community charge.

Dame Elaine Kellett-Bowman (Lancaster)

Many of my constituents find it obnoxious that two unmarried people living together can enjoy double mortgage relief, but that a married couple cannot. Does my hon. Friend agree that that is wholly wrong?

Mr. Mitchell

My hon. Friend has made an excellent point in her usual graceful and cogent manner.

Under the new arrangements stemming from this clause, it is not only well-off married couples who will benefit. The Treasury calculates that 75 per cent. of the 1990–91 cost will go to basic rate taxpayers or indeed to those who pay no tax at all. That is an important statistic. In particular, the position of thousands of elderly people will significantly improve. Under the new arrangements, that portion of the state pension which a man receives because he is married will be treated as if it was his wife's income. This will have a wholly welcome effect on the level of tax paid by old folk. According to the Inland Revenue, 900,000 women aged over 65 will benefit, and more than 1.5 million married women of all ages will pay less tax.

It is particularly interesting to note that of those 1.5 million women who will pay less tax, more than 1.2 million earn less than £5,000 per year.

Under the proposals, many elderly married women will, for the first time, have an age-related personal allowance, and 160,000 elderly couples will be taken out of tax entirely. In addition, as I understand the effect of that change, since a wife's income will no longer be added to her husband's for the purpose of applying the income limit for age allowance, approximately 130,000 elderly men on modest incomes will qualify for age allowance under the new system. I shall be grateful for my right hon. Friend's assurance on that point.

I am genuinely astonished that so little public attention has focused on the dramatic effect that this three-line clause will have on so many elderly and less well-off people. Quite apart from its effect on married women, 500,000 husbands will also pay less tax. It is clearly absolutely right also that those who are married and have savings should benefit from the provisions of the clause because of the independent taxation of investment income. If any Opposition Members believe that that will benefit only the rich, they are mistaken. The provision will be of great benefit to elderly people in particular, many of whom will now gain from the change. The system has hitherto penalised very low savings levels.

Because of the effects of Conservative policies of spreading ownership widely throughout society, and in particular of the right-to-buy provisions, we are becoming what one distinguished economic commentator writing in The Independent described as "a nation of inheritors." That is one principal reason, in my view, why it is no longer acceptable to separate taxation of earnings while treating all other income as though it belonged to a husband. Changes in the pattern of ownership and savings over the past few years have made that very clear.

As a result of this clause a number of new things will happen after 1990–91. Husbands and wives will be taxed independently on all their income. Married women will become taxpayers in their own right, giving them the privacy to which they are entitled and which is long overdue. A significant benefit will accrue to elderly married couples in larger personal and married allowances for package payers aged between 65 and 79 or those aged 80 and over. For the first time, elderly married women will qualify for age allowance in their own right.

Finally, the Government have given some modest but important support to the institution of marriage itself. This, too, will be widely welcomed, not only in this Committee, but in the country.

Mr. Wigley

First, let me welcome the change that the Government have made in the marriage allowance. I have written about it to successive Chancellors, Chief Secretaries and other Treasury officials, because I have had the invidious task of doing my wife's accounts for several years. It is bad enough doing the accounts of a professional musician a year or two behind schedule and in Welsh, but doing it in a way that balances her interests and mine in a fair manner is particularly difficult. I am therefore glad to support the change—for all the wrong reasons.

Mr. Morgan

Do not harp on about it.

Mr. Wigley

I assure the hon. Gentleman that I shall not.

I welcome the principle, and many of the details that accompany it. I realise that it is a far-reaching package. I cannot see, however, why the married man's allowance could not have been split 50:50, making it neutral initially, with any opting to be done from that base. The Minister shakes his head, but that would have been a practical starting point, which would have taken away some of the misgivings of those who in other respects welcome the change wholeheartedly, both here and outside the House. Nevertheless, perhaps it can be considered in the future. I also hope that the gamut of allowances will work in a neutral manner—socially neutral as well as neutral in their treatment of husbands and wives—to give us the most acceptable package.

I intervened a moment ago to make a point about capital gains. My point was that the Government are accepting a drop from £6,000 to £5,000, albeit £5,000 for each couple. I should have thought that, unless the drop is to £3,000 or £3,500, an immediate adjustment—as was hinted by the hon. Member for Berwick-upon-Tweed (Mr. Beith)—must be undertaken in people's finances to minimise that. Such an adjustment would be expensive for the Treasury, and the money given away—as Labour Front-Bench spokesman have suggested—could be used for other purposes.

The Government have been open to criticism on other parts of the Budget, and I felt that this move was unnecessary. I welcome the principle, but a limited number of people will benefit from the shared capital gains. Many pensioners have saved capital sums because they have no pension from employment, and for them this is a significant but limited benefit. I do not see why there could not have been a bigger giveaway.

I am not clear on one point, perhaps because I have not read enough of the detail of the Bill. We are told that the husband and wife will be assessed independently and be responsible for their own income tax. Am I to take it that there is to be a complete ending of joint and several liability for the payments? I am thinking particularly of circumstances in which one partner, or both, are self-employed, so that no pay-as-you-earn system is in operation. If one partner is not paying, the other may be taken to court. I should be more than happy to give way if the Minister wishes to intervene on that important point, but perhaps he would prefer to comment later. We must be clear on that matter if we are to have a workable package that is genuinely non-sexist.

We also need provision to ensure that there is no likelihood of a man or woman being charged when he or she may not know the partner's financial position and be landed with the bill. This could be a minefield, and I should be grateful for some clarification.

Miss Emma Nicholson (Torridge and Devon, West)

I welcome clause 31, and I particularly welcome the gradual acceptance of its importance by the Opposition. I noticed, and remarked on it at the time of the Budget, that neither Opposition spokesman—there could conceivably have been an invisible third party as well—even bothered to comment on this extraordinarily large change. That was very upsetting, and I am delighted that Opposition hon. Ladies must have done considerable work between then and now to ensure that today's warm welcome was spontaneous, even if rather late in the day.

Mr. Chris Smith

Clearly, the hon. Lady either was not present in the House or has not read Hansard's account of the Budget debate on the Thursday evening. Speaking from the Opposition Front Bench, I gave a warm welcome to the principle of independent taxation, and spent a considerable time dealing in detail with the Government's proposals.

Miss Nicholson

I take the hon. Gentleman's point. I was referring to the first speakers from the Opposition Front Bench, who in their immediate response to the Budget did not even bother to pick up that point. I picked it up, and I am glad that the hon. Gentleman responded. However, I found it very distressing.

This is a remarkable and unique change. It will never happen again. It is extraordinary to think that married women in the United Kingdom have never really been treated fairly since the days of Julius Caesar. I say that not entirely jokingly. When Caesar wrote about what a grey and rainy island this was, he added that the British were an extraordinary race, because they treated their women in law on the same level as men. Alack, alas! Roman law then took over, and women have not seen the light of day until the present Conservative Government.

Mr. Wigley

rose—

Miss Nicholson

It is different in Wales.

Mr. Wigley

The basis of that British law was the Welsh law which was coded by Hywel Dda. That gave equal status, and assets were distributed even-handedly. Some of us in Wales are looking to the day when we can reintroduce that system.

Miss Nicholson

In that case, let me say how sorry I am that civis Romana sum!

Hon. Members will recall the pre-eminence of city widows even in mediaeval days. They were the only women in the United Kingdom who were allowed to inherit and to deal. If unmarried, a woman was the belonging of her father; she did not exist in law. When she married, she was the belonging of her husband and certainly did not exist in economic law. If she did not marry and her father died, again she apparently did not exist in law. That explains why, in Chaucer's "Canterbury Tales" the Wife of Bath was such a popular lady; she had cash to play with. That is why, in Pepys's diaries, the city widows figure so largely in his dreams.

I do not raise those points entirely jokingly. Hon. Members who are gentlemen will not realise the degradation of begging for money. It is a beastly thing to have to do. So many married women over so many generations have been reduced to having to ask their husbands for small sums of money for housekeeping. That is a most degrading and beastly thing for married women to have to do. Real freedom is economic freedom. Freedom is just a word unless one has the money to buy.

9 pm

Ms. Mowlam

As usual, I agree with some of the hon. Lady's points. However, her statements are based on the premise that equality has been reached under the present Government, and that the historical examples which she gave have now changed. She knows as well as I do that women do not have equality at work, in education, in the professions or in the Civil Service—as we heard this afternoon—or on the streets at night. We do not have equality, and we should get away from the sham and the facade that the hon. Lady is putting forward, as it clearly is not true.

Miss Nicholson

I am grateful to the hon. Lady for her intervention. I am very aware of that problem and I shall move on to it in a moment.

Mr. Allan Rogers (Rhondda)

I wonder whether the hon. Lady's feelings about women extend to the unemployed in the same way.

Miss Nicholson

May I remind the hon. Gentleman that a lot of women are unemployed? However, I do not think that clause 31 deals with unemployment. Although it is tempting to go down that path, I shall not allow myself to be tempted by the hon. Gentleman at the moment.

May I remind hon. Gentlemen that, as hon. Ladies already know, the problems of identity for women are not yet over. It is not always easy for a woman to be recognised on the same level as a man in any walk of life. Indeed, last week I received a letter from the Prime Minister's Office addressed to "Emma Nicholson Esq MP". The week before, when I was at Lancaster house, I asked an attendant where I could wait out of the rain while my husband parked the car. He replied, "I should wait for your husband over there if I were you, sir." I did not realise that entering the House of Commons gave one size 14 feet and made one grow a moustache. But I say most seriously that it is very difficult for women to be treated in a professional and proper manner, even in this hallowed place.

I welcome most strongly the Minister's tremendous step forward for womankind in giving married women a genuine identity in fiscal matters. The women of the Conservative party have long been seeking that identity. As far back as 1979, a report from the Conservative women's national committee urged the incoming Government—we knew that we would win—to establish independent taxation for married women. It said that all the difficulties that I have mentioned and that have been stated by other right hon. and hon. Members were true, and urged the Government to do something about it.

It was to the credit of the Conservative Government that despite all the talk from previous Labour Governments, and despite the tremendous Socialist ideal to favour married women as equals—I do not think that it is very good of them to favour married women as equals; the Labour party should treat married women as equals perhaps in organisations such as the Trades Union Congress which has very few women on its platform—the Conservative Government have taken up the challenge, and I cannot say how glad I am that they have done so.

When I was Conservative party vice-chairman with special responsibility for women, I launched a survey in response to the Chancellor of the Exchequer's proposals in the previous Budget for the transferable personal allowance. My postbag was massive. Hundreds of letters poured in from women of all parties, saying how enormously unhappy they were with the present system and how much they wanted it changed. I sent out the survey to 50,000 women. It was published in The Sunday Times which considered the transformation of taxation for married women to be important. It was also published by an entirely different style of publication—Cosmopolitan, which appeals to much younger, single working women—and in a number of other papers, particular Conservative Newsline.

There was a massive response—98 per cent. of all women questioned said that the tax system had to be changed, and 78 per cent. favoured personal transferable allowances which did not see the light of day because it was not possible to get a consensus among women in the United Kingdom. I was very sorry about that because I recognised the comments that my right hon. and hon. Friends made earlier on the importance of not discriminating against marriage. I believe that the state should be non-judgmental when it looks at the lives of its citizens, and that it should not be the Ayatollah Khomeini telling us that we should be swathed in black or living in any particular way. If the state is to be non-discriminatory, it should not discriminate against marriage. It is enormously unfair that in recent years the state has discriminated against married people.

I favoured the personal transferable allowance, which would have helped the non-working married woman. Far be it from me to try to guide women back to the sink. Let us have freedom of choice to go out to work or to stay at home, but real freedom is economic freedom. It is very difficult for the married, non-working woman to he truly free. The personal transferable allowance would have been of immense help. However, there is now the important principle, which I hope will soon be enshrined in law, that for tax purposes women are to be treated independently. It is a remarkable move forward. Nevertheless, I ask my right hon. Friend the Minister to consider most carefully the married person's allowance. I cannot accept that in perpetuity the married person's allowance should go as of right immediately to the man.

The Chairman

Order. That matter is dealt with elsewhere in the Bill. I do not think that we ought to trespass on the responsibilities of another Committee.

Miss Nicholson

I apologise, but this matter has been debated—

The Chairman

Order. We are debating clauses 31 and 98. Personal allowances are covered by clause 32. That is not a matter for a Committee of the whole House.

Miss Nicholson

The matter was discussed extensively by other hon. Members and that is why I have referred to it, but in view of your ruling, Mr. Walker, I shall not trespass on clause 32. However, I believe that it would be right and proper for my right hon. Friend the Minister to consider that point and, if I am allowed to trespass for a moment longer, to accept it in principle, even if it is too expensive now to put it right. The principle ought to be accepted that the married person's allowance should go to the highest earner.

Once again, I thank the Government, Treasury Ministers and my right hon. Friend the Chancellor of the Exchequer for responding to the needs of women by at last giving them equal treatment.

Ms. Joyce Quin (Gateshead, East)

All hon. Members agree that there should be independent taxation. I support also the right of privacy in tax matters for women. However, the Opposition have two major criticisms of the Government's proposals. First, the proposals are half-baked. They do not provide true, independent taxation; they provide a mixture of independent and joint taxation. Secondly, these measures, like so many other Government measures, will help wealthy couples but they will provide limited help to families at the bottom end. of the income scale.

The half-baked nature of the measures is referred to in the report on the Budget that was published by the Treasury and Civil Service Select Committee. One of the Committee's advisers described the reform as more cautious than had been expected and said: It effectively retains the married allowance, thus favouring households of two married people over those of two single people. It provides for the married couple's allowance to be transferred from husband to wife, but favours the husband by awarding it to him in the first instance. The hon. Member for Maidstone (Miss Widdecombe) said that she hoped that the measure would be a step on the road towards full independent taxation, but in evidence to the Treasury and Civil Service Select Committee, the Chancellor of the Exchequer, answering a question that I put to him about whether 1990 was a staging post, said: No, I see 1990 as a satisfactory solution to the problem. That seems to show that the partial nature of the reform is likely to be with us for some time.

Apparently, a full move to independent taxation was ruled out because it was considered too complicated and would have involved a large increase in staff dealing with taxation matters. Further, it was considered to be too expensive, although no details were given to the Treasury and Civil Service Select Committee about how much would be involved. Suspicion remained that the Government had gone only halfway because it would have cost too much to have a truly equitable system. Even if it was too expensive, I do not understand why the Government could not have given a long-term commitment to completely independent taxation. Perhaps the Minister will make such a commitment tonight.

There is still a great deal of confusion about whether married people will be treated as individuals or as a household with their incomes being added together. Mortgage tax relief has been mentioned, but there are many other examples that show that confusion exists. Perhaps an independent commission is needed to sort out the position and to ensure that in future a completely coherent, logical approach is applied to the taxation of married couples and to the law relating to matrimonial property.

In the short term, it does not appear that such a position will be reached. Regrettably, we now have a halfway house, which is not something that we favour in the long term.

Miss Widdecombe

Despite the hon. Lady's comments about a halfway house on the equality of the taxation system between single and married households, does she agree that at a stroke the changes have provided a satisfactory solution to the problem of subordination of women within marriage? By taking on board earned as well as unearned income they ensured that financially there is no room for the subjugation of women within marriage.

Ms. Quin

I agree that they were an important step but I do not think that they are a solution to the problem. I hope that the hon. Lady will try to persuade the Chancellor of the Exchequer to regard 1990 not as a solution but as a staging post.

My second criticism is that the measures that the Government have taken on the taxation of married couples, allied to the other Budget measures, simply disproportionately help already wealthy couples, whereas those on low incomes will see little advantage.

Whatever attitude is taken to the indexation of capital and investment income, it will benefit wealthier couples more than those at the bottom of the income scale. There is a great deal of worry that a Government who said that they wanted to tackle some of the tax breaks in the system will be encouraging wealthy couples to minimise tax liability by transferring assets between themselves. I do not know whether the Government are considering extra anti-avoidance measures to ensure that that does not happen, but if they are not they should be.

I would have been happier about the steps that the Government are taking in the direction of independent taxation if they had been part of the Budget that sought to redress the growing gap between rich and poor—for example, if those measures had been allied to measures such as an increase in child benefit, which, given the revenues at the Government's disposal, could easily have been done. Child benefit could have been doubled for the cost of the special allowance for married couples. Unfortunately, the reforms take place against a background of reduced housing benefit and the social security changes which have created great hardship. Moreover, maternity benefits were reduced last year. That affects families on low incomes in particular.

A truly independent taxation regime can bring great benefits, but unless it is accompanied by measures that help couples and families on low incomes, the benefits of independent taxation will not be widely felt and its effects will be selective. We need additional measures to bring much-needed financial relief to families and couples who are the worst off in the land.

9.15 pm

Ms. Mowlam

I hope that it will be in order for me to pick up two points that were made earlier and which are important to this debate.

The hon. Members for Maidstone (Miss Widdecombe), and for Torridge and Devon, West (Miss Nicholson) talked about independence for women. We were told that independence is related to economic freedom and that it is important for pensioners to be independent. I do not see how they can argue that line when television licences and electricity prices are going up. We cannot speak of independence for women or pensioners because their economic freedom is not taken into account. We are told that about 900,000 pensioners will benefit from the proposed changes, but there are 11 million pensioners. That means that 10 million will not benefit. Without some form of economic freedom, the only freedom that those people have is the freedom to sit in front of an electric fire with one bar on and to decide whether they can afford to watch telly tonight. That is not the independence to which hon. Members are referring.

Conservative Members have accused us of not being logical. It is therefore incumbent on the Government, if they maintain that this is a reform and that it does not discriminate against the institution of marriage—that is fine, if it is non-discriminatory—to be logical about poll tax. If joint and several liability affects marriage and cohabitees, I should like it transferred to this Bill.

The Minister referred often to "hon. Gentlemen", which seemed to be a psychological slip. He said that he is sweeping away anachronisms that date from 1805. I consider that to be an overstatement, to put it delicately. On Second Reading, I described the reform as a fraud and a sham, and I do not retract that statement in so far as it relates to the majority of women. This is a breakthrough—I accept what has been said, primarily by hon. Ladies, about that—but to go into hyperbole is to go too far.

Miss Emma Nicholson

Does the hon. Lady agree that, with the coming computerisation of the income tax system, if we had not made the programming change now there would have been a major problem? This is therefore an honest breakthrough to identify women as tax units. If we do not do that, women will for ever be invisible to the system.

Ms. Mowlam

It is not a question of satisfaction for computers and the tax system. Nor was that the commitment that the Chancellor led us to believe underlay his views when he introduced the change. If it was a case of making things easy for computers, those papers which described the Chancellor as a feminist ought to withdraw and describe him instead as a technocrat, for his interest is in computers rather than women.

My point is that this reform—which is a step forward—benefits some women but not the majority. In fact, the majority of women will see no change. They will notice no difference when the change is introduced in 1990. Let us look at the argument that has been advanced by Conservative Members as to why the change will be an advantage. They said it is an advantage for married women because it means they can make their own tax returns and get their own tax rebates on earned and unearned income. Therefore, it gives some legal independence and financial privacy.

At first glance, I accept that as a plus for many women. When we debated that on Second Reading, the hon. Member for Torridge and Devon, West also accepted that that was a plus. However, we have to look at how the married couple's allowance will work. The husband will be able to transfer any part of the unused portion of the married couple's allowance to his wife. To do so will involve paperwork and exchange of information and take away the supposed privacy and independence that will have been given to women by the introduction of the reform. As my hon. Friend the Member for Newcastle upon Tyne, East (Mr. Brown) said, it can only be transferred to a woman in writing. Is that an indication of equality? Is that an indication of the sort of change in the position of women that we hoped for? It means that it is not an automatic right for women. That has to be borne in mind.

Miss Nicholson

Will the hon. Lady admit that it is a significant step to give both the woman and man in marriage an individual personal allowance? I thank the hon. Lady for referring to my constituency correctly. It is often turned back to front. The clotted cream on the top of the cake is the oddity, the married person's allowance, which many of us would like to see handled in the same equal manner as the joint single person's allowances will now be handled. It is the establishment of the single person's allowance for the married woman that is the technical, practical and freedom breakthrough.

Ms. Mowlam

To continue the hon. Lady's analogy, the clotted cream has seeped so far down that the married couple's allowance has made the whole thing a stodge—and so unrealistic that the position of women is not necessarily improved.

I accept the hon. Lady's first statement, that it is a step in the right direction. However, because of the way in which the married couple's allowance will work, it takes that independence from women. For any unused portion to be transferred from the man to the woman, the woman will have to talk about her income. Therefore, all this talk about financial independence and privacy at last is not the case. It is not an automatic right and we must acknowledge that.

Miss Nicholson

Does the hon. Lady agree that the privacy element is brought in by the independent taxation, particularly of savings and investments? Does she also agree that the cry that it is only the rich who will benefit totally disregards the many thousands of women who have small savings, which at the moment are taxed at their husband's income level? The aggregation of the married people's income is the real abomination and setting those two things apart gives real privacy to many thousands of women.

Ms. Mowlam

I accept part of what the hon. Lady has said. However, as I said before, it is not an automatic right. The husband can go ahead, plan his investments and take part in the BES shares that we heard about earlier. The wife cannot do that without some reference to the couple together. I am not willing to go as far as the hon. Lady in saying that it is a monumental change. I accept that it is a positive step in the right direction, but we should not kid ourselves that the hyperbole that we heard from the Minister is the reality.

Miss Widdecombe

Can we please define the concept of automatic right?

Ms. Mowlam

Yes.

Miss Widdecombe

I thank the hon. Lady for her agreement. We all have rights. Women have a right to work. Some women may find that, because of their personal circumstances, they cannot exercise that right. We all have a right to vote. Some women may decide that they will not use that right or find, through slip-ups, that it has been taken from them. We all have a right to marry. Some women will not choose to exercise that option. We have a right to independent taxation. If we decide to exercise the transfer option and, in doing so, lose a little privacy, that does not affect the basic right to independent taxation if we choose to exercise it. Will the hon. Lady concede that this is a major piece of social legislation giving us basic rights?

Ms. Mowlam

I wish that the hon. Lady would notice the distinction which I make. I acknowledge that this is a positive step forward. I have not denied that, either on Second Reading or in Committee. I am fighting this corner because I do not want the fantasy which we have heard from the Financial Secretary portrayed as reality. The hon. Lady says that distinguishing between independent taxation and the married couple's allowance does not change the reality, but it does change it because the allowance is given to the man.

If the allowance were given to either partner, as the Equal Opportunities Commission asked, the EOC and I—and I am sure the Members for Torridge and Devon, West and for Maidstone—would be happier, but it was not. It is not an automatic right. It does not give equality. That cannot be ignored. I should like to continue this discussion, but I am afraid that you, Mr. Walker, will not allow it.

The Chairman

Order. I think that we have heard far too much. I remind the Committee that we are dealing with clauses 31 and 98. Clause 98 deals entirely with capital gains tax. Clause 31 states: Section 279 of the Taxes Act 1988 (which treats the income of a woman living with her husband as his income for income tax purposes) shall not have effect for the year 1990–91 or any subsequent year of assessment. I find it difficult to understand what that has to do with allowances. I draw the Committee's attention to the fact that these allowances are covered elsewhere in the Bill. They will be dealt with by another Committee, and this Committee should not trespass upon those considerations.

Ms. Mowlam

Thank you for that guidance, Mr. Walker. I was merely responding to points raised by Conservative Members.

I should like to take the exact point that you made, Mr. Walker, and refer to the nature of the married couple's allowance. As the hon. Member for Maidstone will have to acknowledge, this is another point that does not result in equality between men and women. The wife starts paying taxes above earnings of £2,600 while the man starts at earnings above £4,900. Because of the allowance, the amount that the man gets in his pay packet will vary between £7 a week and £41 a week, depending on his wage. Again, there is a clear differential which benefits the man. That is the effect of the clause. One cannot begin to argue that it treats men and women equally.

I acknowledge that the clause benefits retired people, many of whom are women. As the hon. Member for Gedling (Mr. Mitchell) said, we are talking about 900,000 people. There are 11 million retired people. A small minority, knocking on 1 million, will benefit, but 10 million pensioners will not necessarily gain from this legislation, as my hon. Friend the Member for Newcastle upon Tyne, East pointed out.

I am pleased that certain people with investments will benefit, and I do not want to penalise them. We should be clear that those who will benefit are not pensioners as a whole, but a small group. Many of those pensioners will be further penalised by the social security legislation. Unless we look at that jigsaw as a whole, we cannot see the total impact of the Bill.

I shall draw my remarks to a close. As I said on Second Reading, this clause is a fraud and a sham. I acknowledge that it is a step forward.

Miss Emma Nicholson

Does the hon. Lady agree that the principle of independent taxation is being established for the very first time in this Finance Bill?

9.30 pm

Ms. Mowlam

I shall be pleased when the principle manifests itself in reality. The hon. Member for Maidstone talked a great deal about principle—about independence and choice—but unless that principle is backed by economic independence and economic freedom it is meaningless. Let us agree the principle—it is easy and cheap to agree principles—but let us also ensure that the reality, the practice and the process accord with it. Under the Bill, that will not necessarily happen. If we are honest with each other, we must acknowledge that the provisions abolish the married man's allowance only to introduce it under another name.

The hon. Member for Torridge and Devon, West asked me how the povisions will benefit some people more than others. Many Conservative Members have doubted that assertion. Let me give two examples to support my case. A couple with investments of £10,000 will save an additional £41 a week when the provision is introduced in 1990. A single mother, with two children under the age of 11, will lose £11.69 per week overall under the Bill. Her £1.23 tax cut will not make up for the loss of child benefit and housing benefit, despite increases in family credit. Overall, she will be worse off as a direct result of the changes. We must take both those examples into account if we are to understand the exact meaning of the Bill. I acknowledge that the clause is a step in the right direction, but do not let us listen any more to Conservative Members' hyperbole.

Mr. Morgan

We are discussing the abolition of disaggregation in clause 31 and the parallel provision for equality of treatment of men and women for capital gains purposes in clause 98. So far, two aspects of the matter have not been covered. First, we have not dealt with targeting. Secondly, we have not yet said that when Chancellors introduce provisions intended to benefit a major social group—in this case women—they should ask the members of that group what they regard as their priority.

Last month the Government introduced social security and housing benefit changes, which caused them great difficulties. Those changes were based on the principle, enunciated several thousand times by Conservative Members, that they gave help where it was most needed. It was argued that if public expenditure was to be reorganised we should target assistance to those who needed it most, in circumstances where they needed it most. There is complete dissonance between that principle, enunciated in our debates on the social security and housing benefit changes, and the provision that we are debating.

The Chancellor is attempting to make his mark. He wants to appear in the history books and make his mark in the footnotes. Perhaps it will be among the Chancellors whose political ambitions were terminated by the Brian Walden interview with the Prime Minister at the weekend. If he can do nothing else and rise no further in the political hierarchy, he wants it said of him that he introduced independent and equal taxation for women which had not been in operation since the time of Julius Caesar.

How can the provision, which is completely untargeted, be squared with the housing benefit and social security changes that were introduced last month? We all know from our constituency surgeries and mailbags that independent and equal taxation is not one of women's main priorities. It may be one of the Chancellor's main priorities in his attempts to gain a place in the history books, but it is not what women want. Had women been asked, "What are your main priorities?", I am sure that they would have presented independent and equal taxation as a long-term aim—there is no question but that it is needed—but they would have argued that far more important things needed to be done if there was public money to be spent.

Miss Emma Nicholson

The hon. Gentleman, because he is not a woman, perhaps fails to realise how deeply this issue has troubled married and unmarried women for so long, as the postbags of the Treasury and of people such as myself have shown.

The Sunday Times reporter was appalled at what came out of the questionnaire that was printed. This has been one of the foremost priorities for women, because it is of crucial importance.

Mr. Morgan

I am sure that the hon. Lady is correct in saying that women cannot abide injustice as between themselves and men. We all appreciate that very strongly. In considering what women would most want from this year's Budget, however, my surgery experience and my mailbag suggest that there is more concern about what has happened to widows' pensions, for example. A 42-year-old widow bringing up a daughter has written to me to say that she will lose £56.80 per week when her daughter leaves full-time education this summer. This widow is in part-time work, but she simply does not know what she will do. The need to increase child benefit has already been stressed, as has the impact of poll tax on women through joint and several liability.

Miss Nicholson

Without wishing to be discourteous, I suggest that the hon. Gentleman's constituents who are women do not ask him to do anything about women and tax because the Labour Government failed so significantly to do anything whatever about the problem.

Mr. Morgan

In my closing remarks—I trust that the hon. Lady will be able to restrain herself and not intervene again—I wish to refer to the unequal treatment of people who have saved to provide for old age, compared with those who have small occupational pensions. The situation has been made far worse by the changes in housing benefit. It is women, particularly, who miss out on company pensions or small occupational pensions from the Post Office, British Rail or whatever, if they have a career break to bring up children and thus tend to depend on savings rather than on a pension. They are far worse off as a result of the Government's changes in housing benefit.

Had women been asked in what ways they would like additional public expenditure to be made available to them, equality would have been put down as a long-term goal, but my correspondence and surgery experience suggest that they would have given far higher priority to other areas such as child benefit in terms of what should be achieved by this year's Budget. The Chancellor has made no attempt to consult women about what they actually want.

Mr. Chris Smith

The Opposition have no quarrel with the principle of clause 31 and independent taxation for a man and his wife. We warmly welcome the principle of disaggregation. That is why I shall advise my right hon. and hon. Friends to accept clause 31. We have doubts about clause 98. They have been aired in the debate and I shall return to them later.

As we stated in the election campaign, we believe that it is offensive that a wife should be regarded for taxation purposes effectively as a chattel of her husband and we warmly welcome the removal of that principle from our income tax system.

The present system is not just offensive—it is a muddle and a mess, as the Institute for Fiscal Studies clearly identified when it said that the system was a mess. It provides an incentive to some to marry and a deterrent to others. For some purposes it presumes that the wife is wholly dependent on her husband, while for other purposes it rests on a presumption that husband and wife form an economic unit. With a system that deals in such different ways with the same couple in the same marriage it is clearly a benefit to try to sort out the anomalies.

The report from the Institute for Fiscal Studies also reveals some of the problems that the Government are setting for themselves and for married couples with their intended replacement of the present system. That is where our principal concern lies.

My hon. Friend the Members for Gateshead, East (Ms. Quin) and for Redcar (Ms. Mowlam) said that we do not believe that the system after 1990 will give true independence to married women. It will not do that, especially because of the institution of the married couple's allowance—the married man's allowance by another name—which will go in the first instance to the man; only on his decision and in limited circumstances will it be transferable to the woman. That is not true independence. It is certainly not true independence and economic freedom for women. That is our principal objection to the structure with which the Government wish to replace the present system.

We wish that the Government had listened to the hon. Member for Torridge and Devon, West (Miss Nicholson) who, on 31 March, joined the Equal Opportunities Commission in seeking to allow husbands and wives to choose who should have the allowance. We agree entirely with that principle and we hope to pursue it in greater detail in Committee. We believe that the administrative difficulties that the Government say would attend such a principle can be overcome and are worth overcoming.

The Opposition's second anxiety is that the Government's proposals will not replace a judgmental system with a non-judgmental system. The hon. Member for Torridge and Devon, West said that the Government are removing discrimination against marriage. To some extent they are, but they are replacing it with a system that will discriminate in favour of marriage. That is not non-judgmental. It may be something which the Government wish to enshrine as part of public policy. The Chancellor likes the idea of marriage—he has had two of them. We should be clear that the Government intend to create a system that will discriminate in favour of marriage.

Our third principal objection to the proposals is that they will benefit primarily the better-off. The inclusion of unearned income within the allowance system and the principle of disaggregation will benefit people with large unearned incomes. Of course many pensioners will benefit, but, as some of my hon. Friends said, many more pensioners will not benefit at all. A group that will benefit is married couples who currently make the wife's earnings election. The disaggregation principle will be achieved without the loss of the married man's allowance, which is lost at present. People who elect for the wife's earnings system are overwhelmingly those in the high joint earnings bracket.

Another group that will benefit especially is married couples where the wife has earned or unearned income in excess of the personal allowance and where aggregation of that income with the husband's income would push the couple into a higher rate band. Disaggregation would push them back into the lower rate band and they would benefit considerably from the Government's proposals.

The principal beneficiaries of the Government's new scheme will be people on more than average incomes. A small group of women may lose under the Government's proposals and will require transitional protection. That group comprises wives who are the main breadwinners in the household. The example frequently quoted in this respect is that of an unemployed steelworker whose wife is a teacher. Those women may well lose as a result of the Government's proposals, unless transitional protection is afforded.

9.45 pm

One other anomaly will result. It has been little noticed, but it is worth referring to briefly. The Government's new system will almost certainly encourage the removal of a considerable amount of savings funds from building society accounts. We should perhaps ask the Government whether the building society movement has been consulted about their proposals. When the husband is a basic rate taxpayer, there is at present no disadvantage in his non-working wife placing her savings in a building society account. However, when she can use her own tax allowance, it would be a waste to leave funds in an account from which tax is deducted at source.

It would be prudent, therefore, in such circumstances, for the wife to remove her funds from the building society account and to opt for either National Savings or perhaps an offshore account paying gross interest. In those circumstances, building society accounts are likely to suffer and I hope that the Government have had discussions with the building society movement about the effect of the proposed changes.

There are a number of problems with the Government's proposed scheme. We have no quarrel with their desire to scrap the present system. They could have gone much further. They could have done something sensible about child benefit and put it up to a decent level, as we have been arguing for many years. They could have tackled the absurd measure that treats the provision of workplace nursery places as a taxable benefit, as we have been arguing for over many years. Both those measures would have greatly benefited the position of women within the tax and benefit system.

The Government have not taken that route. They have taken the route of disaggregation, but they have enshrined in it the continuing sexist principle that the married couple's allowance goes, in the first instance, to the man. Although we thoroughly endorse the principle, we note that the gains will be made primarily by people who are better off, especially under the provisions of clause 98.

The hon. Member for Berwick-upon Tweed (Mr. Beith) said that the Labour party claims to be in favour of independent taxation, but that it is not in favour of independent taxation of capital gains. If the Government removed the £5,000 exemption allowance from capital gains tax, we would be entirely and immediately in favour of independent taxation of capital gains. However, because that £5,000 exemption allowance will remain for both the husband and the wife and because the inclusion of that additional allowance is not the best use of taxpayers' money, we shall vote against clause 98.

We endorse the principle, but the Government's practice does not match up to their declared intentions. We urge the Government to go much further along the road to true independence.

Mr. Norman Lamont

I am grateful to the hon. Member for Islington, South and Finsbury (Mr. Smith) for saying that the Labour party welcomes the principle of disaggregation. This has been an interesting debate, and even the hon. Member for Redcar (Ms. Mowlam) managed to describe the Government's proposals as a step forward. The fact that she said that was in itself a step forward. If the hon Lady will up her rhetoric in favour of the proposals, I shall downplay my rhetoric in favour of them. Perhaps we shall then find common ground.

Ms. Mowlam

If the Minister reads the report of the Second Reading debate he will find that I made exactly the same statement on that occasion. I shall adjust my rhetoric when he ups the degree of honesty that is to be found in the Budget proposals on what is actually happening to women.

Mr. Lamont

That was not, as I recall, how the hon. Lady seemed to present her opinion at the time of the Budget statement debates. However, I welcome her position in any event.

The hon. Member for Islington, South and Finsbury asked about the building societies and described the effect of receiving interest that is paid net of tax. We shall have time to discuss the issue fully with the building societies in the run up to 1990. We do not expect the flows that will occur as a result of these measures to be in any way large when compared with the flows that we see taking place all the time.

The hon. Member for Caernarfon (Mr. Wigley) asked about joint and several liability in terms of taxation. He referred especially to a husband and wife working together in partnership. Where a husband and wife are in partnership, there will be a joint and several liability, but that is no different from the position of any two people who are in partnership. The arrangement will be no different from any other couple working together in that way.

Mr. Wigley

I was talking about a husband and wife, one or other or both of whom may be self-employed—not necessarily in a partnership together—with incomes that lead to the payment of income tax. I wanted to know whether in those circumstances there would be joint and several liability.

Mr. Lamont

If separately employed in different businesses, there is no joint and several liability. If a husband and wife are in a partnership, which I thought I heard the hon. Gentleman say, there will be a joint and several liability.

Joint and several liability applies to the community charge because the safety net covering liability to pay the charge for poorer households is linked to the support that is provided by the social security system. That system must necessarily take into account a household's combined resources.

Some hon. Members have suggested that the proposals do not affect a significant number. In fact, they do. Over 2 million will benefit, of whom 1.6 million will be married women. About 500,000 will be husbands.

The hon. Member for Newcastle upon Tyne, East (Mr. Brown), from the Opposition Front Bench, said that the Labour party favoured independent taxation. I think that he sought to give the impression that the aspiration and the aim were very much the same as the Government's. There is one crucial difference, however, and that emerged during the general election when the Labour party tried to keep a little quiet about its intention to abolish the married man's allowance. We are now talking about the married couple's allowance.

If the Labour party is in favour of getting rid of the married couple's allowance—a move that we are emphatically against—the cost will be about £7.16 per week to the basic rate taxpayer. It is the married couple's allowance that will keep 1 million people out of tax. About 12 million couples would lose if the proposals that appeared to be being advanced by the Labour party during the election were to be implemented.

Mr. Nicholas Brown

I thought that I was measured and careful in what I said. It is rather naughty of the Minister to attribute remarks to me that I did not make.

Mr. Lamont

The hon. Gentleman is quite right. He is always measured. I would never try to represent him otherwise. However, I received the impression that there is a desire to phase out the married couple's allowance, and I merely made clear the consequences.

The hon. Member for Berwick-upon-Tweed (Mr. Beith) was not ambiguous about that in any way. He made an interesting speech and advocated that the married couple's allowance should be frozen in cash terms. He said that the same principle applying to the breadwinner wives should be applied to the married couple's allowance. With respect, I do not believe that the breadwinner wives' position is analogous. It is anomalous that two and a half times the single person's allowance should apply to breadwinner wives.

We believe that although, as the hon. Member for Berwick-upon-Tweed said, there may be some special circumstances, there are many one-earner couples and we cannot make a case for such a couple receiving two and a half times a single person's allowance. We believe that the married couple's allowance, which has been a feature of the tax system in one form or another, should be preserved. Even if it was preserved in cash terms, what the hon. Member for Berwick-upon-Tweed advocated would involve a gradual reduction in real terms.

Opposition Members tried to portray the measures as designed to benefit the wealthy. They seem to think that there is some way in which independent taxation can be introduced which will be of no benefit to the wealthy. An inevitable consequence of introducing independent taxation in any form is that it will involve some substantial gains for people with large incomes. However, Opposition Members should not misrepresent the fact that our changes will bring very substantial benefits to many people, and three quarters of the costs of independent taxation will go to basic rate taxpayers and non-taxpayers after the change. Some 1.2 million wives with an income under £5,000 a year will gain. Half the cost of independent taxation will go to the elderly, and 80 per cent, of elderly taxpayers will gain. All that amply shows that the reform is extremely beneficial to very many people.

The hon. Member for Newcastle upon Tyne, East referred to introducing independent taxation in a fiscally neutral way. That makes no sense. There is no way in which we can introduce independent taxation on income on a fiscally neutral basis. If there is, the hon. Gentleman did not do much to enlighten the House about what he had in mind. He told us what he was going to do about capital gains tax, and I hope to show that it is complete and utter nonsense to have independent taxation for income and somehow to resile from that position for capital gains.

Mr. Nicholas Brown

The Minister is being uncharacteristically unfair and he misrepresents what we said. All that we advocated was progressive taxation on unearned income. We advocated nothing more than that. In other words, there should be redistribution from the wealthy to the less wealthy.

Mr. Lamont

I certainly did not want to misrepresent the hon. Gentleman. I am grateful to him for making his position clear. I assume that he means that the burden of the increasing progressive taxation will be spread over all taxpayers, whether or not they are beneficiaries of independent taxation. I do not think that that is necessarily a very logical position to adopt.

Several of my hon. Friends, notably my hon. Friend the Member for Torridge and Devon, West (Miss Nicholson), referred to the married couple's allowance going to the man in the first place. the hon. Members for Gateshead, East (Ms. Quin) and for Redcar rehearsed those arguments. They know, of course, that the allowance can be transferred to the wife. They have also heard me say that the effect of our proposals will achieve the right results in 99 per cent. of cases. Only in a quarter of 1 per cent. of cases will we not achieve the right result.

I make the point that with that one quarter of 1 per cent. one is talking about the better-off, and Opposition Members are advocating that I should give just a little bit more to the better-off. We have decided that that solution is not worth pursuing. Our solution will allow us to implement the proposals in 1990 and to advance the timetable, which would otherwise not have been feasible. I am not saying that a Government will not look at that matter again one day, but I emphasise that an enormous amount of work has been involved in getting the revenue and computer programmes ready to implement the measure by 1990. It is a tight timetable as it is.

10 pm

The hon. Member for Gateshead spoke of the possible risks of forestalling and of couples transferring assets between them. Perhaps that will happen to some extent, but it will be a consequence of independent taxation. I do not for one minute believe that we could introduce the concept of taxing transfers between husband and wife. If Opposition Members reflect on that point, they will come to the conclusion that it would be far too draconian to prevent husbands and wives from switching assets between them.

One point that has not been mentioned in this debate, and which Opposition Members appear to have left totally out of account, is how we are to combine capital gains tax and income tax. The Opposition have not said that they are against taxing capital gains at income tax rates, so I presume that they are in favour. If they are, surely it follows logically that if capital is to be treated as income, capital gains also should be subject to a separate exemption for husband and wife. That seems to me to follow logically.

It is said that capital gains tax should be revenue-neutral. But what precisely does that mean? It can only mean one of two things: either that the annual exemption on capital gains would be reduced for everyone, penalising capital gains tax payers who are not married—which would be a nonsense—or introducing a lower exemption for husbands and wives than for single people. The hon. Member for Berwick-upon-Tweed found that out when he was exploring the subject with the hon. Member for Caernarfon. Either way, that proposal makes not one jot of sense. I urge the Committee to support the clause.

Question put and agreed to.

Clause 31 ordered to stand part of the Bill.