Widows' Pensions and Income Tax (Hansard, 26 March 1981)

Lady Saltoun
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The Minister of State, Treasury (Lord Cockfield)
My Lords, widows' pensions, like retirement pensions, are a form of income and liable to tax. They have therefore to be taken into account as part of total income for tax purposes. We have no plans to change this.

Lady Saltoun
My Lords, are the Government aware that the present situation puts widows in a much worse position than working wives whose need is usually less great, and that, where they have children, they are often forced on to social security, which is humiliating to them and expensive to administer?

§ Lord Cockfield
My Lords, I think we are all aware of the problems that widows face. Last year my right honourable friend the Chancellor of the Exchequer introduced a new allowance in the year of bereavement. Where there are young children in the family the widow receives the equivalent of the full married allowance, and of course when she reaches the age of 65 she receives the age allowance, which is higher than the standard single allowance. So far as the comparison with working wives is concerned, they both pay the same amount of tax on the same total income.

§ Lord Banks
My Lords, can the noble Lord say whether the Government are making any progress regarding the introduction of a tax credit scheme under which all benefits, including widows' pensions, would be tax free credits?

§ Lord Cockfield
If I may say so, my Lords, that goes rather outside the scope of the present Question. The position, however, is that in present circumstances a tax credit scheme would cost a very large sum of money indeed.

§ Lord Jacques
My Lords, is the Minister aware that if there was any inclination on the part of the Government to improve the income of widows it would be best done by increasing the amount paid rather than giving it free of taxation?

§ Lord Cockfield
My Lords, I am aware of the fact that there is a wide divergence of view on this and indeed on other subjects.

§ Baroness Fisher of Rednal
My Lords, is the noble Lord the Minister aware that there is grave disquiet among widows who are not earning and have no other income apart from savings, and who now will have to pay tax on widows' allowances when they start receiving that little bit extra which was given to them in the last Budget?

§ Lord Cockfield
My Lords, a widow who receives the basic widow's pension only and has no other income will not in fact be charged to tax. This is because of the assessing tolerances operated by the Inland Revenue. They do not make an assessment if the amount of tax at stake is less than £30 and this in fact covers the amount by which the basic pension exceeds the existing level of personal allowance. Of course, if there is income over and above the basic pension, that is a different matter.

§ Baroness Fisher of Rednal
My Lords, may I ask the noble Lord to spell that out in very clear English so that the widows themselves understand the position quite clearly?—because at the present moment that is not what they are given to understand at the tax offices.

§ Lord Cockfield
My Lords, the position was spelt out very clearly in the debates in another place, and I think it is in fact in order to refer to speeches made by Ministers in another place because they represent declarations of Government policy or views. I think that what I said myself was in fact perfectly clear.

§ Lord Banks
My Lords, can the noble Lord say how much earnings-related pension a widow would have to receive before she would pay tax?

§ Lord Cockfield
My Lords, the amount of earnings-related pension is, of course, a different matter. If a widow receives a earnings-related supplement over and above the basic pension she is in no different position from that of a widow who has income over and above the basic pension. The amount by which the assessing tolerance exceeds the difference between the basic pension and the single allowance is, I believe, about £13.

§ Baroness Jeger
My Lords, can the noble Lord the Minister have some consultation with the local offices to ensure that women are fully informed about this position, because I hope he will take it from me that not every widow in the country has heard of an assessing tolerance?

§ Lord Cockfield
My Lords, the question of assessing tolerances was explained in great detail by Mr. Denis Healey when he was Chancellor of the Exchequer in 1976, when this particular problem arose; it is not therefore a new assessment. But I note what the noble Baroness says and we will certainly ensure that the position is understood in local tax offices.

Lady Saltoun
My Lords, will the Government keep the plight of widows in mind and review the situation as regularly as possible?

§ Lord Cockfield
My Lords, the Government keep all these matters under regular review. I would not like to hold out any particular hope to the noble Lady. There are a large number of groups who are disadvantaged and on whose behalf representations are made.