Taxation and Male/Female Equality: ECC Report

HL Deb 17 February 1986 vol 471 cc436-74

4.43 p.m.

Debate resumed.

Baroness Robson of Kiddington

My Lords, may we return now to the debate that we started quite a long time ago? I should first like to thank the noble Baroness, Lady Serota, for so ably introducing the report on the equal treatment of men and women in taxation. I should also like to thank her very much for the fair and competent way in which she chaired what was a very difficult committee. The subject is complex. The noble Baroness was a superb chairman of our committee. I should also like to join her in thanking our legal adviser and our clerk for their able support. Without them I do not think we would have produced a report.

I feel particularly privileged to have been allowed to be part of this committee. All through my political life I have been interested in the rights of women in the eyes of the law. Although I am a Liberal I have not been a women's-libber, but I have been tremendously interested in the position of women in the eyes of the law. Since the war that position has improved enormously. In the eyes of the law practically all barriers have been removed except in taxation law. Taxation law is tremendously important for women. As my noble friend Lady Seear has often said in this House, if we do not use to the utmost the capabilities of women to contribute to the economic life of this country, we are losing, as a nation, altogether. I believe that the tax laws in this country and in other countries of Europe have operated against women taking the greatest opportunities offered to them in society. I believe therefore that this report is tremendously important.

Last week and over the weekend various articles appeared in the press about the Government's proposed second Green Paper, which it is assumed will be published at the time of the Budget. Those articles implied that the Government are likely to favour transferable allowances between husband and wife. The comments by the press seemed to indicate that the Government were in favour of this particular system because it would act as a check against women flooding the labour market. I hope sincerely that at the end of the debate the noble Lord, Lord Brabazon of Tara, will be able to say that this is pure speculation on the part of commentators in the press and that it is not the intention of the Government.

However, your Lordships' committee was very conscious of how essential it was, in looking at this problem of equal taxation between men and women, to introduce a system that would not penalise women who decided that their way of life—a very responsible way of life—was to stay at home to run their own families and to look after their children. This is a difficult subject on which to come to conclusions. On the other hand, taxation law, as such, should not be used as a means of influencing family life. It is the right of every citizen irrespective of sex to be treated as an individual in his or her own right.

If the aim is to influence family life, the present system of taxation is certainly the wrong way to go about it. If a couple are both earning a substantial income it pays to live together rather than to marry. This is particularly true of people with unearned income. It is therefore a great pity that the present memorandum does not deal with unearned income. Although one can understand the Commission's reservations on the subject because of the differences between the law of property in the various member states, it is sad that this subject has to be excluded from the memorandum. Equality of treatment of unearned income is the only way—together with the equal treatment of earned income—to put women in the position of having equal rights. Although the memorandum does not mention unearned income, that is no reason in our view why our own Government should not look at this problem at the same time as the equality of treatment of earned income.

I was absolutely staggered to learn from our witness from the Law Society that even the signing of a marriage contract in this country would carry hardly any weight in the case of dispute at the time of divorce proceedings. I repeat that taxation should never be a consideration in people's minds when they are deciding whether to marry or not. Therefore, we must create a fair system between the sexes.

Again, under our present law, there are certain encouragements in the law for marriages to take place at a certain time. I do not know whether your Lordships have noticed how many marriages take place in the month of March. This has nothing to do with spring in the air or any of those matters, or a young man's fancy turning to love. It is purely to do with a married man's allowance. If one gets married before 5th April one gets a whole year's allowance, having kept one's wife for only five days. I ought to know—my husband, an accountant, married me on 30th March. All these anomalies exist because we do not have equal treatment for men and women.

We tried to look at the subject from the point of view of fairness, of being able to understand the tax laws, and the cost of administering the law. The noble Baroness, Lady Serota, has already referred to our discussions with the Inland Revenue Staff Federation. It became very clear that the introduction of transferable allowances would create great problems not only for the Inland Revenue but, above all, for individual couples. As your Lordships know, it is possible under our present tax system to have separate assessments. But this is such a complicated subject that if one has a good accountant he will advise one not to go in for separate assessments because his bills will be enormous in trying to work it out.

The other option is that of separate taxation but that is also extremely complicated and may need to be changed from year to year to work out whether it still pays to have separate taxation. This creates an enormous amount of work for the Inland Revenue and adds to the administrative costs. To change this to a system of transferable allowances does nothing to simplify the system either for the Inland Revenue or for individual married couples. In fact, it would probably complicate the issue because conditions could change at any time during the year. Even the Government's own 1980 Green Paper admits that thousands of extra revenue staff would be needed because so many women are part-time workers where wages can vary considerably from month to month, and consideration has to be given to how much of the allowance should be transferred back and forth.

In any change in the tax laws of this country and in Europe we must look for a system which is easily comprehended by the ordinary citizen and, at the same time, is the least complicated to administer. In the view of your committee only equal treatment for men and women achieves these aims.

One of the conclusions of the committee, conclusion No. 5—which deals with child care allowances—is an issue on which I personally wish we had been able to go a little further. I shall try to give your Lordships an example of why I feel that child care allowances for working mothers are essential to enable them to go out to work. Take a young qualified woman doctor who gets married and has two or three children and stays at home until the children are school age. Then she feels, conscientiously, that as a trained professional woman she should go back to working life. This doctor decides to go back on a half-time basis so that she can still look after her children. However, hers is the kind of profession which does not have set hours. One is likely to work occasionally in the evenings, at other times in the mornings, and sometimes at night. It is therefore essential to have someone to help with the children when she is not there. She is penalised in two ways. She is taxed on top of her husband's taxed income; and she has to pay for the child care out of net income. There is nothing much left, and not much encouragement for well-qualified, professional women to go back to work.

We all need these women in society. When we hear so often, for instance, that we are terribly short of nurses and that there are a lot of married nurses who do not go back to work, I am sure the major reason is that they are not in pocket by doing so, and sometimes are almost out of pocket. I commend that the Government look very seriously at a change in tax laws in this connection.

It seems to me that this memorandum from the Commission offers a marvellous opportunity to solve the problem of inter-relationship between tax allowances and social security support for the carers in our society, who are mostly women—women looking after children, the elderly or the handicapped—through the establishment of a properly integrated system of taxation and social security. My noble friend Lord Banks—probably the leading expert in this House on this matter—will, I hope, enlarge on this aspect of the report.

I sincerely hope that the Government will look at this report and also at the possible changes in our social security and taxation systems so that we may have a fairer system in Britain.

4.56 p.m.

Baroness Platt of Writtle

My Lords, may I also express gratitude to the noble Baroness, Lady Serota, for initiating this debate on the Select Committee report on equal treatment for men and women in the matter of taxation which arose from their consideration of the European memorandum on the subject. There is no doubt in my mind that the questions of equal opportunities and taxation are closely interrelated and of considerable importance. During its lifetime the Equal Opportunities Commission has consistently received complaints about the lack of equality in taxation and demands for support in putting the situation right. At present there is hope in the air in the United Kingdom and throughout Europe due to the memorandum.

The Sex Discrimination Act was passed in Britain with all-party support in 1975. It has been in operation just 10 years. During that 10 years the Equal Opportunities Commission has done a great deal of positive, patient and professional work building up considerably greater awareness of the importance of equal opportunities in our national life, in the fields of education, employment and the provision of goods, facilities and services. There is far more consciousness of the whole subject today, but we still- have a long way to go.

Two-thirds of women of working age are in the labour force. Women form 44 per cent. of the working population. Two-thirds of women at work are married. The proportion of married women in the workforce has risen from under 4 per cent. in 1921 through 12 per cent. in 1951, to 26 per cent. in 1981. During the period when their children are small or at school they are likely to have a period working part time and approximately 45 per cent. of women in employment work part time. Ten years after the Equal Pay Act came into force women's gross hourly earnings stand at nearly 74 per cent. of men's and this proportion has remained virtually static for some years. We are in a period of rapid change, but in terms of equal opportunities and equal pay we still have a long way to go.

In working for equal pay, as we are enjoined to do by Parliament under the Act, it is clear that we must also work for equal taxation between men and women so that their pay packets are affected equally by their taxes. Otherwise the equality given with one hand is taken away by the other by the time the pay packet gets home. The Commission, as did the Select Committee, welcomes the memorandum of the European Commission on equal taxation which is largely consistent with the approach that the EOC has adopted during its lifetime.

We have always taken the view that a repeal of Section 37 of the Income and Corporation Taxes Act was the pre-requisite of a non-discriminatory taxation system. It states that, A woman's income shall for any year during which she is a married woman living with her husband be deemed for income tax purposes to be his income and not her income". In its place we favour a system of individual taxation, or disaggregation, in which individuals are treated as persons in their own right, whatever their sex and whether or not they are married. We are very conscious of the difficulties involved, but we have always insisted that the principle of disaggregation should cover both earned and investment income. We feel in all justice that you cannot treat married women as equals half of the time and as dependants for the other half of the time.

Another consistent thread running through the Commission's policy is our wish to see the abolition of the married man's allowance, which we understand is to be a proposal in the Chancellor of the Exchequer's Green Paper later this year. Up to the Second World War women were often actively prevented from continuing employment after marriage, and certainly the idea of their economic dependency on their husbands was widespread.

Today, women's life styles are very different and the single event of marriage was shown clearly in the Department of Employment report of 1984 by Martin and Roberts, Women's employment in the 1980s, to have no effect on whether women were economically active, although it did influence whether they worked full or part-time. Therefore, married couples themselves have adopted this kind of lifestyle as a matter of individual choice, and when one looks around society it makes sense. The early years of marriage are expensive, with the purchase of house and furniture, and two incomes enable the young couple to establish themselves more comfortably.

Various inequalities arise on marriage, some favouring the married couple and some not. There have been several improvements, including the dispensation that the Inland Revenue do now generally write to the wife about her tax, but it is still fundamentally wrong that under British law at present: A married woman's income shall … be deemed for income tax purposes to be his income [her husband's] and not her income". It really is inconceivable in this day and age that that should be right. My noble friend Lady Elles, a member of the European Parliament, described it in a letter to The Times last summer as "a tax on morality".

The young woman who, perfectly capably until that point, has been looking after her own tax affairs, suddenly finds that she is no longer responsible for them, and that they must be submitted through her husband. While, as the system stands, she has no right to know the details of her husband's affairs, and, indeed, may not want to, she finds that she must open up every detail of her affairs to him. That is a considerable intrusion of privacy, or worse. A friend of mine, involved in a professional partnership, where she was paid substantial sums by clients, prudently invested half for the partnership so as to be prepared to pay tax and obtain interest thereon at the same time. Some years later her husband was challenged that he had not declared his wife's investment income!

If for some reason the wife obtains relief from tax, these sums are repayable to the husband—a considerable source of embarrassment at the least. In the case of deserted wives, or those in the process of obtaining a divorce, it may be a most serious and expensive disadvantage. The hardships are always worst at the lowest levels of income. Effects of this sort are archaic and need radical reform as soon as possible. There is no doubt of the support they would receive. Our postbag and the newspapers and magazines have been full of pleas for change.

In the Chancellor's Budget speech last spring he made it clear that he, too, wishes to see everybody, male or female, married or single, having the same tax allowance, and that married women will have the possibility of complete privacy and independence in their tax affairs". As the Treasury press release states, there will need to be a transitional period during which it could be phased in to allow couples to adjust to the changes. There are always winners and losers in any changed situation. All this we shall consider, as the Equal Opportunities Commission, when the promised Green Paper comes out this spring.

Another feature of the suggested new arrangements is that of transferable allowances on a voluntary basis between spouses, and we certainly welcome the Chancellor's use of the word "spouses"—husbands and wives. For the present the Equal Opportunities Commission has decided to delay comment on this aspect of the new proposals until we see it in full detail and know how it is proposed to carry it out, as the late Mrs. Finley clearly stated in her evidence to the Select Committee.

The House of Lords Select Committee has come out against transferable allowances and there will, no doubt, be a debate on the matter here today, but as far as the EOC is concerned, for the present we shall not comment.

Another problem which has arisen this year in the United Kingdom is the decision last year to start imposing a tax on the provision of workplace nurseries. The EOC objected very strongly to this on a number of occasions, and particularly on the imposition of the tax retrospectively. I am pleased to say that the idea of retrospective tax was withdrawn, but we still disagree with the principle of taxing workplace nurseries. As we said in our evidence to the Chancellor, workplace nurseries are just as necessary to parents and their children as sports and canteen facilities, and the imposition of tax could reduce the number available. They are of great assistance to working parents and may be absolutely necessary to single-parent families.

If as a result of changes in the overall tax position between men and women generally there is fiscal money to spare, which seems likely, I can foresee that the Commission would like to see a substantial proportion of it diverted to increases in child benefits to the person caring for the children, as there is no doubt that the largest single factor influencing women's economic activity is the arrival of children—and the Select Committee is of a similar view. That allocation would make a substantial contribution to the economics of a household where the wife or husband gives up work to look after small children, or could help the family to provide childcare if both parents continue at work. Today that period is shorter than it ever was, at about four years for each child and seven years overall.

The presence of children and the younger their ages also affects women's decisions as to whether to engage in full-time or part-time work. Increases in child benefit for children under 16 to the parent looking after the child would undoubtedly assist these women and their families, probably during their most expensive period when family incomes are most stretched.

In the years to come the EOC would like to see the responsibility for childcare shared more equally between husbands and wives. The period in which women today give up work to look after small children can have a fundamental effect on lifetime careers. However, the question of how childcare is to be reconciled with parents' careers must be decided responsibly by the parents themselves on behalf of their children. Careers and parenthood and the welfare of the next generation are nevertheless all vital matters, both to their families and to the future health and prosperity of our nation.

The Commission has always maintained that the decision of married women as between staying at home and returning to paid employment in the labour market is not a matter which should be determined by the taxation system. These decisions are individual decisions, and the tax system should be neutral with regard to them, as indeed the European memorandum recommends. The Commission thinks it undesirable that the tax system, whether overtly or covertly, should force women to seek paid employment when they do not wish to do so; and it regards it as equally objectionable were the tax system to act as a deterrent to those married women who wish to return to the labour market.

The Commission feels, as does the Select Committee, that the European memorandum and the proposed changes in United Kingdom taxation present a good opportunity for consideration of the whole question of tax allowances for childcare, which could also help the growing number of families with parents pursuing dual careers.

In conclusion, the Commission has every reason to welcome the memorandum of the European Commission. All the evidence supports the continuation of the long-term trend of increasing numbers of women combining domestic and work responsibilities—sometimes at severe personal cost to themselves. The Commission would submit that it is the task of wise legislators to recognise when millions of individual men and women have begun to move in a particular direction, and the choice before Government and Parliament is whether to ignore or to assist those individual choices which go to the making of a social trend. The memorandum of the European Commission is a powerful and persuasive reminder of the direction in which the Commission believe this nation ought to be moving, and, like the Select Committee, we hope it will be carefully considered by the Government in formulating their proposals for changes in our tax system. I am grateful to the noble Baroness for initiating this debate.

5.10 p.m.

Lord Allen of Abbeydale

My Lords, as a male member of the sub-committee responsible for the report we are considering this evening, I too should like to pay my tribute to the noble Baroness, Lady Serota, for the way she guided us through the maze and for the way she has introduced the report this evening. I should also like to add my thanks to our specialist adviser and the clerk. They even seemed to know their way through the processes of the EC and the European Parliament. We were indeed fortunate to have their help.

On a personal note I should like to say how pleased I was to see that the Front Bench speaker from the Labour Benches tonight is the noble Baroness, Lady Turner of Camden. Some time ago we were colleagues on the Occupational Pensions Board, and I think we very rarely fell out.

As the noble Baroness, Lady Serota, explained, although we were looking at the EC memorandum it was really inevitable that we should find ourselves involved in the complicated issues to be covered in the forthcoming Green Paper. The view that they are indeed complicated is borne out by the fact that the Government's own Green Paper of 1980 is to be followed up not by legislation but by yet another Green Paper, which is already running well behind the timetable originally envisaged. It is perhaps no bad thing that our modest report should have come out first, and that we have this opportunity for an exchange of views not on tax reform as such but on the removal of inequality between men and women.

The noble Baroness, Lady Serota, has already covered very clearly the main thrust of the report, and all I want to do is to add footnotes, as it were, on just two aspects. The first is the problem of administration, on which the noble Baroness, Lady Robson of Kiddington, has already touched. I suppose that an ideal tax system is one which is simple to collect and cheap to administer, but alas this is very much easier said than done.

I have always found my own tax inspector helpful and prompt. Indeed, there have been times when I could have done with a little more delay in being told how much I had to pay. But from all that one reads this is not the universal experience. There must be something in these accounts one reads in the financial press of mounting delays and shortages of staff, and it must be right to pause before introducing arrangements which put additional burdens on to the staff. There is not much point in pursuing a scheme, whatever its merits, if not enough people are there to administer it.

I think that all of us on the sub-committee were conscious of the fact that moving over to a system of fully independent taxation would mean more individual returns and more people getting involved in exchanges with the tax inspectors. But I think it is fair to say that this extra burden would impinge mainly in the interim introductory period, and that once the changeover had been effected the system should be manageable given the computerisation of PAYE.

But the prospect of fully transferable allowances so far held out by the Government is quite a different story. If a married woman goes in for short spells of employment interspersed with periods at home—which cannot be all that unusual—and is able to transfer the unused part of her allowance to her husband when she is not working but takes it back each time she starts another job with an effect on his tax liability, the results could indeed be pretty chaotic.

We can speculate only up to a point, as we do not yet know the details of what the Government have in mind, or indeed whether they are still set on a system of fully transferable allowances, but if to counter the sort of difficulty I have been touching on they were to suggest that the option whether or not to transfer the allowance could be taken only on one occasion in the tax year, I doubt whether people would accept this as fair. Anyway, sorting out at the year's end all the under-payments and over-payments could itself be both difficult to carry through and difficult for the taxpayer to understand. The administrative complications of any system of transferable allowances that I can think of, even if introduced gradually over a period of years, seem to be somewhat formidable.

My second point related to investment income. It is an issue, as has been explained, on which the EC memorandum is silent. That paper is concerned only with questions of pay and work. But it is an issue which kept coming into the evidence, and I do not think it can simply be left on one side. It does not make for much sense to go for greater equality and greater privacy of earned income and then do nothing about investment income.

Although it is a phrase which conjures up a picture of a spouse with a handsome income from shares and property, the fact is that there are a great many wives with a nest egg all of their own. It might consist of earnings from a job before marriage; it might even consist of little bits tucked away from the housekeeping; or it might be that small, long-awaited legacy from a loving aunt. Whatever it is the husband has to know about it, and it is taxed at his top marginal rate.

At present it is not all that easy to see any consistent principle as regards the treatment of a married couple compared with that of two single people living together. If you take the two single people, the woman does not pay tax on her investment income at the man's top marginal rate; they both get the full capital gains allowance, and they can get mortgage interest relief on up to £60,000. A married couple, on the other hand, have only one capital gains allowance and mortgage interest relief on a maximum of £30,000. As against that, the losses of one spouse can be set against the gains of the other; there is no capital transfer tax to pay on transactions between them, and no capital transfer tax for one spouse to pay when the other dies.

If one tackled some of these anomalies by extending fully independent taxation to investment income, however, and married couples were nevertheless left free to distribute their investments between them in the way best calculated to keep the tax bill down, the exchequer would lose quite a lot of money—probably some hundreds of millions of pounds—and these savings would go to the rich. At the same time, the thought of restricting by statute the movement of investments between spouses is singularly unattractive. One suggestion is that CTT should be applied on the movement of money between spouses, but it is difficult to reconcile applying CTT to gifts during lifetime with a complete absence of liability to CTT on death—Heaven forbid that that concession should be done away with.

It is hardly surprising that no European country, so far as I know, has gone in for fully independent taxation of investment income. The 1980 Green Paper, however, interestingly enough, floated the possibility of following a compromise, adopted in Sweden, whereby each spouse is allowed a slice of investment income which is taxed individually and then income above this slice is aggregated. The Green Paper went on to remark sagely that such an arrangement could not be defended on grounds of fiscal principle and that political or social arguments would have to be found to justify it. It is a device which would take care of the small nest egg. I believe that my noble friends sitting on the SDP Benches see considerable merit in it. I do so myself, although I realise that it would add to the complexities of administration.

But that is straying a little far from the EC memorandum. All I seek to do this evening is to underline the conclusion in our report that this is not an issue which can be totally divorced from the consideration of earned income and then forgotten. We hope that it will be fully explored in this forthcoming Green Paper.

One final point: I said earlier that one feature of the ideal tax system was that it was simple to collect and cheap to administer. Another is that it is easy to understand, but that, for us, seems to be a prospect equally remote. I am only too conscious that I may have got it wrong here and there in my remarks this evening, but if I have displayed ignorance I can comfort myself with the thought that I shall be in the company of several millions of my fellow citizens.

5.23 p.m.

Lord Houghton of Sowerby

My Lords, this is a very unusual debate for your Lordships' House because only very infrequently, and in conditions of extreme nervousness, do we debate fiscal matters. It is unusual because the Motion was introduced by my noble friend Lady Serota in a speech which would have done credit to a Chancellor of the Exchequer in another place for its lucidity and its comprehension of a difficult and complex problem.

The point is that we are debating this matter on a side wind, so to speak. We are not discussing taxation but discrimination against women in taxation: that and that alone. It enlarges the whole scope of our survey of a tax system, that it is the particular matter of women and equality between men and women and between women and women in the taxation system that we are concerned with tonight.

I congratulated my noble friend Lady Serota on the skill of her opening statement and I congratulate the Select Committee for its report. We are very well served by our Select Committees in this House. We are obliged to this one especially for presenting the matter so clearly and for coming to such positive conclusions on the matters it was considering. I have discussed this question in various places and in different ways for many years. I am very happy to feel that we are very close indeed now to getting rid of one of the blemishes on our tax system.

How degrading for women the institution of marriage has been through the ages! It is an appalling story when one comes to review the history of women and particularly the enslavement and humiliations of married women. What we are considering today is one of the indignities left in the system. Many of these have been removed over the centuries and probably most of them in the last 50 or 60 years. This removes one of the indignities in the lives of married women which many of them resent most deeply.

Within my own time in another place I heard a junior Minister complain that when she wrote to the tax inspector about her own taxation the reply was sent to her husband. When she was entitled to a tax refund and she argued it out with the Inland Revenue the money was sent to her husband. Your Lordships can find that part of the story in Appendix 2 of the Green Paper of 1980 which you have before you. Not until 1978 did a revolutionary Labour Government give instructions to the Inland Revenue that when they had letters from married women about their own tax they were to reply to the taxpayer, to the woman and not to her husband. In the same year they were instructed, regarding any matter arising on their own taxation, to write direct to married women and not to their husbands. Yet the rule made in 1806 about a wife's income being reckoned and taxed as part of her husband's profits is still there. One wonders what women have been doing since they got the vote 50 years ago.

As secretary of the Inland Revenue Staff Federation for 38 years I had to deal with many matters affecting women in the public service and in relation to taxation. This was part of my work for the removal of handicaps and indignities inflicted upon women. Taxation and social security were excluded from the legislation on sex discrimination. That was a pity at the time. I was there. To have included them would have been very complicated, controversial and difficult at that time. But we excluded them on the same ground as the Church: the time was not then ripe for removing all the handicaps on women in those three areas. Probably we are getting nearer to it now, but I congratulate the noble Baroness, Lady Lockwood, particularly as the first chairman of the Equal Opportunities Commission, for the persistence of that commission in dealing with a matter which, strictly speaking, was not within the scope of the Sex Discrimination Act.

I am glad also to remark on the pleasure I have in seeing my noble friend Lord Plant, my successor as secretary of the Inland Revenue Staff Federation, a signatory to the report of the Select Committee, in full tradition of the work that we jointly carried on for so long.

In looking, at the issues immediately before us, I think we have to pay full regard to what the Chancellor of the Exchequer said, at column 795, in his Budget statement on 19th March last year. He very clearly revealed his own mind, for he said that he was in favour of having one single standard personal allowance for all persons, irrespective of sex, irrespective of marital status. However, he said that he was also in favour of the facility of transferring the whole or part of an unused personal allowance in the hands of the wife to the husband, if she did not require it as a set-off against her own tax. That is called transferability. He further said: The aggregation for tax purposes of a wife's earned income and Investment income"— I emphasise, and investment income— with her husband's would end, thus removing what has become an increasing source of resentment among women". As I read that, the Chancellor last year felt personally in favour of a clear-cut separate taxation of men and women, married women and single women, leaving only the transferability, from a woman to a husband or from a husband to a wife, of any unused portion of personal allowance. That is the position I fully expect to find in its place in the next White Paper that is published by the Government, unless the representations that have been made since then have convinced the Chancellor to change his mind. He did indeed say: The Green Paper will set out full details of the proposals I have just outlined, as a basis for public discussion". That was last year and that was the Green Paper we were led to expect we were going to have last year. It is the one we still await and it is the one we expect to receive on Budget day. This will be the revelation of the Government's mind, and quite clearly it points to the system that I have just described.

It seems to me, then, that we can probably come to the point of this debate fairly quickly if we feel that we are all agreed that the weight of evidence and the state of mind of the Chancellor is in favour of ending the married man's allowance. If that is our starting point, and if the next stage is to accept that a personal allowance will attach to every person irrespective of marital status, with no addition to be made for a married man, ending the old system and starting with the new—if that is where we are, then we have to consider: what after that?

Would it be only for earned income that the transferability would take place? Would it be only for earned income that separate assessment would take place? Or would it extend into the field of investment income? This is a very important matter to consider. To what extent does the complete separation and independence of the tax of a person go? The Chancellor says that in relation to earned income and investment income, the whole lot, a clear cut shall be made.

The European Commission has been concerned only with earned income. The report of our own Select Committee in those terms of reference leaves the question of investment income for further consideration. I would say there can be no dodging that issue. Whether or not the European Commission is concerned with earned income and only earned income, I think we have to be concerned with the whole question of discrimination for tax purposes and the declaration of the independence of the individual as a taxpayer in his or her own right. That means going the whole way.

We cannot regard the tax system as a social service. It has been the tendency over many years to regard the tax system as part of our social as well as part of our economic policy, in that allowances which have a social purpose have been put into the tax system. Take child allowance; take disablement allowance; take dependent relative allowance, at one time the insurance relief, and so on. There are a whole collection of personal reliefs in the tax system which have a social purpose as well as being an attempt to adjust the burden of tax to the strength of the shoulders which have to bear it.

I think one can go too far in that direction. Whether in cash or in kind, the social services should take care of as many social purposes as possible. Indeed, on one occasion, and one occasion only within my recollection, the tax system rid itself of a social purpose. That was by discontinuing the child relief and leaving that entirely to the social services. Child relief went out of the tax system and child endowment went into the social services for the first child, with a tax free allowance for the child or children. That is what we have today. For many years the child relief in the taxation system and the family allowance in the social services system ran in double harness, chafing against each other, each making for complications in the adjustment of one or the other, until eventually a clean slate on that matter was presented and was generally regarded as the fair way of dealing with it.

So, in other respects, the social services can take on matters which are of social importance and are not strictly speaking taxation matters. A purpose of taxation is to avoid hardship. It is not to carry refinement of the burden of taxation on the shoulders of the individual to the nth degree. Otherwise one would have to bring into the tax system many matters that are not taken into account at all. In fact, some features of our tax system are of purely historical origin. They are there for no particular purpose at all except that they were there many years ago and they have been exploited and turned to modern use. Mortgage interest relief is a case in point. The relief for premiums on insurance policies, which had been in the system for many years, was eradicated because of its use for tax purposes. It became quite intolerable from the Chancellor's point of view. Thus I think there are firm lines of principle to be adopted, as regards both taxation and social services, if we can only find them, define them and cling to them. In this matter I think we have a very firm principle indeed.

I do not shrink from including investment income in the division between husband's and wife's taxation affairs. I need not go into the details of this because I am sure that in your Lordships' House there will be very many examples of taxation of a husband's income from investment income of the wife which lead to all sorts of financial problems in the relations between husband and wife in those cases. But it is quite contrary, in my view, to the eradication of the discrimination that we are trying to get rid of to keep investment income still in the system as reckonable as the husband's income. I do not see how we are really getting rid of the discriminatory element that the European Commission want us to get rid of unless we go the whole way and do so. We should cut the knot and have no tie whatever between the tax affairs of husband and wife.

That is the only clear principle that we can find. Then we can deal with the consequences of that in whatever way might be needful. I think that the only needful matter that we have to consider is what we do about the non-working wife or the wife with insufficient income to use up her personal reliefs. What do we do to replace the relief that she gets under the existing system?

Where there are children there is certainly a way forward. We adopted it before when we rid the system of the child relief. In regard to disablement of wives, there are social benefits there. That is where I suggest the recompense can come. But from the change there will be very substantial revenue saved, which would be available for distribution in other directions which would fulfil the social purpose. I think that we ought to take the very bold line of going the whole way and saying that there are ways that can be found of meeting the problems which would arise from this quite dramatic change in our tax system.

My concluding words are these. I do not think that we should make tax reform wait upon political or financial expediency to apply principles which have been ignored for so very long. I think that we must not look at reform solely in terms of the football mentality of winners and losers. That is what people tend to do. Look at what is happening now on social security! Who are the winners, who are the losers? It is not what the principles are; not whether there will be greater fairness or whether the body politic will be improved and the social conditions improved. None of these things occurs to the media when proposals first come out. Who is going to win? Who is going to lose? I think that is a great pity.

Some redistribution may be necessary to achieve these things. Some may have to pay more. They have probably been fortunate in paying less over many years, so they should not resent having to pay a little more in the interests of greater fairness or the adoption of clearer principles in our taxation system. I hope that the Chancellor will not regard his mind of March 1985 as the final condition in which he should approach this matter in the forthcoming weeks in the House of Commons and here.

5.44 p.m.

Baroness Gardner of Parkes

My Lords, last July we had in Nairobi a world conference to mark the end of the "Decade of Women". Out of that conference came a document of over 350 paragraphs of forward-looking strategies to the year 2000. Within those strategies, there is every call for equality of treatment in terms of taxation, and a number of conferences and meetings have been held in this country and attended by a large number of women's organisations and individuals. One that met in December sent me just this week the recommendations that they had put forward on improvements that should be made in taxation so far as women are concerned.

The points they make are simple ones and I think worthy of repetition. First, they said that pending the establishment of individual taxation, regardless of marital status and the abolition of the married man's tax allowance, the Inland Revenue should be instructed to facilitate and not obstruct implementation of separate taxation schemes; and, secondly, that married people should be required to sign all tax forms jointly. Their second major point which I shall deal with in a moment was parents' payments for child care allowance to be allowed against income.

But, returning to the earlier point, I should like to give my own views on this point of married people being required to sign the tax forms jointly. I notice that in paragraph 18 of this report it indicates that Britain is almost alone in not having this requirement. The wording in the actual paragraph is somewhat unusual. It says: In this matter the United Kingdom is out of line with European practice; almost all other countries require, where the wife has any income, that she either files a separate return or signs a joint return. The aspect that I do not quite understand is the expression, "almost all other countries". Surely it is all other countries or it is not all other countries. The word "almost" puzzles me. But it is clear that of the Community countries, this is a fairly unique practice in Britain. This certainly covers great hardship and difficulty for women. So many women have no idea of what their husbands earn. If he gets a wage increase, he often does not tell the wife. She has no way of knowing whether or not the amount she is given for housekeeping is an adequate amount or a fair share. It is really a great disadvantage that the husband knows all about the wife's tax affairs and yet she has no entitlement to know anything about his.

I do not know how far this goes back in the history of the United Kingdom but I certainly think that it is high time that it changed. I think the answer that married people should sign the tax forms jointly would be a way of dealing with this point. With regard to the child care situation, this problem has very much come to light within the past year or so. I notice that the noble Baroness, Lady Robson, brought up the case of the young doctor. That was an interesting case because the situation is that if the employer decides to set up a workplace nursery and the employees are all low-wage earners they are entitled to have the use of that workplace nursery and it is an allowable benefit and non-taxable. But if, on the other hand, the employee is earning over £8,500, then it must be declared as a taxable benefit on a form P11D and tax paid on the benefit. At one nursery for child day care with which I was associated, the cost was £120 per child per week. That could mean that the mother is expected to pay tax on that sum. My mathematics are not very good. It would be easier if I treated it as £100 a week and said over £5,000 a year. But she had to pay a taxable benefit on £5,000 a year and her earnings were perhaps only £9,000.

That was a very difficult situation and worked against the very type of woman of whom we are all wishing to see so many more in this country. I have in mind the young woman who has been trained for and is making good progress in her career, who then takes time off to have her children. However, when they are at a stage when perhaps they have gone to primary school, she then wants to return to her work. She needs to do so if she is to keep her place on the ladder and really reach the top because those years taken out in order to bring up children definitely set a woman back in any sort of career where she is aiming for the top. So I think that something must be done to look at this even if it were only looking at the way in which the car allowance is dealt with. With the car allowance, at the moment there are certain fixed sums that you are assessed on and that you pay tax on if you have a car. The amount varies according to whether it is a small or a large car. But the people who are enjoying the benefit of a company car are by no means paying every penny of what it is actually costing; so there seems to be a quite unfortunate difference between the way in which cases would be assessed, for instance, for child care and for a company car. I think that is an instance where we should see some change come about to help women in that situation.

Transferability is, I know, a very contentious item and how you view it really depends on how you see marriage and child upbringing. Some people believe that a fully transferable allowance would be a way of keeping women at home. Others believe that lack of any transferability would force women out to work. Either way would seem to be wrong, and I think it is eminently desirable to have a neutral situation in tax, if that is possible. But I think we are tending to overlook the fact that women take on a great deal of work in the home, and a good deal of that work is unpaid. I notice that the British Federation of University Women in their evidence made the point very clearly that we must not be confused between a non-earning spouse and a non-working spouse.

That is a very relevant point. Often the woman who is at home and non-earning is very hardworking indeed. In some cases she may have made a quite considerable financial sacrifice to be at home to look after the children for those few formative years. That is the typical pattern in this country, where women take just a few years off and then go back to work. I think our statistics show that in Western Europe we have one of the highest proportions of mothers returning to work.

I was also interested to note that no evidence was taken from the Wages for Housework Campaign, which I know believes that the work done by women in the home should be taken into account in assessing the gross national product. There is quite strong pressure now from women's organisations, not just in the United Kingdom but throughout Europe and the world, to press for a greater recognition of the work women are doing. However, I know that many women like to work outside the home, and many need to do so; so there should be no great disincentive to work outside the home but there should remain the opportunity for a woman to stay at home with her children if she wishes to do so. I do think that the transferable allowance would help that.

The other point has been covered by many speakers, but I really feel I should say something about the question of the so-called unearned income or investment income. I always think it is so wrong to say that it is unearned income, because the 1980 Green Paper made it very clear that of the large number of people who have this sort of income the great majority were people over retirement age. On the whole, those women would be people who had saved throughout their life, perhaps from their employment or perhaps even from their housekeeping, in the days when fewer women went out to work. But that was not unearned income: that was earned income, and the tax was paid on it. It was savings income really, and then it was available for investment. I think people feel rather bitter about the fact that this is put on to their husband's income and they are taxed at that level. Certainly something ought to be done about that.

Today my attention was drawn by a most able woman to the fact that she had been divorced and after 20 years of marriage she had received a small settlement—not a large one. She said that she had given all her time for the 20 years. Then on remarriage that small amount she had and the income it produced, which was a result of 20 years' work with her first husband, was simply added on to the income of her second husband and taxed as his income; yet it had never had anything whatsoever to do with him and she looked on it as her nest egg for the future.

With the matrimonial proceedings Bill and the effects we are seeing in the courts where a woman is expected more and more to stand on her own feet even after many years of marriage, I think this whole taxation issue, and in particular the question of investment or unearned income, is very important. The noble Lord, Lord Houghton, made the point very clearly, and I support what he said. It is high time the position was changed. I think it was right for it to be included in this paper. Had it not been, the document we have before us would have overlooked one aspect in relation to what, although it might appear to be unearned income, is very often earned income that has been put aside. Because of that, I believe it has very rightly been considered in this paper. I thank the noble Baroness, Lady Serota, for bringing this debate before the House, and I shall be interested to hear what others have to say on these matters.

5.56 p.m.

Lord Seebohm

My Lords, I shall be very brief, for two reasons. First, the noble Baroness, Lady Serota, has introduced this debate today so clearly that many of the points we might have made have already been made. I may say that her clarity and the way in which she introduced this subject were typical of all the meetings we held in Sub-Committee C. The second reason is that I doubt whether my voice is going to last for very long because I am just recovering from an attack of 'flu.

The first question, to my mind, when we looked at this problem was whether in fact it was a proper subject for the European Commission to be concerned with, or whether it was just another harmonisation for harmonisation's sake. However, the memorandum stems from Article 119 of the European Treaty, which required member states to ensure application of the principle that men and women should receive equal pay for equal work. In due course the commission drew up an action programme, in which taxation formed one of the areas for action as a prerequisite to a fairer and more advanced social order. I accept, therefore, that it is an appropriate question for the Select Committee to study, although the extent to which the various details are implemented should be harmonised throughout the member states.

There are many political and social considerations which are not the same in every country, by any means. In most countries, as has already been said, the incomes of husbands and wives are aggregated for tax purposes and a single document is signed by the husband or the main earner. At first sight it might appear to be a simple matter to disaggregate the system, with mandatory separate returns. However, a closer examination of the problem shows that, as the Inland Revenue pointed out to us very clearly in their evidence, a whole package of changes in a number of fields would have to be made. Those would include the problems arising from the new concepts of property rights. I do not know how many of your Lordships have come across this, but in the last two or three years husbands who own houses have found that in fact they do not really own them at all. There are also interest relief on mortgages, personal allowances and particularly the husband's marriage allowance, shared liabilities such as capital gains tax and all sorts of other matters which are tied up in the final separation of husbands' and wives' tax assessments. Also, the alteration of the tax assessments is undoubtedly bound to bring about changes in social security benefits.

One thing, however, is abundantly clear. Whatever the difficulties, reform is long overdue and this is one of the cases, as we have said before, I think, where the Government must not say "Yes, we agree with you but the time is not ripe." There is the principle which we have mentioned before of unripe time which the Government seem to find very handy.

As the report points out, before the war only one in 10 married women worked, and now 60 per cent. of married women are working. I remember that in my own business before the war 8 per cent. of the staff at Barclays Bank were women and now there are 62 per cent. full-time women and 11 per cent. on top of that are part-time workers. That indicates a complete social change.

First, let us look at the criteria for any personal tax system. As the 1980 Green Paper stated, the first is fairness; the second is simplicity; the third is sex equality; and the fourth is privacy. To these I would add, as the Inland Revenue pointed out, and as the noble Lord, Lord Allen, remarked, cheapness of administration and being difficult to avoid or evade. The first of these points was the disaggregation of earned income in such a way that the wife's earned income after using her earned income allowance does not incur tax at the highest rate of the joint income.

Secondly, the system should be as simple as possible to understand and should be the same for a single woman, a married woman or a divorced woman and no changes should take place when the marital status also changes. Professor Meulders of the Brussels University pointed out to us on the subject of simplicity that the latest system introduced into the Netherlands involves completing a document which is accompanied by 50 pages of instructions telling the recipient how to fill it in. This must not happen here.

Thirdly, there is sex equality. This is the critical area which includes the question of transferable allowances—with which I shall not deal any more—the retention or removal of the marriage allowance, the segregation of unearned income, which has been dealt with by the noble Lord, Lord Allen, and the transferable allowance which I think has been dealt with sufficiently by the noble Baroness, Lady Serota, and other people. I strongly endorse the view of the committee that this proposal of transferable allowances which we believe may be still in the Government's mind, should be abandoned if a genuine commitment to equality of women is involved. This view was strongly supported by many of the women's organisations which gave evidence to the committee. There was general agreement that the marriage allowance should be abolished, but that at all costs the child benefit system should be retained and possibly increased for one-earner families. This is the only important point that I wish to stress.

There is a fundamental difference between a tax allowance and a cash benefit payable to the child-caring spouse. Admittedly, the former results in an increased pay packet for the earner, none of which is necessarily handed over to the spouse, who is normally the wife; and, in the case of the latter, there is a specific sum of cash available to the wife for support of the children. This is something which we must not let go. It has been enormously popular, it is of tremendous help and I think is has brought great benefit to the children themselves. I believe it has the added advantage that it does not at all affect tax rates and does not have to be entered in the tax return. So that is something that can be altered at will up or down without interfering with any of the other tax arrangements.

The fourth criterion is that of privacy and this can be achieved only by the introduction of mandatory separate returns. That must be our target. The memorandum does not recommend the deregulation of earned income which, again, has been dealt with; so I shall not repeat the arguments on that.

Finally, let me say that I am not one of those people who believe that having children is a tragedy or an unwelcome burden. For most women having a family is a joy and a fulfilment and it is important that change does not go too far. I may not be popular for saying that, but I think that some people go slightly overboard. But what we must ensure is that the real needs of the children and the family as a whole are adequately protected.

6.4 p.m.

Lord Banks

My Lords, I should like to join in thanking the noble Baroness, Lady Serota, and her committee for the most valuable report which they have provided. It is particularly useful to have the summary of the Commission's view as expressed in the memorandum, and the views of the European Parliament and of the Economic and Social Committee. I think I am right in saying that all these bodies, including the Select Committee, want to see independent taxation with the individual adult as the unit. Certainly we on these Benches agree most warmly with that.

We also agree with the committee that the integration of the income tax and social security systems is urgently required, as my noble friend Lady Robson pointed out. One of our complaints about the Fowler review is that it does not deal with integration of the tax and social security systems and that we must await a further Green Paper with possible further upheaval in the social security system in a few years' time.

When the United Kingdom's position with regard to the taxation of men and women is examined, the married man's allowance is the universal target for disapproval. The married man's allowance gives assistance to one-earner couples and to two-earner couples. The principle of independent taxation would suggest that there should be one single person's allowance for each adult. The married man's allowance provides one-earner couples with one-and-a-half times that, and two earner couples with two-and-half times that.

But if we eliminate the married man's allowance, should the two single allowances be transferable? There has been much discussion of that already in this debate. There are arguments for and against which are set out in the report and, as the noble Baroness, Lady Serota, said, they are powerful on both sides. But, on balance, the committee say no, the allowances should not be transferable.

Non-transferable allowances, provided the single person's allowance remained the same, would penalise both one-earner and two-earner couples. One-earner couples would go from one-and-a-half to one and two-earner couples would go from two-and-a-half to two. Transferable allowances would penalise two-earner couples, reducing them from two-and-a-half to two, but would boost one-earner couples, by increasing them from one-and-a-half to two. The question is: should that boost go to couples where one spouse chooses not to work? The committee say in those circumstances no, and I have every sympathy with them. The principle of independent taxation would suggest that they should not be transferable, as my noble friend Lady Robson argued.

But while accepting that, it seems to me that there would have to be exceptions. What about couples over retirement age living on the pension of one spouse? It would not be reasonable to expect the no-income spouse to go out to work. It is not a question there of choice. What about disabled spouses? What about spouses caring for an elderly relative? Then, in addition to the child benefit to provide for the families with children, there would need to be provision for adult dependants to transfer their personal allowances.

It might be said that new or higher cash benefits in these circumstances would be the way in which to solve that problem. But however strong are the arguments for new and higher cash benefits—and, in many cases, they are strong on other grounds—I do not think that it would be satisfactory to try to compensate for apparent unfairness, or for actual unfairness, in the tax allowances by means of cash benefits. If that is so, then a number of exemptions are creeping in and the whole operation is becoming complicated. Some of the difficulties to which the noble Lord, Lord Allen of Abbeydale, referred are entering into the scene.

But I believe there is one way in which the problem could be solved and that brings me back again to the question of the integration of tax and social security benefits. If the personal allowances were turned into credits, into cash payments like child benefit—which was described to us just now by the noble Lord. Lord Houghton of Sowerby—then each spouse would get his or her cash payment and, if earning, it would offset his or her tax liabilities on every pound earned; or, if not earning, it would be drawn in cash and the spouse could do what he or she liked with it. In addition, those couples with no income would benefit; those paying the higher rate of tax would lose. Adult dependants would have their cash payment. No distinction would be made between men and women. Marital status would cease to have any relevance. This would be much simpler and the question of transferability would simply not arise.

If the cash payments exactly represented the value at the standard rate of the single person's tax allowance, then as in the case of the transferable allowances there would be no large sum available for other purposes such as child benefit; but these credits would be part of a wider scheme, including child credits replacing or continuing the child benefit, and the general level of credits might well be higher than existing personal allowances and child benefit since the scheme could be further redistributary. A satisfactory balance has to be struck between the size of the credits and the standard rate of tax: the one of course eats into the other. At any rate, those who are concerned about equal tax treatment for men and women would do well to investigate the tax credit solution. It would, in my opinion, be politically easier to introduce and administratively easier to operate.

6.11 p.m.

Baroness Lockwood

My Lords, as a member of the committee, I too should like to thank the noble Baroness, Lady Serota, for the very efficient way in which she chaired the committee and for her presentation of our report this afternoon.

The committee was looking at income taxation and equal treatment for men and women in the context of the memorandum from the European Community, but I could not help thinking that I had been here before. The noble Baroness, Lady Platt, has referred to the consistent stream of complaints on taxation matters that came to the Equal Opportunities Commission. As chairman of the commission from 1975 to 1983 I led what seemed to be innumerable deputations to successive Chancellors of the Exchequer, to the Treasury and to the Inland Revenue on this matter. Therefore it is encouraging to think that we are perhaps beginning to make progress.

The kind of complaints which the commission received can be clearly seen in the evidence which was presented to your Lordships' committee. The complaints covered both taxation on earned income and taxation on unearned income. This evening I shall be dealing only with unearned income but I am very grateful to the noble Lord, Lord Allen, and to my noble friend Lord Houghton for dealing in detail with the taxation of married women's unearned income. I should like to make it absolutely clear that there is no question of our proceeding to equality in this field unless we also include the taxation of unearned income.

The inquiry by your Lordships' committee differed in an important respect from the previous discussion in the United Kingdom based on the 1980 Green Paper. The memorandum from Europe is concerned with income taxation and equal treatment for men and women, whereas the Green Paper was concerned with the taxation of husband and wife. My noble friend Lord Houghton has referred to the statement of the Chancellor of the Exchequer in the Budget debate last year, and it seems fairly clear from his statement that one of the main premises of the proposed Green Paper which we are anticipating is to be that each person shall have the same standard allowance but if either husband or wife is unable to use up that allowance it can be transferred to the other partner. I think we have to ask whether this is likely to confine the discussion too narrowly. In order to determine what changes are necessary in the taxation system we need to look at the economic and social changes which have taken place since the wife's allowance was introduced for the first time in 1918, let alone since 1799 when income tax was first introduced and a married women's income was to be (I quote): stated and accounted for by her husband". These economic and social changes are not confined to the United Kingdom. Our experience is certainly shared by member countries of the EC and by most other parts of the world to some extent. The noble Baroness, Lady Platt, referred to some of the economic changes that have taken place in the position of women and pointed out to the House that 60 per cent. of all married women between the ages of 16 and 59 are economically active. This change is not confined to women without children. Increasing numbers of women with children are at work but largely on a part-time basis. Indeed, if we take mothers of all children between the ages of 0 and 16, we find that 55 per cent. of those mothers are working.

The noble Baroness, Lady Robson, referred to the problems of a professional woman who goes out to work and needs child care facilities. I remind your Lordships that the wife's earnings, whether in the professional classes or the manual working classes, constitute a quite important factor in household income. Indeed, it is well known that three times as many families would be below the poverty line were it not for the wife's earnings. So we are concerned here with an important economic factor.

A woman's work pattern is different from that of a man. The economic activity rate of women, particularly married women, dips between the ages of 25 and 34; rises to its highest peak between the ages of 35 and 49; and then begins to fall again after the age of 50. However, this latter age group of non-working wives is fast diminishing. Between 1973 and 1983 the economic activity rate of 55- to 59-year-old married women rose from 48 per cent. to 52 per cent. and for those in the next generation coming afterwards it is increasing at an even faster rate. In evidence at page 20, paragraph 4, we were told that the largest group of one-earner couples are families caring for children and other dependants. The "Women and Employment" survey of the Department of Employment found that 60 per cent. of all non-employed women were caring for children or sick or elderly relatives and only 14 per cent. were simply looking after the home. So this economic evidence shows that most married as well as single women have some financial independence.

Indeed, as the noble Baroness, Lady Gardner, has said, that point was clearly recognised in this House when we debated the Matrimonial and Family Proceedings Bill. The phrase that was going around at that time was that marriage should not provide a meal ticket for life. However, because of children and dependants, or because of the caring role, there are times in a woman's life when she needs financial support.

We must also look at economic changes in the context of some of the social changes that have taken place and are taking place in our society. Different types of family groupings are occurring. Unfortunately, the high divorce rate is leading to an increase in single parent families, four-fifths of whom are headed by a woman. Trial marriages and cohabitation are increasing. Permanent liaisons outside marriage where there are children are increasing. There are single-sex liaisons. And completely outside marriage, and such liaisons, an increasing number of single people of both sexes are buying and setting up their own homes, sometimes in a group for a short period of time but, increasingly, by themselves in order to get their foot on the mortgage ladder.

Whatever we may think of those groupings, the fact remains that there is no longer a single family and household pattern with which to concern ourselves but a whole variety of patterns. Some kind of equity between different households must also be taken into account now. In the light of those changes, we need to look very closely at what constitutes equality between men and women in relation to income taxation.

The dilemma that is facing us can perhaps best be seen in the conflict of views that came to the committee from Europe. The Economic and Social Committee's opinion of the memorandum, was: Tax laws should on no account incorporate an evaluation of … being married or not married; tax systems should be completely neutral in this respect". However, the European Parliament recommended that: The tax system should be neutral as between the married couple where only one partner is in paid employment and the married couple where both partners are in paid employment". Those two principles are incompatible. Immediately one gives two allowances to married people with only one income, one discriminates against single people or against non-married couples. The objective of the memorandum is to ensure that taxation does not constitute a deterrent to women going out to work. That too seems incompatible with the principle of neutrality between the family with one worker and the family with two workers.

Moreover, and as has already been said by a number of noble Lords, such would be a disincentive to married women to go out to work. Your committee was therefore persuaded that it is those who cannot work because of caring for dependants who are most in need of protection.

In the evidence of the Child Poverty Action Group to the committee, it was suggested that the £3.9 billion that would be saved by the abolition of the married man's allowance—that is, excluding the relief that would still be paid to those aged over 65—would be sufficient to increase child benefit by £7.65 per week and still leave £85 million to extend invalid care allowance to married women. Your Lordships will recollect that invalid care allowance is not now paid to married women on the assumption—albeit out-dated—that they are being kept by their husbands.

That would seem to me to present the most equitable way forward—remembering, as has been said, that it is women with dependent children and women who are caring for elderly or invalid relatives who constitute the largest group of women who are financially dependent on their partner.

I hope especially therefore that the committee's conclusion that the taxation system must be considered in conjunction with the social security system, and that support for dependants and in particular for children should be given to income maintenance rather than the taxation system, will receive the support of your Lordships' House.

6.26 p.m.

The Earl of Buckinghamshire

My Lords, speaking tenth on a tightly-drawn topic has, as I am sure your Lordships will agree, its drawbacks. It will lead to some repetition, and for that I apologise. I should also like to say that when I was asked to join the committee it was with some trepidation that I agreed to serve, because tax and equality of treatment for women is, your Lordships will surely agree, a potential hornets' nest.

Reform of taxation and equality of treatment for women are topical subjects. They are subjects that encourage trenchant views. Our own report was received with some praise by The Times, but on 1lth December last year it was also condemned by that newspaper's leading article as being totally wrong. More subtly, the same newspaper suggested that we had taken a contrary view to my right honourable friend the Chancellor whose proposals for transferable allowances had yet to be published. In other words, The Times thought that we were somewhat precipitate in our conclusions. Just to reassure your Lordships, I have to say that the tardiness of the Green Paper from the Chancellor cannot be blamed on Sub-Committee C.

The reason for such discord is that tax is not simply a means by which governments raise funds. Taxation and moral and social issues sit uneasily together, but we are all well aware of the social engineering aspects of taxation. When we add pressures to encourage marriage and the support of family life to those that involve an encouragement or discouragement of women in the workplace outside of the home, it is easy to see how conflicts can arise.

If one then considers the need for equality between men and women in taxation—which we do not have—one soon realises that change will result in "winners and losers" and that any proposals for reform may cause major disquiet.

I should like to deal now with three aspects of the committee's report. First, establishing the need for change; secondly, the reasonableness of the committee's recommendations; and finally, and very briefly, the treatment of unearned or investment income. It is important to remember that the committee's report arose out of the European Commission's memorandum on earned income taxation in relation to ensuring equal treatment for men and women. That emphasis on equal treatment was very well touched upon by the noble Lord, Lord Houghton, earlier.

In the United Kingdom, our taxation principles date back to the late 18th and early 19th century. Your Lordships will be pleased to note that the world has progressed somewhat faster than our own tax system. Today, more than 60 per cent. of wives under retirement age are in part-time or full-time employment outside the home. Equality of opportunity for women is slowly improving—not as fast as some may wish—yet we still have a taxation system that discriminates against women within the family. The husband is responsible for his wife's tax affairs; she has no income privacy; and his income is totally private.

In addition, discrimination occurs between family units. Two-earner families are better treated than one-earner families by approximately one times the single person's allowance. Two earners in a family are better treated than two single people who cohabit. Those who cohabit in turn qualify for tax relief on mortgage loans up to the maximum of £60,000, which makes the cohabiting couple in reverse significantly the best treated for tax allowances. It seems we have a very odd system of personal taxation. Even without the impetus from the commission to remove discrimination between men and women it can be seen that there is a need for reform within the United Kingdom.

Given a need for change, how reasonable are the committee's conclusions? The committee was sympathetic to those who advocated transferable allowances, recognising that under the present system of allowances this would be the most neutral in its effect on tax payable. In addition, transferable allowances would continue to support marriage and family life and ensure that couples in a family unit on the same total earnings would pay the same tax irrespective of how many worked. However, the weight of evidence taken—your Lordships can read it for yourselves if you have not already done so—supported a fully independent system which was neutral, and demonstrably so, towards women's employment outside the home. Independent taxation will ensure that single and married women in paid employment are treated alike for tax.

So far as I can understand it, it is this neutrality which led to The Times' rejection of independent taxation because the committee's rejection of transferable allowances seemingly appears to fail to recognise and support the family and marriage. I do not agree with that interpretation, but independent taxation will lessen the strains on the family by allowing privacy on earnings. It will enhance the status of women. Independent taxation will be simple to administer and more readily understood, whereas a system of transferable allowances will almost certainly lead to friction within the family; it will be more difficult to understand and more expensive to administer. Independent taxation removes the present anomalies that exist between two-earner families who, some would say, are too generously treated compared to the one-earner families and will largely end the discrimination that presently exists between family units.

What does this mean in practice? It will mean that the married persons' allowance will disappear so that the one-earner family will pay more tax—on current allowances approximately £375 per annum at the 30 per cent. tax rate, if my arithmetic is correct. It will mean that the two-earner family will also pay more tax. Increases in tax are not popular and it will be very necessary to have transitional arrangements to protect particularly the single earners, pensioners and disabled people in any change of this nature. However, if this change to independent taxation releases over a period some £5 billion this could be diverted to those in need, or who are perceived to be in need: that is, elderly dependants, dependent children or families who currently require and need a direct cash support in the community.

Changes in our personal taxation system will cause a "winners and losers" syndrome. If we allow this thought to be paramount then change will be delayed or less desirable changes will occur. The losers in the short term can be protected and, of course, it is easier to introduce change if taxation rates are reduced at the

So, to conclude on the practical effects, if we group taxpayers and potential taxpayers into three

So, to conclude on the practical effects, if we group taxpayers and potential taxpayers ino three groups—single earners, two earners and earners with dependants—then cash will be taken from the families of two earners, whose allowances will be reduced from approximately two and a half times the single person's allowance to twice times. The single earners, who apparently are mainly in the over 40s group, will also see a reduction in their allowances and will need protection over this transitional period. In principle, the cash released from the two-earner families can be diverted to deal with the third group; that is, those with dependants and who are perceived to be in need.

I now turn briefly to taxation of unearned income or, as some would prefer to call it, investment income. In my view, this was quite properly not fully explored by the committee, given the context of the commission's memorandum. There are certain legal problems of identifying property in England and Wales. These problems do not appear to exist in Scotland. I suspect that, in any case, they are not insoluble problems. I have to say that I have some doubts on the advisability of making a situation where unearned income is treated separately for tax on the man and the wife. I am not in favour of a system which will, I suspect, ensure that the main beneficiaries of totally independent taxation of unearned income will be the specialist tax advisers. So far as I am aware, no country has separate taxation for unearned income, not even the United States. It seems to me that the simplest method might well be to total the unearned income and divide by two for the purposes of assessing tax liability on a man and his wife. It may be deemed appropriate to have an allowance for a nest egg so that small investors do not suffer tax on their hard-earned savings.

The conclusions of the committee are, in my view, reasonable. Independent taxation will produce losers; that is, more tax under the present system of allowance will be paid by two-earner families and single-earner families, but there are certainly ways to protect single-earner families from the adverse effects in a changeover period. Whether two-earner families will also require protection is, I suspect, more of a political decision.

I am able to see the advantages of fully transferable allowances, particularly as there would be few, if any, losers in the system. However, it seems to me that the arguments should be geared towards the principle and a correct system of taxation and not be contaminated with how much tax we as individuals should be asked to pay. That is a separate matter. It should also be noted that we have to some extent moved down the road towards independent taxation where relatively high earners can be separately assessed for tax. To move back to transferable allowances may be regarded as a backward step. The question of unearned income is a separate issue to the one under discussion but, of course, no less important for that.

In closing, while I, too, should like to have some guidance from my noble friend the Minister on the timing of the Green Paper and of any subsequent reforms, I should not be surprised if the Government hasten somewhat slowly over this very tricky subject. None the less, in closing I commend this report to your Lordships and trust that all will agree that it has proved a useful addition to the discussion of personal tax changes in the United Kingdom.

6.40 p.m.

Lord Plant

My Lords, I, too, should like to thank the noble Baroness, Lady Serota, for the way in which she chaired our committee, and for her most lucid introductory statement to this debate. The Government issued a Green Paper on this subject as long ago as 1980. The Chancellor of the Exchequer, in his first Budget statement, indicated his desire to modernise the tax system; he wished to get away from the ideas and the social problems of earlier decades of this century. Last year in his Budget he informed another place that a further and more definitive Green Paper would be issued shortly. He underlined the fact that the tax districts would be fully computerised by early 1988, and so would be able to deal more easily with any future changes that he might have in mind. The Inland Revenue press released the news at the same time—that is, on 18th March 1985—and indicated that the Government favoured a system of fully transferable single persons' allowances. The Government intended the forthcoming Green Paper also to deal with the cumulative system of PAYE and ensure a closer integration between the tax and benefit systems.

For a long time the Inland Revenue and the DHSS have been looking closely at this problem. It is not an easy problem to deal with, but at some stage in the future it will have to be tackled. We still await the promised Green Paper, and there have been a number of excuses for the delay: but why has it not been issued? Perhaps the Government recognise that there are no votes in reducing the married man's allowance to that of a single person. Taking money from the married man's pay packet is fraught with danger, unless there is some compensation. Is the compensatory element to be fully transferable allowances? I believe it is.

The last time the pay packet was raided, which was ten years ago, was when the child allowances were transferred from the husband to the wife. This had the helpful approval of the TUC and coincided with an extra flow of money to the pay packet, so there was no outcry. It seems that the Government are keeping their options open, but from what we can gather they are thinking of getting away from the cumulative basis of PAYE, which will facilitate transferability of allowances. The evidence of Mr. Christopher, the General Secretary of the Inland Revenue Staff Federation, is very relevant (it is on page 118 of the Select Committee report). The IRSF evidence also fully supported independent taxation, as I do.

Another not unrelated matter is the criticism last week by the all-party Social Services Committee of the Government's proposals that the family credit, which is the new benefit to help low income families, should be paid to fathers by employers through the pay packet. The present tax system presumes that the husband has responsibility for all financial transactions and is the major earner. This view is now critically opposed by the TUC, among many others, on the grounds that the system is based on outdated views of the role of women as dependent on their husbands. The increasing development of the role of women in the economic fabric of this country has given impetus to the claim that taxing of married couples should be carried out with fairness, simplicity, sexual equality and privacy. These issues constitute the core of the EEC resolution which is compelling the Government to give urgent attention to this matter.

The problem now facing us is that the married man's allowance is one-and-a-half times that of the single person and the working wife. The married man's allowance was introduced in 1918 as a result of wartime pressure because of the legal and moral obligations he has to support his wife and family. Incidentally, those obligations have not lessened. At this stage I must say I am opposed to any system which will lead to a weakening of traditional family life. The wife's earned income relief was introduced in 1942, again as a result of wartime pressure. If we change it the Government must not make the tax system more complicated. Some of the present complex issues result from changes intended to put right injustices and unfairnesses, and in fact as a consequence of piecemeal development over many years.

I should like just to mention the household where the wife is not working—and there are very many of them. If all persons have the same allowance it will be of no benefit to the husband unless his wife's allowance can be transferred to him, and he would then have two allowances. If it is not transferable, the husband would be worse off—and that is not a starter for any Government.

The Inland Revenue staff have to deal with 6 million job changes a year and also with the fact that the majority of working women are part-timers and many work intermittently. One of the interesting findings of the Department of Employment and the Office of Population Censuses and Surveys dealing with women and employment was that most husbands cannot be described as enthusiastic about their wives working, though they are prepared to tolerate it if it does not interfere with their own work. This attitude and the fact that women still do most of the housework account for the substantial proportion of married women with grown children who work part-time only, if at all. Only 27 per cent. of wives covered in the survey, all of whom were under 60, worked full-time; 33 per cent. worked part-time, and 35 per cent. were neither working nor seeking work.

It is a fact that millions of families are kept from poverty by the wife's small earnings. Any introduction of transferability of allowances has to take into account this problem, and it obviously will be somewhat complex for the working wife. There are indeed 1,800,000 of them earning less than the wife's earned income allowance. The EEC has direct and strong opinions on this question, but it must be recorded that the EEC finds some difficulty in reconciling its desire to support traditional family life and its desire to see equality of treatment of men and women, married and unmarrried. The EEC does not regard transferability of allowances as a desirable option. Moreover, if we are to have fully independent taxation I think it will follow that the treatment of investment income should not differ from the agreed system of dealing with earned income.

It is unfortunate that this debate takes place before the Green Paper appears. There is obviously some trouble behind the scenes; otherwise, we should have received it before now. I assume, of course, that we must have it by the time of the Budget, and maybe we should keep our minds open until then. We shall then have the Government's ideas, the public's reaction to them and, indeed, the reaction of the public to our own documents, which in my view points the way for the future.

6.48 p.m.

Baroness Seear

My Lords, I do not think that anybody would challenge the statement that over the last twenty years there has been a fundamental change in the position of women, not only in this country but in all the advanced industrialised nations. I shall not go into the reasons for this; they are very widely known. I myself would say that probably more than anything else it stems from our now almost complete control over fertility, by which women can control not only the numbers of their children but also the times when they shall have them—the timing of their families. This has given women a freedom which they have never had since the days of Eve. Whatever the reasons, the fact is that the position of women is now something totally different from their position even at the end of the Second World War.

We have reacted to this situation with legislation, and legislation itself has stimulated further change. Of course, with the emancipation of women—which, as I say, I think has come very largely from control over fertility—women have been asking and have been given piecemeal, sometimes a little grudgingly, increasing degrees of equality. But it has been a piecemeal approach. We had the 1970 Equal Pay Act. This was to give equal remuneration. It was realised—indeed, it was realised by many people at the time of the passing of the Act—that this raised almost more questions than it answered and that equal pay without equal opportunity did not mean very much and would not achieve the objectives that women sought. So it was followed by the Sex Discrimination Act in 1975.

Comparably, through the European Commission, we had a directive on equal pay. This was followed similarly by a directive on equal treatment, which, with various differences, was largely about equal opportunity. Then it was found both here and throughout the Community, and also in the eyes of the Commission, that just as equal pay had needed to be supplemented, if it was to mean anything, by equal opportunity, so equal pay and equal opportunity by themselves were quite inadequate unless supplemented by changes in social security and changes in a whole range of other matters, of which taxation is one but only one, that would make for genuine equality.

It is understandable that we have had this piecemeal approach. It also means however, that we have a very untidy approach to the whole question of the position of women and the consequences of the changed position of women. With every change that we have made and with every legislative advance, we have created anomalies and thrown up further questions that demand additional examination and additional action. We have not taken—I do not say that this was a mistake initially—the reality of the change and then had a broad look at what is really required over a whole range of matters—pay, opportunity, social security, child provision, taxation, pensions and retirement age—which are affected by legislation and which greatly affect the reality, or non-reality, of women's equality. Of course as a result we are left with a large number of anomalies and with extraordinary, unanticipated consequences of the changes that we have made and of the changes that we have not made but which are called for by the changed circumstances.

We even have the case given by my noble friend Lady Robson as to how the dates of marriage are being altered in order to meet the tax system. I have to say, with all respect, that my noble friend got it a bit wrong although not wrong regarding the date of marriage. Is it not in the month of May that a young man's fancy turns to whatever it is that a young man's fancy turns to, and not the month of March? But then, you see, this is another consequence of the way in which we have dealt with the matter. We have even distorted the young man's natural instincts in May and pushed them back two months so that he can outwit the Chancellor. This cannot be proper and cannot have been intended. It is the sort of unanticipated consequence that we get when we have legislation that does not really meet the needs of the circumstance and which people then manoeuvre in order to try to bring it in line with what they want.

Have we not therefore to accept that the position is totally changed and that we have to abandon an approach that, because it has continued over centuries, it is not surprising that we find difficult to change? Over centuries, there were good sound biological reasons why it should be the way that it was. We have to change from seeing the woman as part of a family with the man as the breadwinner on whom she is dependent. Our whole tax and social security policies have been based on the assumption that the man is the breadwinner, that the woman is the dependant and that tax and social security have to be worked out on that concept.

What we have to move towards is acceptance of the reality today: that the woman is an individual person who may or may not be married, who in many cases if she is married is, sadly, in my view, not going to stay married, and who in many instances will be responsible either for a family, as an individual and a single person, or just for herself if she is not responsible for a family. If we accept that this is the position, we have surely to base not only our tax policies but indeed all our social security policies on the fact that the woman is an individual person, married or single, to be taxed as an individual person in a way in which her social security needs will be met on the basis of an individual.

I hasten to say that this is not an attack on the family as such. A great many people who strongly support the idea of the independence of women, of separate taxation for women and of women being treated as an independent person in tax and social security, are also strong supporters of the family and would like to see it in a much healthier position than in many ways it is at present. But we have to examine the way to achieve this. I go along very much with what the noble Lord, Lord Houghton, said when he argued that social policies and tax policies should not be confused; that we should have a tax policy that is logical, based on the principle, which we accept, of the taxation of the individual person; and then that we should examine what the needs of the family really are and what the requirements are in terms of the benefit to meet those needs and to sustain the family.

If we did this with the deliberate intention of sustaining the family through social security payments, or whatever system we get for meeting those needs, then we would do the job a great deal better than we have been doing it by trying to manipulate the tax system in a way that proves very inadequate. What we are doing all the time is manipulating a system that was worked out for a quite different set of social circumstances from those we have today. What we should be doing is looking at the social circumstances of today and working out de novo what is required to meet those circumstances both in terms of tax and in terms of security benefits.

From what I have been saying, it is obvious that I believe that the allowances should not be transferable, that the woman who earns should have her own single person's allowance and that this should not be transferable if the wife stays at home. But this is not to say that the family should not be supported properly if the wife decides to stay at home. If the wife so decides and there are no children to be looked after, that is a matter for herself and her husband. It is perfectly possible, through proper systems of support based on children, to maintain the position of the family even more strongly than at present if we make the adjustments suggested by many people, particularly in relation to the married man's income allowance.

I suspect—in fact, I do more than suspect; I am convinced—that if we are really to examine the position as it now is, the requirements of a modern society in which the woman cannot depend for the whole of her life on being supported and does not wish to depend for the whole of her life on being supported by the man, breadwinner and head of the family, we are going to find that the only really satisfactory solution to recognising the independence of the woman and at the same giving proper support to the family will be through an integration of tax and benefits, as my noble friend Lord Banks has been saying. I do not believe that we shall get out of the present difficulties, inconsistencies and contradictions in our present practice until we move to a system of this kind.

I know that everyone is reluctant to set up more committees and so on. But listening to this debate, I am mindful that it is now 14 years since your Lordships' House set up a Select Committee on sex discrimination. Out of that committee came a great deal of evidence and new policy with regard to the position of women. I wonder very much whether what we need now, if we are to take an overall view of the problem with which we are confronted, in which the taxation of women and the transferability or non-transferability of the allowance is only one tiny part, if we are to do the job properly and not have yet another instalment of the piecemeal approach creating yet again more anomalies while we are attempting to provide solutions, is something like a Lords committee to look at all the implications, including tax and social benefit, of the changed position of women. This seems to me to be the logical conclusion of the work that your Lordships' House did 14 years ago—it is quite a long time—so that with the experience we have had over those 14 years we can have a system which meets the new situation, not by patching up what has gone before but by reshaping what is required to meet the needs of today and tomorrow.

7.1 p.m.

Baroness Turner of Camden

My Lords, as other noble Lords have already said in this debate, the past decade has seen substantial changes in public attitudes towards the employment of women and their treatment in employment. Some of us think that change has not been rapid enough. Nevertheless, we have had legislation opposing discrimination in employment, and the pressure continues to end discrimination in retirement ages and in pension benefits. The Equal Opportunities Commission, of which I am a member—and may I say in passing how pleasant it was to hear in the debate the noble Baroness, Lady Platt, who is at present chairman, and the noble Baroness, Lady Lockwood, who was a previous member of the Commission—has played and continues to play a significant role in changing attitudes and in widening and opening up areas of employment which 20 years ago would not have been considered appropriate for women at all. The Manpower Services Commission, the CBI, and the TUC all support programmes aimed at ending discrimination and at encouraging women to enter careers which are likely to involve them for a working life rather than for a short time as a prelude to marriage.

It is clear that the social changes which have taken place and are continuing to take place are irreversible. Most women, as noble Lords have said in the debate, have jobs outside their homes now whether they are married or not, and for most of their lives. It is generally estimated that a woman now spends no more than seven years outside the workforce for childbearing purposes.

However, our present system of income tax has evolved over a period when paid work outside the home was the exception rather than the norm for married women, except for some working class women who always worked. However, they tended to be in those days too badly paid to be considered for tax purposes.

The tax system we now have reflects the then pervasive social assumption that women, whether married or single, were destined to be dependants. Indeed, in the years before the last war there was a marriage bar in many professions, including the Civil Service, in support of the philosophy that married women were expected to leave the workforce. Those days are long past but the remnants of the thinking behind those concepts remain and are enshrined in our tax laws.

As noble Lords have said, the offending section of the law is Section 37 of the Income and Corporation Taxes Act 1970 which says quite categorically that, A woman's income chargeable to income tax shall … be deemed for income tax purposes to be his"— that is, the husband's— income and not her income". The Equal Opportunities Commission comments in its consultative paper issued in 1978: It is not surprising that a system based upon this assumption should be regarded as, at best, humiliating—and at worst discriminatory". Indeed, as the noble Baroness, Lady Platt, said, it has led to complaints to the Equal Opportunities Commission from women who feel that so far as the Inland Revenue is concerned they are invisible—but I hasten to add, however, such invisibility does not bring any financial benefit. Clearly if we are concerned about equality of treatment something should be done to ensure that this applies to our taxation system. For this reason we welcome the report of the Select Committee.

The report brings together a great deal of information on the complex subject of taxation both in the United Kingdom and in other countries of the European Community. It includes evidence from a large number of interested and specialist bodies including the Equal Opportunities Commission. It reaches its conclusions taking into account the changing social background to which I and others have referred.

The majority of those who gave evidence to the Committee favoured reform of the present system and identified Section 37 of the 1970 Act as the basis of present discrimination. The most evident form that this discrimination takes is the married man's allowance to which reference has been made in the debate which the EOC thinks might once have had an historical justification but which now has none. The tax system in the United Kingdom is one in which husband and wife are treated as a unit. All income is for practical purposes aggregated and the wife has dependent status. There is, it is true—and this has been referred to also—provision for couples to opt for separate taxation but because of the existence of the married mans allowance this is only of advantage to couples with high incomes.

Furthermore, because the system only recognises the existence of the husband, with whom the Inland Revenue normally corresponds even about the wife's earnings—although I note that there have been some improvements in that regard—there is a lack of privacy so far as the wife's earnings are concerned. Many wives have complained that while they do not know what their husband earns, he knows what their income is. This lack of privacy is referred to in the submissions of a number of witnesses, notably from those representing organisations of professional women, many of whom quite rightly feel strongly about this.

Therefore, for the sake of equality and equity we should adopt the recommendation that our system should be one of independent taxation with each partner assessed as an individual. Moreover, the system should be neutral. In other words, it should not seek to influence people in one direction or another, whether to work or not to work outside the home, for example.

However, there are other considerations since although we should make adjustments to meet social change, we should try to do so with as little adverse effect as possible and should, if we can, utilise the opportunity to make reforms in other directions.

If we move in the direction of independent taxation, it becomes necessary to look at the matter of dependants. Chief among these are children. The Child Poverty Action Group in its evidence was able to show with some conviction—as were other witnesses—that poverty is mostly found in families of low earners with children. They are the very people who benefit least from tax concessions and most from benefits like child benefit. The Child Poverty Action Group is unequivocally in favour of devoting the resources which would be released by phasing out the married man's allowance to improving child benefit. In this they have some support from the EOC and certainly from the Trades Union Congress.

As for child care, some European countries provide allowances for child care through the tax system. We do not. Moreover, it seems that we have moved in the opposite direction. Two years ago the Inland Revenue ruled that employer-provided nursery and creche facilities were fringe benefits attracting tax for all but low-paid workers. The noble Baroness, Lady Gardner of Parkes, made extensive reference to that in her speech. I hope that the Chancellor will find it possible to review that at an appropriate opportunity. I may say that representations have already been made to the Chancellor both by the EOC and the TUC, and so far he has not found it possible to do so. I hope that he will change his mind. There are other dependants—the disabled, the old, or wives who cannot work because of their need to care for such members of the family. There is a case for providing direct cash benefits, and this is referred to in various parts of the report. Certainly it would be better, in my view, than simply being the subject of a tax allowance on someone else's pay.

It is, however, clear that involved in this matter of reform of taxation is the matter of the one-learner couple. It has been suggested that this could be overcome by a system of transferable allowances with the earning spouse thus having a higher allowance. It must be noted, however, that many of the organisations giving evidence to the Committee were against that idea. It could simply be a way of reinstituting the married man's allowance if the earning spouse received two allowances. Moreover—and this has been referred to repeatedly in the debate—it would certainly act as a disincentive to women who would otherwise like to take work outside the home. The point is put with absolute clarity by one of the organisations representing professional women, the City Women's Network, when they say: In the case of a one-earner (say the husband) couple, transferability would ensure that the couple would still receive the two personal allowances for offset against the husband's income. When the wife wishes to return to work then her income is effectively being taxed at what was her husband's marginal rate after deduction of two allowances … where the wife's earnings are low this will be a powerful disincentive to her returning to work". The same body also make a comment about the destruction of privacy involved in such a system, and I agree with their comment.

Further comment about transferable allowances has also been made by the Inland Revenue Staff Federation, which indicated in some detail that the system would be administratively difficult and costly, and as they are actually involved with the administration of taxation systems they really are in a position to know about that.

After examining the arguments very thoroughly, the Select Committee believes that those arguments against transferable allowances are substantially greater than those in favour. It agrees with the principal conclusion of the European Commission memorandum that the aim of equal treatment is best served by a system of fully independent taxation; further, that support for dependants—and, in particular, children—should be given through income maintenance and that the benefit should go to the caring spouse, who is frequently the wife.

These seem overdue and necessary reforms if we are to keep pace with what is happening in our society and to respond to social needs. I share the view that has been expressed by a number of noble Lords that there really is no logical basis for treating unearned income any differently from earned income; but I also agree with the noble Lord, Lord Allen of Abbeydale, that there can be some complication involved there that needs careful study.

In the middle of last year we were promised a Green Paper on personal taxation. I hope that when it appears we shall see that note has been taken of the Select Committee report, and that we shall eventually reform our system in accordance with the conclusions of that report.

7.12 p.m.

Lord Brabazon of Tara

My Lords, I should like to join other noble Lords in thanking the noble Baroness, Lady Serota, for introducing this important subject for debate this afternoon. It may be of interest to your Lordships to know that these issues are also being debated elsewhere today. The European Commission is itself holding a conference near Oxford on the memorandum on income tax and equal treatment, so it is indeed a topical subject.

I should also like to thank the noble Baroness, Lady Serota, and her colleagues on the sub-committee for the report that they have produced. It provides a clear guide to the complicated issues which we have been discussing today.

In one sense today's debate is timely in that my right honourable friend the Chancellor of the Exchequer has the personal tax system and the taxation of married couples in particular under review and will be publishing a Green Paper on this very shortly. I realise that the Green Paper will be a little later than was originally expected. I am afraid that that has been a consequence of producing a paper which covers a wide range of subjects needing full and careful consideration. I am sure that your Lordships will appreciate that, as the Green Paper has not yet been published, I shall not be able to comment in detail on a number of the interesting and important points raised in the debate as I cannot, of course, anticipate what will be in the Green Paper. Nor can I comment on speculation in the press, which the noble Baroness, Lady Robson, invited me to do. Moreover, we are now in the close season shortly before the Budget, when Treasury Ministers and their spokesmen customarily make no comment about tax matters, lest they should give any hint of what may be announced on Budget Day.

The taxation of husband and wife is a subject which seems at first sight straightforward, but becomes more complicated as you delve into it. One reason is that any tax system has a number of different objectives, which do not necessarily all point in the same direction. It is quite instructive to look at these objectives, and to see how far the system which we have in this country measures up to them.

Many people would make fairness the first objective: the tax system should ensure that the necessary burden of taxation is spread fairly between taxpayers according to their ability to pay. But this apparently straightforward idea itself depends on a number of judgments. For example, how should the tax burden be spread between people at different levels of income? How far should the tax system take account of family circumstances, and by what means? The present system recognises family responsibilities in a very broad way; and many noble Lords have mentioned this. Married couples are treated as a unit, and the husband has a higher allowance than a single person, whether or not his wife has income of her own. If his wife has earned income, she has a separate allowance to set against it, equal to the single person's allowance. This system produces results which are often criticised on grounds of fairness.

A married couple who both go out to work have higher allowances than two single people. But their allowances fall sharply when the wife gives up paid work, which is often when married couples are under the greatest financial pressure. And a small number of married couples with income from savings pay more tax than if they were treated as two single people. These are problems which the Green Paper will look at in more detail.

A second objective is equality: that the tax system should treat men and women equally. Often linked with this is privacy: all taxpayers, male or female, married or single, should be able to have privacy in dealing with their tax affairs. Here I would join the noble Lord, Lord Houghton of Sowerby, in congratulating the Equal Opportunities Commission, its previous chairman, the noble Baroness, Lady Lockwood, and the present one, the noble Baroness, Lady Platt of Writtle, on their persistent work in drawing the Treasury's attention to this. The present system does not achieve equality because of the higher allowance given to married men. Nor is privacy available to all. Most taxpayers, married or single, in fact pay all their tax at source without the need to fill in tax returns, but when a married couple are sent a return, it is the husband who is in law responsible for filling it in. Many married women object to having to give their husband details about their incomes.

Finally, simplicity is an objective which, in principle, commands virtually universal support. Everybody would like the tax system to be easy for taxpayers to understand and play their part in. The present personal tax system is a good deal simpler than it was a few years ago, thanks in no small measures to changes the Government have introduced: to take just two examples, mortgage interest relief is now given at source for the majority of taxpayers; and tax on bank interest is deducted at source. But many ordinary taxpayers—and indeed the noble Lord, Lord Allen of Abbeydale—still complain that they cannot understand the tax system, and it is not difficult to see why. Married men are treated differently from married women, "breadwinner wives" differently from "breadwinner husbands", a wife's investment income differently from her earned income, and, for pensioners a wife's pension based on her own contributions is taxed differently from a pension based on her husband's contributions. There are also two options for married couples to be taxed separately, which have different purposes and different effects.

However, here I should like to correct one point made by the noble Baroness, Lady Robson of Kiddington, about the time of year one got married. Indeed, the noble Baroness, Lady Seear, accused us of trying to divert the course of nature. This used to be true, but the present position is that the appropriate proportion of the allowance is given depending on the time of year of the marriage.

Thus—as I have said—there is a range of objectives to bear in mind, and these objectives sometimes conflict. The clearest illustration of this is perhaps the trade-off between fairness and simplicity: tax legislation could be a good deal shorter and simpler but for the special provisions which seek to make the system fairer for certain groups.

The fact that desirable objectives may conflict and that there can be different perceptions of what is fair may be one of the reasons why there is such a wide variety of systems for taxing husband and wife in different countries. As the Select Committee's report says: The tax treatment of husband and wife in Member States covers most of the spectrum from fully independent taxation to full aggregation". For example, Greece and Italy take the individual, married or single, as the unit for tax purposes, whereas Germany and Luxembourg take the married couple as the unit, in most cases, and France goes further and looks at the whole family's income, including that of the children. Some systems treat income from earnings differently from income from other sources. And there are different arrangements for filing tax returns.

Thus there is no single model for the taxation of married couples which can be regarded as generally accepted. The European Commission recognised this in their memorandum which formed the starting point for the committee's inquiry. They said: it must also be borne in mind that each national system of taxation has been developed as an entity with a coherent balance between units, rates, and allowances; a change in any of these elements may require other adjustments to maintain a balance in the system". If I have a criticism of the memorandum—and here I agree with the noble Baroness, Lady Robson of Kiddington, and the noble Lord, Lord Allen of Abbeydale—it is that it concentrates in its conclusions on the single aspect of the impact of the system on work incentives for married women. This is undoubtedly very important, but it has to be considered alongside other issues, such as investment income, which has been mentioned by so many noble Lords who have spoken this afternoon. If I may say so, your Lordships' Select Committee took a broader view and looked more carefully at these other issues.

I hope that your Lordships will understand why I have had to keep my remarks general, and cannot set out the Government's views on all the important questions which the taxation of married couples raises. What I can say is this. My right honourable friend the Chancellor has studied the Select Committee's report very carefully, and I shall pass on to him all the points which have been made in the valuable debate we have had today. I hope that the forthcoming Green Paper will be studied with equal care. This is a complex issue, which has an impact on large numbers of taxpayers. It cannot be decided on the basis of any single principle: it demands careful thought to what the practical consequences would be for people in a wide variety of differing circumstances. The Select Committee report, and some of the evidence submitted to the inquiry, recognised, courteously, that it was not possible to assess the system of transferable allowances properly until the Green Paper is published. I hope, therefore, that all those who have contributed to the recent inquiry and the interesting debate we have had today will give the Green Paper the close attention it deserves.

I hope, too, that we can encourage the widest possible response from the general public. They, after all, represent the majority of ordinary taxpayers who will be most affected by any changes. We particularly want to hear their views when the wider public discussion begins. I should like once more to thank the noble Baroness, Lady Serota, for having introduced this interesting debate, and, as I have said, I hope that we shall all be interested when the Green Paper is published.

7.22 p.m.

Baroness Serota

My Lords, the House, and particuarly those noble Lords who are waiting to speak on matters raised in the Unstarred Question of the noble and learned Lord, Lord Elwyn-Jones, which is to follow this debate, will be glad to hear that I do not intend to make another long speech today. Although I am sorely tempted to comment on some of the points that have been made in this wide-ranging debate on our report, I shall simply confine myself to thanking all those noble Lords and noble Baronesses who have taken part in what I believe has been a valuable and constructive debate.

I am naturally somewhat disappointed at the reply of the noble Lord the Minister. I can only express the hope that "very shortly" means more this year than "later this year" meant last year when the Chancellor made those comments in his Budget speech. However, we appreciate his position tonight and look forward to seeing the Green Paper, and I shall not press him further on whether this is going to come before or after this year's Budget.

That apart, it is gratifying that every single speaker in this debate is agreed that the long-standing and historical discrimination, both direct and indirect, against women in income taxation systems must now go, and that is the message which comes loudly and clearly from our hours of debate this afternoon. It is in that context, and on behalf of the sub-committee (many of whose members have spoken with such knowledge and such experience during our debate), that I would urge the Government once again in their consideration, and in the propositions they put forward in the Green Paper, to bear in mind the Commission's memorandum, our report on it, and all the speeches which have been made in our debate tonight.

On Question, Motion agreed to.