Well, that’s it. As I write, it’s all over bar the new government appointments and the losers’ recriminations as we try to settle down for five long years under Changed Labour and their dull-as-ditchwater leader and new Prime Minister, Sir Kneel Starmer. One thing you can be sure of is that new Chancellor of the Exchequer, Rachel Reeves, won’t be spending any time reviewing the unfairness towards married couples and their children of the Income Tax code. 
While scanning the web pages of the Daily Telegraph a little while ago I was drawn to this. It’s about how the freezing of the UK personal tax allowances and higher rate tax threshold until 2028 are drawing retired people on low incomes into paying income tax and increasing the tax plundered from the incomes of better off pensioners. It’s a result of the political sleight of hand beloved by all recent UK governments which allows them to claim they haven’t raised tax because the rate is unchanged but, by freezing allowances and rate bands, they can extract more tax. It’s a phenomenon known as ‘fiscal drag’. It’s particularly pernicious at present because that other form of disguised taxation, inflation, has been rampant over the last two years. The living standards of pensioners, therefore, could sustain a double whammy.
But that shouldn’t be the main story. Yes, pensioners are being hit, especially those better-off couples who are married or partnered where there is an income imbalance within the couple. However, this applies to everyone who shares a home and bills with another person, married or not. One may be paying tax at the higher rate while the other pays little or no tax with no ability to transfer unused Personal Allowances or Basic Rate Bands to the other. This delightful feature of the UK’s personal tax code doesn’t just affect pensioners, it affects everyone who is married or partnered and co-habiting. It wasn’t always like this.
During the 1980s, Chancellor of the Exchequer Nigel Lawson reformed the personal Income Tax code, ostensibly to give married women privacy in their financial affairs. That’s the way it was presented. The separate taxation of husbands and wives was introduced and the Married Man’s Allowance and Child Allowance were abolished. The latter was replaced by Child Benefit paid directly to the mother. It was done at the behest of the feminist lobby but completely ignored the obvious fact that two people living together and raising a child or children formed an economic unit under one roof. It was a blatant fiscal attack on marriage and the traditional family, made worse by the refusal to allow married women to transfer unused personal tax allowances and/or basic rate tax bands to their husbands. It was a perfect piece of neo-Marxist fiscal policy which attacked the traditional family economically and it was the so-called Conservatives under Margaret Thatcher who did it.
When I was a young married man in the late 1970s there was no separate taxation of husbands and wives. A married woman’s income, if she had one, was added to her husband’s and taxed in his income declaration. There was a married man’s allowance which added roughly 50% to the universal Single Person’s Allowance to which he was entitled. There was also a child allowance of approximately 30% of the Single Person’s Allowance per child. In 1979 when the average salary was about £5,800, a married man on such a salary with a wife and two children could expect about £2,550 in tax allowances before additional allowances such as Mortgage Interest Relief and Life Insurance Premium Relief were added. If a husband and father was also making tax-deductible pension contributions he could easily have more than half of his income free of tax. This is how single-earner households used to manage to meet their bills and raise their children. All that was changed with these so-called reforms.
This tax reform immediately created a fiscal divide between single-income households and dual-income households. Some wives and mothers preferred to stay at home with their children and men who had good incomes could support them. However, it was soon apparent that dual income couples, even those on relatively modest wages, could enjoy a standard of living which was higher than that of a single-earner household at the same level of pre-tax income, especially one in which the single-earner was a higher-rate taxpayer. A dual-income couple had the benefit of two personal allowances and two basic rate tax bands whereas single-income households would have only one tax allowance and one basic-rate band so the single earner could be paying significant amounts of tax at the higher rate.
Some people wrote to their MPs in the 1990s to protest, providing worked examples of how much extra tax they were paying, proportionately, compared to dual-income couples. Some replies were sympathetic but there was no political appetite to make a change. A later Tory Chancellor of the Exchequer, Kenneth Clarke, even had the gall to claim in the House of Commons that the tax system did not discriminate against married couples. It demonstrably did where there was an imbalance between the couple’s incomes or if only one of them was working. It still does.
In the dying days of the last Labour Government in 2010 it inflicted another spiteful measure upon taxpayers which affects married couples and their children: the tapering to zero of the Personal Tax Allowance above £100,000 taxable annual income. It had never been removed or even watered down by the faux-conservative governments of 2010 to 2024. That too will affect more and more single-income households as inflation and fiscal drag pulls them into the zone.
The UK is virtually alone among developed countries in treating married couples and civil partners in this way. Let’s look at how other countries approach this. The figures are for 2022 but they serve to illustrate the stark difference.
In France income tax is levied on households, not on individuals. Most married couples file joint income tax returns. Total income is split according to how many people live in a home: one share for a single person; two shares for a married couple and half a share each for the first two dependent children with one full share for the third and each subsequent child. Thus the income of a married single-earner taxpayer with three children would be divided in four and each share subjected to the income tax schedule. The result would be that a married man and his wife with three children would pay not a centime in income tax until their income exceeded €40,900 and the rate would not exceed 11% until their income rose above €104,280. That said, there are substantial social charges in employment deducted at source (over €20,000 at €100,000 gross income) but the main point is that the personal tax system adequately recognises marriage and the family.
In Germany all resident individuals are taxed on their world-wide income. No one pays any tax until income exceeds €10,347. For a married couple that is doubled to €20,694 and the tax rates start at 14%. The rate increases progressively until €58,596 when it reaches 42%. That figure is doubled for married couples so they don’t reach 42% until they earn €117,192. The tax rate stays flat at 42% until €227,825 or €555,650 for married couples. Above those figures the rate is 45%. But note, you must be earning over half-a-million Euro to be paying tax at 45% as a married couple. And there is no stripping away of the personal allowances as there is here in the UK. Again, the tax system recognises marriage.
Across the Atlantic Ocean in the USA everyone pays some Federal income tax but it is 10% until $10,275 then 12% to $41,775 and then 22% to $89,075. Just as in Germany, for married couples filing jointly these bands are doubled to $20,550, $83,550 and $178,150 of joint income. Once again, marriage is recognised and supported by the tax system.
Back in Europe in Victor Orban’s Hungary there is a flat income tax rate of 15% paid by everyone on aggregated income from all sources. From this can be deducted the Family Allowance for dependent children of HUF 66,670 for one child, HUF 133,330 for two and HUF 220,000 if there are three or more children per month per child. That is a progressive allowance which at the current exchange rate of HUF1,000 = £2.08 means the equivalent of nearly £1,400 each month is allowed against the income of a married couple with three children before it is taxed. In Hungary the average salary is the equivalent of £2,370 per month so that is serious support for marriage and the family through the tax system. In addition, since 1st January 2020 women who are currently raising or who have raised 4 or more children will pay no personal income tax on certain types of income as specified by law.
While the increased income tax being paid by British pensioners due to fiscal drag is reprehensible, the blatant tax discrimination against marriage and the family is far worse and it continues to roll on. This contributes to the predicament in which young couples find themselves in 2024. No wonder they have difficulty trying to make ends meet. No wonder they struggle with child-care, juggling family and jobs. No wonder they put off having children; some put it off for so long that, tragically, it becomes too late for them. This tax regime has been in place for 36 years now, and it is way past time for it to be ended. But, if the appalling faux-conservative government which has just been ejected didn’t do anything about it we can scarcely expect the incoming Labour government to be concerned. They will still be celebrating the fact that their ideology so rules the political landscape that even the Conservative party could be induced to instigate and retain blatantly Marxist policies. This is yet another grievance that the young should add to the list they already have. And remember, all tax is legalised theft, perpetrated under threat of fines or imprisonment.
Iain Hunter