Wives' tax boost gets cool reception

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Treasury sources were last night playing down reports that the Chancellor, Kenneth Clarke, will be pressed by Downing Street to give more generous tax allowances to support wives who stay at home to look after children rather than go to work.

The Treasury has yet to be presented with the proposals, which are currently being examined by Norman Blackwell, the head of the Downing Street policy unit, but Whitehall sources were sceptical about the ideas being put into practice.

John Major has ordered a review of taxation policy affecting the family, in an attempt to win back disillusioned Conservative voters. The options, being considered by Mr Blackwell's team, include allowing non-working wives to transfer their personal tax allowances to their husbands.

According to reports, women working part-time and not using up all their single person's allowance would be allowed to transfer the balance to their husbands.

If the husband stayed at home to look after children, he would be allowed to transfer the balance to his working wife.

The potential cost to the Exchequer is estimated to be as high as pounds 5bn, although this could be reduced by phasing out the married couple's allowance, which is payable to either the husband or wife, or the introduction of other restrictions.

The move would end the inequality with working couples, who are each entitled to single person's tax allowance of pounds 7,050 and the married couple's allowance of pounds 1,720.

But it would mean reversing the trend towards tax incentives to encourage people to take jobs, and the Tories' preference for cutting the rate of tax, rather than allowances.

If Mr Clarke has money to spare for tax cuts, it is likely he will seek a more dramatic gesture to cut the basic rate by 2p in the pound.