Mary Dejevsky: Why insist on taxing married couples separately?

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The Independent Online

International Women's Day, and the Culture Secretary, Tessa Jowell, was out speaking about equal pay in her capacity as minister for women. It was an uncontentious, mother-and-apple-pie topic, perfect for a female politician still under pressure.

One reason why the pressure will not go away, however, has less to do with any conflict of interest, real or imagined, between Ms Jowell's ministerial position and her husband's financial risk-taking, than with the muddle that exists in this country regarding couples and the tax system. The Cabinet Secretary, Sir Gus O'Donnell, unwittingly touched on it when he suggested, after concluding his investigation into Ms Jowell's conduct, that her husband should have told her about paying off the mortgage on their London house. Of course he should, but perhaps he didn't.

Precisely the same applies to the latest instalment of this saga. The question here is whether Ms Jowell knew (or should have known) about shares in a pub chain that were apparently bought by a company in which her husband had an interest. Ms Jowell was then involved in overseeing the liberalisation of licensing laws at the time.

As a minister, Ms Jowell surely had a duty to know what her husband was up to and ensure that he was involved in nothing that might embarrass her politically. The onus was on her. She was the minister, not her husband. This, however, is the political answer to a political question.

The financial answer to the financial question is that he was under no obligation whatsoever to tell her. Since 2000, married and cohabiting couples have been taxed separately. Each partner is responsible for his or her own tax affairs. For the purposes of the Exchequer, there is - almost - no such thing as a household.

It was not always so. In Britain, the taxation of couples has altered greatly over the years, belatedly mirroring changes in social attitudes. As I recall, when I married, there was a married couple's allowance; the rest of our income was totted up and taxed as one. This was doubtless supposed to encourage the wedded state, which it did up to a point. While depriving cohabiting couples of the married allowance, however, it also penalised higher-earners who were married: they reached the upper tax brackets sooner than if they had lived, as was then said, in sin.

These anomalies were ironed out when married couples were allowed to choose whether to be taxed separately or together. Finally, in 2000, the married couple's allowance was abolished. The supposedly egalitarian, value-neutral solution was that everyone - married, single or cohabiting - was to be taxed as an individual. The money saved by the Exchequer from the bonus for married couple was reallocated to children via child allowances and tax credits.

The only advantages that remain to those of us in the married state now are the freedom to transfer capital (but not the personal tax allowance) from one partner to the other without attracting tax, and freedom from inheritance tax when one partner dies. But this is a very temporary benefit: the estate of the surviving partner is as liable to inheritance tax as the next person's.

If the Inland Revenue no longer recognises such a thing as a couple or a household for most tax purposes, however, this is not true - by and large - of the benefits system. Most means-tested benefits, including residential care for the elderly, are calculated according to household income and assets. They have to be, otherwise one partner could plead penury, having transferred all assets tax-free to the other. Nor is it true of real life.

Most ordinary households function more or less as a unit. The mortgage - its interest, absurdly, no longer tax-deductible unless it is on a buy-to-let - is a shared responsibility, and often deemed to be shared by the bank even if it is in one partner's name. We learn that, even with all the money washing around the Jowell-Mills household, the lender required her signature on a mortgage taken out on the country home owned solely by her husband. Why? Because no lender wants to be left with a partner who might have a legal right to remain in the house if the financial arrangements go wrong. They want proof that everyone with a material interest is in the know.

Children or other dependants are also a joint responsibility. Yet the personal tax allowance is not transferable between couples. This penalises a partner in a lower or middle-income households who opts for full-time family responsibilities over paid work. This is how a partner who stays at home to look after the children has become the mark of an upper-income family.

It is surely arguable that the taxman should treat savings and investments as household assets, too. In that case, not only would Ms Jowell's husband, David Mills, have had a political (and moral) obligation to keep his wife informed, but she would have had the right and duty to know. The tax return would be completed and signed in joint names. For Ms Jowell to plead ignorance of the family finances would not have been an option.

Britain is one of very few countries that treat everyone as an individual for tax purposes. The pluses are the veneer of equality and privacy you enjoy as a taxpayer. Among the minuses are the elaborate dance we, the public, have been led by the Jowell-Millses.

m.dejevsky@independent.co.uk

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