The coalition Government has a real problem to overcome if it is to reform the tax and benefits system. The tax system is based on individuals being taxed separately, while the benefits system is based on families.
When Conservative chancellor, Nigel Lawson, one of the great tax reforming ministers, introduced separate taxation of husbands and wives in 1988 he was responding to women’s desire for greater equality and control over their finances. Up until then women had to divulge any capital gains on investments to their husbands who were responsible for the tax due. This was much resented by both men and women.
The problems are highlighted by the recent announcement of the withdrawal of Child Benefit to those parents where one is a higher rate taxpayer. David Cameron has made much of ‘fairness’ in the cutbacks in benefits but higher income families can see no fairness in the fact that a couple with two earners – both earning up to the higher rate tax threshold with family income of up to £86,000 – will continue to receive Child Benefit while those on a single income of £45,000 a year will lose it. The changes are planned for 2013 so there is still much time available to review the rules and make alterations.