Matthew Hancock, Conservative Party MP for West Suffolk and Parliamentary Under Secretary of State for Skills, speaking yesterday at the Resolution Foundation event ‘A Conservative agenda for tackling low pay’ said in answer to comments and questions from audience that ‘One of the best things Nigel Lawson did was to get rid of family based taxation.’
The former Chief of Staff for George Osborne is of course referring to then Chancellor Nigel Lawson’s decision in 1990 to introduce independent taxation, meaning that the tax man would no longer take account of the number of members in the family in deciding how much to tax an individual. The net result of this is that any family recognition would come through the benefits system, albeit with small concessions remaining through the Married Man’s Allowance and Additional Person’s Allowance (both of which have now disappeared.)
The East Anglian Parliamentarian’s strong opinion on this issue has raised a number of questions. Namely, does this opinion reflect a wider refusal by Tory modernisers such as Hancock to accept that income should than be considered on a wider, more reflective household basis rather than an individual standpoint? After all, as event panellist Nicola Smith (Director of Economic and Social Affairs at the TUC) correctly pointed out, a current Government tax policy – increasing the personal income tax threshold (which received the vociferous backing of Hancock yesterday) is both extremely expensive (the IFS estimate that it will cost the taxpayer £10.7 billion in 2016/17) and is relatively poorly targeted, with most of the income benefit going to those in the upper half of the income distribution (see the graph below, produced by the IFS .)
Moreover, do Hancock’s views reflect those of other members in the Conservative Party, most notably George Osborne, who once again failed to introduce in his budget this month a transferable allowance for married couples? This failed recognition is important in that this policy would begin to reintroduce some semblance of family recognition into our tax system, has been noted on page 30 in the Coalition Agreement, and rather unlike raising the personal income tax threshold, would predominantly benefit those in the lower half of the income distribution due to households with one-earner being more likely to be in the lower half of the income distribution than those with two (see graph below, again with thanks to the IFS.)
In case you hadn’t guessed by now, it is my view that in order to tackle low pay, we must start to think of incomes not as just those of the individual concerned, but in the context of the overall household. Only when this is taken into account will we begin to see much some wages have to stretch in order to meet routine household cots. Thus, if future policy can consider households more readily, then it will have done low to middle income UK households (whose living standards have stagnated in recent years) a great a service. With this in mind, it is both surprising and worrying to hear Matthew Hancock’s apparent reluctance to consider the whole household in this debate on low pay.