Nigel Lawson was easily one of the most consequential chancellors of the modern era, only Gordon Brown can claim to have had a greater impact but for quite different reasons. Where Lawson cut tax, Brown redistributed wealth on a scale still not recognised for its enormity.
As chancellor, Nigel Lawson introduced personal taxation into the UK. It was and still is a hugely important reform, moving away from almost 300 years of tax policy. Quite the U-turn. Â
When Pitt the Younger first imposed an income tax in 1799 it was assumed that a married woman’s income should be treated as part of her husband’s income. This eventually became a tax break, in several different forms, for men having wives. It was only in the 1970s that married couples could choose to have their income separated for tax purposes. By the 1980s even the Conservative Party, with its traditional approach to family life, was starting to advocate for change – but not without internal rifts within the Cabinet and on the backbenches. While some Conservatives felt any reference to a ‘married man’s allowance’ was ridiculously out of date (even then), others, including Nigel Lawson, recognised that in moving towards personal taxation some allowances would need to be made for stay-at-home mothers and potential glitches in the system where two single earners end up paying less tax than a married couple – a loophole that still exists to this day. One surprising opponent was Mrs Thatcher herself, who was apparently quite keen on two–earner households. The problem comes about where generous tax allowances for individuals (we are all individuals to the taxman) mean that a single earner needs to earn a lot more to compensate for a partner, usually a mother, stays at home to look after children.
Eventually Nigel Lawson got his way, a rare example of Margaret Thatcher losing an argument within Cabinet, and individual taxation was introduced with a new ‘Married Couple’s Allowance’ to go alongside it. That other titan of Horse Guards Parade, Gordon Brown, eventually all but did away with the Married Couple’s Allowance altogether, restricting it to new claimants in the hope it would wither and die.
These reforms have had a dramatic effect, with two–earner couples becoming the norm and marriage rates plummeting. Many will argue other factors, including housing, are just as much to blame, but it is undeniable that the difference in tax paid by singletons and married couples with the wrong number of children and family set up is stark. Â
When the Conservative Party returned to government in 2010, David Cameron personally took charge of re-introducing aMarriage Allowance, much to the horror of his chancellor, George Osborne. It was one of the few disagreements they ever had. By 2022 this allowance was worth a maximum of £252 a year in a tax break to married couples, or about a fiver a week. Hardly an amount that will compensate some families who lose out in our tax system.
A recent analysis conducted by the Policy Exchange think tank showed that a single-earner family with an annual income of £70,000 would pay £7,935 more in income tax and National Insurance contributions than the equivalent dual-earner household. As such, a single-earner household would need to earn an additional £13,681 to have the same disposable income as a dual-earner family where both earn £35,000 per annum.
The arguments from Nigel Lawson’s time as chancellor still rumble on today and the effect of his changes are still very much felt by couples, particularly families where one person works and another raises children. The number of stay-at-home mums is falling fast, only about one in seven mothers with children under 10 have given work the boot to be a full-time mum; the figure was much higher when Lawson was pushing through his plans in the mid–eighties. The old traditionalist Lawson was an intellectual, he looked at the evidence and could recite facts and figures. He could see clearly the problems associated with a shift to personal taxation and was, of course, proved right. The language of the Married Man’s Allowance might have had its day by the 1980s, but the need to help parents, mothers in particular, to make the choice to look after their children still remains. To this day, surveys show that mothers want to work a lot less and care for their children a lot more but they are woefully ignored by our obsession with work at the cost of all else, especially children.
Marriage hasn’t held up well either, with rates set to hit rock bottom in a few generations. The number of married couples has never been lower, which in the end means the number of families splitting up gets higher and higher. Lawson understood all of this.
We need to complete the forgotten Lawson revolution, bylevelling the playing field for families. This could be done by ‘income splitting’ – allowing couples to chose how they pay tax, as other countries do. It would certainly bring Britain into line with countries that are much more willing to recognise the role of families in their tax system.
If the current chancellor, who has a picture of Lawson above his desk at the Treasury, were to look again at the issue of family taxation, it would be a fitting tribute to the late Lord Lawson and would complete his legacy.
Frank Young works for a Westminster think tank and is writing in a personal capacity.