The Dynamics of Taxation

Essays in Honour of Judith Freedman

Glen Loutzenhiser, Rita de la Feria, Glen Loutzenhiser, Rita de la Feria

• Éditeur: Hart Publishing
• Année: 2020
• ISBN:
  9781509929115
• Édition: 1
• Sujet: Jura
• Sous-sujet: Steuerrecht

This book brings together a landmark collection of essays on tax law and policy to celebrate the legacy of Professor Judith Freedman. It focuses on the four areas of taxation scholarship to which she made her most notable contributions: taxation of SMEs and individuals, tax avoidance, tax administration, and taxpayers' rights and procedures. Professor Freedman has been a major driving force behind the development of tax law and policy scholarship, not only in the UK, but worldwide. The strength and diversity of the contributors to this book highlight the breadth of Professor Freedman's impact within tax scholarship. The list encompasses some of the most renowned taxation experts worldwide; they include lawyers, economists, academics and practitioners, from Britain, Canada, Portugal, Australia, Germany, Italy, Malta, Ireland, and Ukraine.

PART I

Taxing Small Businesses and Individuals

1

Geoffrey and Elspeth Howe and the Path Towards Independent Taxation of Husbands and Wives: 1968–1980

GLEN LOUTZENHISER

I.Introduction

Although Professor Judith Freedman is perhaps best known for her academic writing on tax avoidance, small business and tax administration, at the beginning of her academic career at the London School of Economics and Political Science¹ her writing on taxation initially focused on the family. She has remarked to this writer on more than one occasion over the years that very little attention has been paid to her early work. This chapter is a first step towards filling this lacuna in the literature.

Building upon the work of Freedman and others, and drawing upon recently released archival material, this chapter explores the events leading up to the introduction of independent taxation of married women in the Finance Act 1988 with effect from April 1990. Most importantly, this chapter makes the novel assertion that Baroness Elspeth Howe, former deputy commissioner of the Equal Opportunities Commission (EOC) and also the wife of former Chancellor Geoffrey Howe, played a highly significant and heretofore not fully appreciated role alongside her husband in the move towards independent taxation of married women in the late 1960s and 1970s. In particular, it is argued herein that Elspeth Howe, with Geoffrey Howe’s backing, contributed directly and indirectly – especially through her work on the EOC – to the Conservative Party’s policy work on independent taxation. The Party’s (and the Howes’) pursuit of independent taxation was advanced on a number of fronts, including through the work of two internal Conservative Party committees – the 1977 Committee on Women and Tax and the 1968 Cripps Committee. These two committees have received scant attention in the prior literature, but this chapter argues that the historical records demonstrate that they were key links in the chain of events leading to independent taxation of married women.

II.Freedman on Tax and the Family

Professor Freedman’s early writing on tax and the family included three Finance Act notes related to the tax treatment of married couples for the British Tax Review – a journal with which she would later become synonymous as its general editor.² Freedman also wrote two articles for the Journal of Child Law on childcare costs and the role of the tax system, and examining the merits of child benefit, child tax allowances and other forms of payment to families with children.³ In these articles Freedman argued, amongst other points, that ‘tax relief was not going to meet the problem of lack of resources for childcare’ and that the non-deductibility of childcare costs is ‘perfectly consistent with the fact that other essential expenditure such as food and travel is also non-deductible’.⁴

Freedman with three co-authors also produced a report in 1988 for the Institute for Fiscal Studies (IFS) entitled Property and Marriage: An Integrated Report.⁵ This appears to be Freedman’s first publication with the IFS, a group with which she would work closely over her career, including as a Research Fellow,⁶ a long-standing member and then chair of the IFS’s influential Tax Law Review Committee⁷ and a contributor to the Mirrlees Review.⁸ The report was the end product of a Working Group on Family Property Law established by the IFS in 1985 and comprised of lawyers and economists. It is an impressive, early example of the type of scholarship for which Freedman would become well known.

The report sought to tackle the root causes of a wide range of problems in the operation of aspects of the law concerning property and marriage. The analysis is broad, thoughtful and insightful. As the report title suggests, Freedman et al come at the tax law issues from the perspective that tax law was not ‘divorced’ from other areas of law concerning the family.⁹ The Working Group set out to examine the area of family property ‘in its widest sense’, considering the function and objectives of family law across legal fields generally treated as distinct – property, family, tax, social security and pensions, bankruptcy, succession and intestacy.¹⁰ This view that tax law is not an island became a central theme of Freedman’s career, in her writing, teaching and administrative work. The report’s main proposal was to call for a new regime of family property for the UK – a so-called ‘mixed community of gains’ – which took as its starting point equal division of all property acquired during marriage.¹¹

III.A Brief Summary of the Movement Towards Independent Taxation

When the IFS Working Group was established in 1985, the UK personal income tax system essentially ignored married women as individuals in their own right.¹² As discussed briefly in this section and in more detail in a doctoral thesis by Brice and a two-part article in the British Tax Review by Barr, from the time of the inception of the income tax in 1799, the income of a married woman was almost always simply added to her husband’s income and he was taxed on the total.¹³ The Income and Corporation Taxes Act 1988, section 279, formerly the Income and Corporation Taxes Act 1970, section 37, provided:

A woman’s income chargeable to income tax shall …, during which she is a married woman living with her husband, be deemed for income tax purposes to be his income and not to be her income.

Some notable procedural changes to the general rule were introduced over time, however, including giving a married woman the right to request to be assessed separately from her husband,¹⁴ and, from 1971, allowing a married woman to be taxed separately on her earned income.¹⁵

Brice, Barr and Freedman et al also all made the point that by the 1970s treating the income of a wife as that of her husband clearly was deeply offensive to many women – and some men.¹⁶ In so doing they cite the important work by the EOC in this area, and especially the 1977 EOC Report Income Tax and Sex Discrimination.¹⁷ In fact, Freedman starts her 1988 BTR Finance Act note with this opening sentence: ‘The Equal Opportunities Commission began pressing the case for reform of taxation of husband and wife in 1977’.¹⁸ This chapter will return to the importance of the EOC’s work, and that of its deputy chairman Elspeth Howe, shortly. In 1978 the Meade Committee also recognised that the idea that a woman on marriage becomes dependent on her husband had become less and less relevant with an increasing number of married women working outside the home coupled with changing social attitudes on the relationship between men and women.¹⁹ The Meade Committee devoted a separate chapter in its final report to the subject of ‘Tax Unit’ and began the chapter by setting out eight conflicting criteria to be considered in choice of individual, spouse of family tax unit.²⁰

Two important next steps paved the way for the eventual introduction of independent taxation. The first was Chancellor Geoffrey Howe’s 1980 Green Paper The Taxation of Husband and Wife,²¹ which was inconclusive but stimulated much debate.²² The second was Chancellor Nigel Lawson’s 1986 Green Paper ‘Reform of Personal Taxation’, which included as its centrepiece detailed proposals on a potential move to independent taxation of married women.²³ Freedman in her 1985 BTR Finance Bill asked why Lawson issued another Green Paper on this subject rather than a White Paper to iron out the detailed workings?²⁴ Nigel Lawson provided an explanation in his 1992 Memoirs:

When I discussed this with Margaret [Thatcher], however, she made it clear that she did not like the idea at all, and felt that there was nothing really wrong with the status quo. She was emphatic that a White Paper was out of the question.²⁵

In his 1988 Budget speech, Chancellor Lawson announced the government would introduce independent taxation of married women with effect from April 1990. Chancellor Lawson described the government’s two objectives behind the change: first, it gave married women the same privacy and independence in their tax affairs as everyone else, and second, it brought to an end the way in which the tax system could penalise marriage.²⁶ The first objective is not one of the eight criteria listed in the Meade Report, but the second objective is reflected in the first criteria that ‘the decision to marry or not to marry should not be affected by tax considerations’.²⁷ As will become clear, it is argued in this Chapter that the first objective was the primary driving force behind the change.

Thus, by the time Freedman et al’s IFS Working Group Report was published in 1988, a fundamental shift in taxing married women’s income was imminent. It will be recalled that the Working Group proposed a new property regime centred on a mixed community of gains. At first glance it might appear that moving away from joint taxation of spouses to independent taxation is incongruous with the Working Group’s proposal; however, the authors were clearly aware that change was afoot and argued there was no incongruity. Freedman et al considered how the distinct areas of law could interact with this new property regime in an integrated way,²⁸ and in the case of tax law this meant aiming for taxation ‘on the basis of current property rights of the parties as individuals’.²⁹ They argued against joint taxation of income based on a questionable assumption that couples share income equally, or taxation of individuals with transferable allowances not tied to actual ownership of property or genuine transfers of income.³⁰ Freedman repeated this position in her 1988 BTR Finance Note, pointing out that it was the underlying law of property not the tax law that was deficient: ‘it is difficult to devise and operate a sensible and coherent system of independent taxation when underlying property law does not make clear what are the respective interests of the spouses in any given property’.³¹

The Finance Act 1988, section 32 provided that the Income and Corporation Taxes Act 1988 (ICTA 1988), section 279 (the provision treating the income of a woman living with her husband as his income for income tax purposes) shall not have effect for the year 1990–91 or any subsequent year of assessment. Husbands and wives were also given their own annual allowance for capital gains. Although Lawson’s Green Paper proposals had envisioned independent taxation would be accompanied by transferable personal allowances between the spouses³² – which, as already noted, Freedman criticised for not reflecting actual property rights – the final legislation did not include transferrable allowances. Lawson explains in his memoirs that transferrable allowances were left out of the 1988 reforms because the Inland Revenue said it was too complex to implement them until 1993 at the earliest and Lawson wanted some form of independent taxation up and running during the lifetime of the Parliament that had just begun.³³ Margaret Thatcher in her memoirs stated that she was opposed to fully transferrable allowances because they were too expensive.³⁴

The practical ‘halfway-house’³⁵ eventually pursued was independent taxation combined with a...