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Proposals For A Reduced Rate Band

Volume 929: debated on Tuesday 29 March 1977

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I turn now to the question of a reduced rate of tax for the initial band of taxable income. I have been urged from several quarters to move in this direction. There is much to be said for this in principle. But to insert a band of reasonable length would be very expensive and rule out action in areas which I believe are more important at this time.

For example, if the reduced rate were 25 per cent.—and anything higher would hardly be worth while—and the length of the band were the first £1,000 of taxable income, the special benefit of a lower marginal rate of tax would fall only on those coming between one-fifth and about three-fifths of average earnings. It would cost some £2,200 million—leaving nothing over for raising tax thresholds or meeting the special problems of those on average earnings and above.

So far as those on low incomes are concerned, the highest priority for the future must be to raise the tax threshold so as to maintain the real value of personal allowances as far as possible and, if circumstances permit, to increase their level to the point where they stand clear about the levels of the main social security benefits. Once this has been achieved I believe that the next priority should be the reintroduction of a reduced rate band. I have asked the Inland Revenue to examine the administrative problems which a reduced rate would pose for them, so that effect can be given to it as soon as circumstances permit.