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Volume 939: debated on Friday 25 November 1977

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asked the Chancellor of the Exchequer, in assessing the cost of the recently announced reductions in personal taxation, what adjustment was made for the likely increase in indirect taxation revenue due to increased personal consumption.

The cost of income tax changes is usually expressed in terms of either the full year revenue cost or the first year revenue cost. In his statement on 26th October my right hon. Friend said that the full year revenue cost in 1978–79 of a 12 per cent. increase in personal tax allowances is around £1,200 million and that the cost in 1977–78—that is, the first year cost—of bringing this increase forward is £940 million. Neither the full year or first year revenue costs of income tax changes take into account changes in indirect tax revenue. Estimates of the change in the public sector borrowing requirement and other economic effects resulting from a package of measures as a whole are produced with the aid of the Treasury economic model which takes full account of the change in indirect tax revenue.

asked the Chancellor of the Exchequer what is the estimated average percentage of indirect taxation borne by families of two adults and four children in the following net income brackets: (a) up to £3,500, (b) £3,501 to £5,000, (c) £5,001 to £10,000 and (d) over £10,000.

The available information is not reliable in the detail which my hon. Friend requests. The percentage in 1976 for the larger groups of households of two adults and three, four or five children are 2·3, 2·5 and 1·7;7 of net income—(a) up to £3,500, (b) £3,501 to £5,000 and (c) over £5,000 respectively. The figures given above should be treated with caution since they are based on low sample sizes and involve a considerable number of assumptions in their estimation.