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Family Income

Volume 981: debated on Wednesday 19 March 1980

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asked the Chancellor of the Exchequer if he will update his reply to the hon. Member for Norfolk, North Official Report, 27 July 1979, col. 556–8; and if he will amend the figures for families with children to take account of the fact that tax-free child benefit does not equate to a tax allowance.

For taxpayers without children the figures in the previous answer are unchanged, except for those for 1978–79 and 1979–80 for which more recent information is available: —

Tax threshold as per cent. of average full-time male manual worker's earnings
Per cent.
Single persons21·8
Married couple (wife not working)34·80
Married couple (wife working)55·88
Per cent.
Single persons22·81
Married couple (wife not working)34·85
Married couple (wife working)56·86
The figures above are consistent with those in the earlier answer and relate to average earnings of full-time adult male manual workers calculated as the average of the New Earnings Survey estimates at the beginning and end of the financial year. In 1979–80 an estimate for October 1979 has been used.The thresholds in the previous answer —including those for the two-wage married couple—were, as requested, related to the average earnings of a full-time adult male manual worker. If for the two-wage married couple the alternative formulation is used, where the threshold is expressed as a percentage of the sum of average earnings for full-time men and full-time women, the figures become:—

TABLE A
Tax threshold as per cent. of the sum of the average earnings of full-time men and women manual workers.
Percent.
1949–5064·5
1950–5161·3
1951–5257·6
1952–5360·6
1953–5457·1
1954–5553·3
1955–5656·8
1956–5753·3
1957–5850·5
1958–5949·4
1959–6046·9
1960–6144·0

1961–6243·2
1962–6341·7
1963–6454·0
1964–6550·2
1965–6647·4
1966–6745·6
1967–6843·4
1968–6940·4
1969–7042·2
1970–7146·5
1971–7241·3
1972–7348·7
1973–7442·2
1974–7537·0
1975–7632·6
1976–7731·9
1977–7837·6
1978–7934·8
1979–8035·5

For couples with children, the figures given in the answer to which my hon. Friend refers were of their tax-free income expressed as a percentage of the income—including family allowance or child benefit where appropriate—of a man on average earnings. These figures are unchanged, except for the revisions to the figures for 1978–79 and 1979–80 shown in the table below. Figures were also given in a reply to my hon. Friend on 21 February 1980—[Vol 979, cc. 335–42]—which referred back to the July 1979 answer. These were based on earnings figures in October, rather than over the year as a whole. I greatly regret that the corresponding percentages shown in that reply were incorrect. Correcting the figures and recalculating them as a percentage of the average over the year as a whole gives the figures in the top half of table B below.

The reply in February also gave figures for the tax threshold, defined as the amount that can be earned before liability to tax arises. As for tax-free income these were given as a percentage of the income of a man on average manual earnings and are now recalculated in table B below as a percentage of average earnings of a manual worker—not including family allowance or child benefit—averaged over the year as a whole.

Thus the tax threshold and its relation to average earnings show the earnings level at which tax liability arises as a percentage of average manual earnings; and the corresponding figures in terms of family income, including family allowance or child benefit, show the income level at which tax liability arises and its relation to the gross income of a man on average manual earnings.

TABLE B

Tax Free Income

Tax Free Income as a Percentage of Average Income of a Full-time Man Maunal Worker

Married with 1 child under 11 yrs

Married with 2 children under 11 years

Married with 3 children, 2 under 11 yrs, 1 agged11–16

Married with 4 children, 2 under 11 yrs, 1 aged 11–16 1 over 16 yrs

Married with 1 child under 11 yrs

Married with 2 children under 11 years

Married with 3 children, 2 under 11 yrs, 1 aged 11–16 years

Married with children,2 under 11 yrs, 1 aged 11–16 1 over 16 years

££££%%%%
1971–727979421,1201,32949·356·665·375·2
1972–739711,1161,2931,50352·759·066·675·4
1973–749751,1151,2901,49545·951·358·065·7
1974–751,1051,2931,5161,76942·849·256·664·7
1975–761,1951,3831,6061,85938·043·048·755·1
1976·771,3851,6331,9162,22939·045·051·758·9
1977–781,7031,9512,2342,54742·547·753·660·0
1978·791,7692,0022,2712,56938·041·946·250·9
1979–802,2032,2312,4392,64736·939·341·443·4

Tax Threshold

Tax Threshold as a Percentage of Average Earnings of Full-Time Men manual Workers

1971–727978951,0211,17949·355·363·172·9
1972–739711,0691,1941,35252·758·064·873·4
1973–749751,0681,1911,34445·950·356·163·3
1974–751,1051,2461,4171,61842·848·354·962·7
1975–761,1951,3051,4501,62538·041·546·251·7
1976–771,3851,5551,7601,99539·043·849·656·2
1977–781,6511,8212,0262,26141·746·051·257·1
1978–791,6351,7351,8702,03836·238·441·445–1
1979–801,8151,8151,8151,81534·534·534·534·5

As my hon. Friend suggests, these figures do not give a complete picture for manual couples with children of the effect of the transition from child tax allowances and taxable family allowance to tax-free child benefit. Though tax is now payable at relatively lower earnings levels, family income is increased through child benefit.

Table C following attempts to give a comparable series over the last 30 years, by calculating "break-even points" —the levels of earnings at which "net tax" becomes payable, that is, at which the amount of tax paid just balances the value of family allowance or child benefit. Figures are given for a married couple without children and a married couple with two children. It would be unduly expensive for the purpose of this answer to calculate series for all other groups, but the Inland Revenue is considering the publication of further figures and an explanatory note in the next issue of the annual volume Inland Revenue Statistics, to be published in the summer. I will send my hon. Friend an advance copy of any such note.

TABLE C
BREAK-EVEN POINTS

Year

Married couple Break-even point as a percentage of average earnings of full-time men manual workers Per cent.

Married couple with 2 children under 11 Break-even point as a percentage of average earning of full-time men manual workers Per cent.

1949–5062·8122·7
1950–5159·6119·2
1951–5257·0114·7
1952–5360·1133·5
1953–5456·7131·7
1954–5552·5121·9
1955–5655·2122·3
1956–5751·9114·7
1957–5849·1108·5
1958–5948·3106·6
1959–6045·7103·5
1960–6142·696·5
1961–6241·692·6
1962–6340·389·6
1963–6450·597·1
1964–6546·789·8
1965–6642·982·9
1966–6741·480·0
1967–6839·376·0
1968–6936·572·8
1969–7037·368·0
1970–7141·064·4
1971–7237·065·0

1972–7341·866·4
1973–7436·557·6
1974–7533·553·8
1975–7630·448·7
1976–7730·550·1
1977–7836·855·7
1978–7934·060·4
1979–8034·563·2