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Income Tax

Volume 22: debated on Tuesday 20 April 1982

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asked the Chancellor of the Exchequer what would be the cost of introducing a reduced rate tax band of 25 per cent. on the first £2,000 of taxable income; what would be the effect on the net incomes of a married couple on average earnings and on half, two-thirds, three-quarters, one and a half times, twice, three and four times average earnings; and what would be the effect on these taxpayers if the same money were used to increase (a) personal allowances or (b) child benefit, assuming two children and (i) an employed wife and (ii) a non-employed wife.

Range of total incomeValue of Budget income tax changesAverage gain per tax unitNumber of tax units*
££ millionpercentage of total£million
Under 5,00051021707"·0
5,000–10,00084534959·0
10,000–15,000480201253·8
15,000–20,000255102651·0
20,000 and over355155550·6
2,44510021·4

The cost is estimated at £2,150 million in a full year at 1982–83 income levels.The effects of this change and that of increasing the main personal allowances or child benefit at the same overall cost are shown in the following tables for married couples with two children.

(i) Assuming husband and wife both earning, with combined earnings equal to the respective multiple of average earnings for full-time adult men, split equally between them:

Increase in Net Income (£ per week)

Multiple of average earnings

Reduced rate band of 25 per cent.

Increased personal allowance

Increased child benefit

½0·140·877·70
1·483·127·70
¾2·143·127·70
Average3·573·127·70
3·853·127·70
23·853·127·70
33·852·427·70
43·853·237·70

(ii) Assuming husband is the only earner:

Increase in Net Income (£ per week)

Multiple of average earnings

Reduced rate band of 25 per cent.

Increased personal allowance

Increased child benefit

½1·651·907·70
1·921·907·70
¾1·921·907·70
Average1·921·907·70
1·921·907·70
21·922·547·70
31·923·177·70
41·923·497·70

Both tables assume that the couple have no income tax allowances other than the appropriate personal allowances, and no other source of taxable income. In table (i), the couple are assumed to make the wife's earnings election wherever this would be beneficial. Average earnings for 1982–83 for full time adult men—all occupations—have been taken as £160 per week.

asked the Chancellor of the Exchequer if he will set out for those with earnings in each band, respectively, of up to £5,000 a year, £5,000 to £10,000, £10,000 to £15,000, £15,000 to £20,000 and over £20,000, the value of the total Budget tax changes, showing the proportion this represents of the total in each case; what is the average per tax unit in each of these bands; and what is the number of taxpayers in each band.

The information—which is available only by range of total income, not earnings—is as follows:

* After the Budget changes; excludes an estimated 0·8 million tax units in the under-£5,000 range kept out of tax by the increase in personal allowances.

All information is in terms of tax units; that is, married couples are counted as one and their incomes aggregated.

asked the Chancellor of the Exchequer if he will set out for each year since 1978–79, and including an estimate for 1982–83, the proportion of

Groups of taxpayers (counting married couples as one unit)Estimated proportion of income tax yield at income levels of:
1978–79 per cent.1979–80 per cent.1980–81 per cent.1981–82 per cent.1982–83 per cent.
Top 1 per cent.11·21110½10½10½
Top 10 per cent.34·534343434
Top 40 per cent.72·3717171½71½
Bottom 30 per cent.7·588
Bottom 10 per cent.0·71111
Estimates for 1979–80 onwards are provisional, and so have been rounded.

asked the Chancellor of the Exchequer what would be the increase in revenue from allowing (a) personal tax allowances and (b) other tax reliefs at the standard rate of tax only, taking into account the changes announced in the Budget.

On (a), taking into account the changes announced in the Budget, the increase in revenue in a full year at 1982–83 income levels would be about £325 million, if the main personal allowances were available only at the basic rate. This estimate is on the assumption that couples who would find it advantageous to elect for separate taxation of the wife's earnings would be able to do so, even if they do not currently find it advantageous.On

(b), information is not available in respect of all other reliefs, but an approximate estimate in respect of the total of three major reliefs—for mortgage interest, retirement annuity payments and employees' superannuation contributions—is £290 million.

asked the Chancellor of the Exchequer, pursuant to the reply given to the hon. Member for Isle of Ely on 31 March, Official Report, c. 124, what tax was payable by a single man earning £40 per week gross in March 1982; and what tax was payable on the same earnings in real terms in March of each year from 1978 to 1981.

I shall let the hon. Member have a reply as soon as possible.

Mortgage Interest Relief
Range of total income £Cost in a full year £ millionNumbers receiving relief (000)Average relief per mortgagor £
Under 2,500negligiblenegligible
2,500–5,00090430210
5,000–7,5002801,000280
7,500–10,0004401,370320

total income tax raised from the top 1 per cent., the top 10 per cent., the top 40 per cent., the bottom 30 per cent. and the bottom 10 per cent. of taxpayers.

The information, taking account of the Budget proposals for 1982–83, is as follows: