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Income Tax

Volume 129: debated on Wednesday 9 March 1988

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To ask the Chancellor of the Exchequer by how much in real terms the average annual tax payments of a man with no allowances and reliefs other than the married man's tax allowance earning (i) £5,000, (ii) £10,000, (iii) £15,000 and (iv) £20,000 has increased or decreased since 1978–79.

[holding answer 23 February 1988]: The information is given in the table. The calculations have been made by comparing the tax liabilities under the 1987–88 income tax regime with those under the 1978–79 regime indexed to 1987–88 according to the statutory formula.

Reduction in income tax liability under 1987–88 tax regime
Annual earningsAs percentage of liability under 1978–79 indexed tax regime
££per cent.
5,000139·0030
10,000439·0021
15,000739·0020
20,0001,045·6519
It is assumed that the taxpayer has no income other than earned income and no allowances or reliefs other than the married man's allowance.

To ask the Chancellor of the Exchequer why notices of coding for the tax year 1988–89 are being sent out in advance of the new rates of tax being known.

[holding answer 29 February 1988]: Notices of coding for the tax year 1988–89 have been issued where, because of changes in taxpayers' circumstances, the taxpayers' codes for the year commencing on 6 April 1988 differ from the code for the current year 1987–88. Apart from prefix F codes, changes to rates of tax do not normally cause any revision to be made to a taxpayer's code. They merely affect the amount of tax to be deducted by the employer in applying that code.

To ask the Chancellor of the Exchequer what would be the cost in the 1988–89 financial year of introducing a reduced rate tax band of (a) 25 per cent. and (b) 20 per cent. on the first £1,500 of taxable income; and what would be the effect on the net income of (i) a single person, (ii) a couple where the wife is not working and (iii) a couple where the wife is working and paying tax.

[holding answer 3 March 1988]: The full-year cost at forecast 1988–89 income levels of introducing a reduced rate of income tax of (a) 25 per cent. and (b) 20 per cent. on the first £1,500 of taxable income would be £690 million and about £2·5 billion respectively. The estimates are based on a projection of the 1984–85 survey of personal incomes and are therefore provisional.The net gain to a basic rate taxpayer is given in the table. For the purposes of the calculations the 1987–88 income tax regime has been indexed to 1988–89 in accordance with the statutory provisions.

Married man
SingleWife not workingWife with earnings liable at basic rate
£·p£·p£·p
(i) reduced rate 25 per cent. on the first £1,5000·580·581·15
(ii) reduced rate 20 per cent. on the first £1,5002·022·024·04