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Income Tax

Volume 130: debated on Monday 28 March 1988

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To ask the Chancellor of the Exchequer what reduction in projected tax receipts for 1988–89 would result from reducing the rate of income tax to 40 per cent. for those at present paying tax at a highest marginal rate of (a) 60 per cent., (b) 55 per cent. and (c) 50 per cent. and (d) 45 per cent., assuming the 40 per cent. tax rate applied on all taxable income above £18,701.

The table shows the reduction in income tax liabilities in a full year at 1988–89 levels of income resulting from the abolition of tax rates higher than 40 per cent. for taxpayers at each of the higher marginal rates. The calculations assume that the 1987–88 income tax regime is indexed to 1988–89 levels according to the statutory formula before the higher tax rates are reduced to 40 per cent.

Reductions in income tax liabilities by marginal rate:
Marginal rate per centTax reduction £million
4540
50150
55180
601,710
Total2,080

To ask the Chancellor of the Exchequer if he has any estimate of what a 1p, 2p, 3p, 4p, 5p, 6p and 7p cut in the standard rate of income tax would represent as a percentage of gross earnings before tax for (i) a married man and (ii) a single man on (a) 75 per cent., (b) 80 per cent., (c) 90 per cent., (d) 100 per cent., (e) 125 per cent., (f) 150 per cent., (g) 175 per cent. and (h) 200 per cent. of national average earnings, assuming that his earnings are his only source of income.

[holding answer 14 March 1988]: The information is in the table.The calculations assume that the man's earnings are his only source of income. Average earnings are those for men in all occupations paid at adult rates who work a full week

Increase in income after tax as a percentage of gross earnings for 1988–89
Gross earnings as a percentage of average earnings
Reduction in basic rate of income tax pence758090100125150175200
Single man
10·70·70·80·80·80·90·90·8
21·41·51·51·61·71·71·71·5
32·22·22·32·42·52·62·62·3
42·93·03·13·23·33·43·53·0
53·63·73·94·04·24·34·33·8
64·44·54·64·85·05·25·24·5
75·15·25·45·65·86·06·15·3
Married man
10·60·60·60·70·70·80·80·8
21·11·21·31·41·51·61·61·5
31·71·81·92·02·22·42·42·3
42·32·42·62·73·03·13·33·0
52·83·03·23·43·73·94·13·8
63·43·63·84·14·54·74·94·5
74·04·24·54·75·25·55·75·3

To ask the Chancellor of the Exchequer what proportion of the income of a married man with two children on average earnings was taken in direct taxation in 1979; and what is his estimate for October.

A married man on average earnings with two children under the age of 11 paid 14·4 per cent. of his income in tax (net of child benefit) in 1978–79; under the proposed regime for 1988–89 he will pay 11·0 per cent. Average earnings are those for men in all occupations paid at adult rates who work a full week and whose pay is unaffected by absence. The level of earnings for 1988–89 (£244·70 per week) is a projection in accordance with the assumptions given to thz`e Government Actuary for reviewing national insurance contributions in paragraph 3.02 of the Autumn Statement 1987. The estimate for 1988–89 is therefore provisional.