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Financial Statement And Budget Report

Volume 405: debated on Thursday 22 May 2003

The text on this page has been created from Hansard archive content, it may contain typographical errors.

To ask the Chancellor of the Exchequer if he will re-publish Table 4.2 in the Budget Red Book, HC500, to show the number of working households facing a marginal deduction rate of (a) over 50 per cent. and (b) over 40 per cent. [114417]

The table shows estimates of the numbers facing marginal deduction rates (MDRs) in excess of 40 per cent.

Marginal deduction rate percentageBefore budget 19982003–04 system of tax and benefits
Over 1005,0000
Over 90130,00030,000
Over 80300,000135,000
Over 70740,000185,000

Marginal deduction rate percentage

Before budget 1998

2003–04 system of tax and benefits

Over 60760,0001,490,000
Over 50760,0001,675,000
Over 40800,0001,800,000

This analysis does not take into account the way in which the new tax credits will respond to rises in income, described in detail in The Child and Working Tax Credit. The new tax credits only respond to rises in income in the current year of more than £2,500, disregarding the first £2,500 of any risk. This means that recipients will not see their tax credits reduced as soon as their income rises, so reducing the effective marginal deduction in any one year.

Figures are cumulative. This table shows marginal deduction rates for working households in receipt of income related benefits or new tax credits, where at least one person works 16 hours or more a week and where higher earnings would lead to reduced benefits or tax credits. They include the marginal effects of income tax and national insurance contributions, and the withdrawal of housing benefit and council tax benefit.

As a result of the Government's reforms, over half a million fewer low-income households now face marginal deduction rates in excess of 70 per cent. than did so in April 1997. The increase in the number of households facing marginal deduction rates of between 40 and 70 per cent. is primarily due to the introduction of tax credits, and more recently the extension of support to workers aged 25 or over without children.