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Personal Allowance

Volume 448: debated on Tuesday 4 July 2006

To ask the Chancellor of the Exchequer (1) if he will estimate the revenue implications of introducing a personal allowance of £7,185, absorbing the starting rate band on earnings and savings in the basic rate band, cutting the basic rate of income tax to 20 per cent. with tax rates on dividends unchanged, increasing the basic rate limit to £42,815, keeping the personal allowances for people aged 65 to 74 and 75 years at their current levels and abolishing all other age-related allowances; and if he will make a statement; (79293)

(2) if he will estimate the revenue implications of introducing a personal allowance of £7,500, absorbing the starting rate band on earnings and savings in the basic rate band, cutting the basic rate of income tax to 20 per cent., with tax rates on dividends unchanged, increasing the basic rate limit to £42,500, and raising all the age-related allowances to £7,500; and if he will make a statement.

The information is in the following table.

Cost of tax options 2006-07

Options1

Personal allowance (£)

Starting rate (percentage)

Basic rate2 (percentage)

Basic rate limit (£)

Personal allowance (aged 65 to 74) (£)

Personal allowance (aged above 74) (£)

Additional cost (£ billion)

Current regime

5,035

10

22

33,300

7,280

7,420

Option 13

7,185

20

20

42,815

7,280

7,420

-16.6

Option 24

7,500

20

20

42,500

7,500

7,500

-18.9

1 The changes are assumed to take place in 2006-07 and the additional costs are estimated liabilities for the same year.2 The marginal rate on earnings.3 The option assumes abolishing the married couples’ allowance.4 The option would cost £18.3 billion with the married couples’ allowance abolished.

The estimates are based on the 2003-04 survey of personal incomes projected forward to 2006-07 in line with Budget 2006 assumptions.

The figures exclude any estimate of behavioural response to the tax changes, which could be significant given the scale of the changes.