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Taxation: Marginal Withdrawal Rates

Volume 686: debated on Tuesday 7 November 2006

asked Her Majesty's Government:

What is the highest marginal combined tax and benefit withdrawal rate for people in work which will not adversely affect work incentives.[HL7931]

High marginal deduction rates from tax and benefit withdrawal do not affect an individual's decision to work although they can influence decisions to increase their earnings. Changes in marginal deduction rates cause people in different circumstances to respond in different ways. It is therefore difficult to draw general conclusions about behaviour, but there is no evidence to suggest that there is a particular rate above which people's incentives to work are affected.

However, the Government have aimed to ensure that the number of people facing very high rates is minimised. Since 1997 the number of families facing rates of over 70 per cent has fallen by half a million.