§ Concurrently with the increase of the standard rate, I propose to revise the various personal and other allowances which determine the scope and graduation of the tax. The purpose of this revision is twofold. It will, in the first place, bring within the range of Income Taxpayers a large number of persons with incomes rising to £500 a year who at present pay no Income Tax at all, or a very small sum. In the second place, it will enable me to effect a wider differentiation between earned and unearned incomes than obtains at present. The principal personal allowances are those given to single and married persons. These now stand at £135 for a single and £225 for a married person. They were fixed at these figures by the Finance Act of 1920, in accordance with the recommendation of the Royal Commission on Income Tax. The Royal Commission, in recommending those figures, pointed out that they were fixed by reference to the then cost of living and that it might be necessary to review them by reference to any substantial change that might subsequently take place. Our urgent financial needs compel me to propose such a reduction in the personal 306 allowances as was contemplated by the Royal Commission. I propose that the personal allowance should be reduced for the single person to £100, and for the married person to £150.
§ The allowances for children were fixed in 1920 at £36 for the first child and £27 for each subsequent child. In 1928 they were increased to £60 for the first child and £50 for each subsequent child. I propose to reduce the £60 to £50 and the £50 to £40, at which figures the allowances will still be more generous than those recommended by the Royal Commission. A corresponding reduction of the housekeeper allowance from £60 to £50 is also proposed.
§ As the Committee is aware, the graduation of the Income Tax is carried out in effect not only by means of deducting these personal allowances from the total income, but also by charging the first slice of the remaining income at less than the standard rate. The slice used to be £225 at half the standard rate, but in the Budget of last year I increased it to £250 and the rate of charge to four-ninths instead of five-tenths of the standard rate. I propose that for the current year the slice be fixed at £175 and the rate of charge at one-half of the standard rate.
§ These changes in personal allowances and in graduation affect all income, whether earned or unearned; but, in accordance with the general principle of ability to pay, I think it is right that a relatively higher burden should be placed on investment income than on earned income in measuring the additional contribution to be levied on the community to enable the country to pay its way. I propose to effect this by increasing the allowance in respect of earned income from the figure of one-sixth of the income with a maximum of £250, at which it now stands, to an allowance of one-fifth of the income with a maximum of £300. This is the most effective way of differentiating between earned and unearned income, and indeed it is the only method by which such differentiation can be justly carried out.
§ I must now inform the Committee of the yield to be expected from the changes in the standard rate and in graduation. As the Committee is well aware, increases of Income Tax never yield the full measure of revenue in the year in which they are imposed. But an increase in 307 the standard rate of Income Tax in the middle of the financial year will, of course, make the collection of the full amount within this year much more difficult, and it is therefore inevitable that I must make some allowance for this probable lag of receipts; but, of course, what I lose this year through that will be gained next year. That disposes of the standard rate, and I now pass to—[HON. MEMBERS: "Yield?"]—It is £25,000,000 this year, and £51,500,000 in a full year. This disposes of the standard rate.