§ In the field of direct taxation I must bring into actual operation the proposals for increasing the standard rate of Income Tax and for reducing the allowances which I indicated in advance last September. I then said that we should not limit our view to the period of six months alone, but that we should set standards and levels, with a view to their continuance in the financial year at which we have now arrived. Accordingly, I propose to raise the standard rate of Income Tax from 7s. to 7s. 6d.
§ Sir J. Simon
The relief contained in Section 11 of the Finance (No. 2) Act, 69 1939, under which individuals whose earnings in the year of charge drop by as much as 20 per cent., as compared with a figure for the previous year, on which they would be normally assessed, were entitled to substitute the smaller figure, will be repeated, in connection with the present year. I have had abundant indication that the arrangement was a very great relief to many people who were very hard pushed. Combined with this increase of the standard rate to 7s. 6d. in the £, there will now come into operation the amendments and restrictions of the Income Tax allowances which were announced last year. I do not think I need spend time in recalling them in detail, as they will be found in the White Paper, but I wish the Committee to observe that the effect of the changes will be to require a very substantial contribution throughout the scale, from one end of it to another. There will, of course, be in the White Paper, tables setting out the result, for different levels of income and different family circumstances, and contrasting these with the results of the tax last year. These are very severe increases, which put a heavier burden on the direct taxpayer of this country than he has ever been called upon to bear. The standard rate of Income Tax will have been raised in a single year from 5s. 6d. to 7s. 6d., which means that, with Surtax added, the maximum rate will run up to 17s. in the £. Nothing on that scale has ever been approached before, whether in war or in peace. The highest previous rate of Income Tax was 6s. in 1918; and with Super-tax added the maximum during the last war was 10s. 6d. in the £. I do not want to dwell solely on that end of the scale, but I wish to state this clearly in view of what is to follow. The increased charges on the smaller incomes—what somebody has called the £5 to £12 a week man—are striking.
§ Sir J. Simon
An extraordinary coincidence. "Striking" is perhaps the word. I will extract two or three illustrations from the White Paper. Let us take, for example, the case of a married man without children. If he earns £300 a year, he will pay £15 in Income Tax instead of £7 which he paid last year and £5 the year before. If he earns 70 £400 a year, that is £8 a week, he will Pay £30 12s 6d. this year instead of £17 10s. last year and £12 12s. 6d. the year before. If he earns £600, he will pay £92 16s. 3d. instead of £73 10s. last year and £56 12s. 6d. in 1938–39.
These changes in Income Tax, together with the minor changes in the law which I have announced, will increase the yield of direct taxation in a full year by £61,750,000. In the current year I estimate that they will bring in £42,500,000.