§ After giving the whole matter the best consideration Oat I can and examining all the different possible alternatives, of which, of course, there are many, I have come to the conclusion that with reasonable optimism we could just manage to reduce the lower rates of Income Tax now at 3s. and 6s. to 2s. 6d. and 5s. This will give the largest possible proportionate relief to people who pay only at these rates, that is people from the minimum up to about £600 a year. This reduction will also be concentrated upon the block of income which includes practically all overtime, and so will still further reduce the tax on overtime.
§ The Committee will remember that in 1948 we extended the band of income chargeable at 6s. in the £ to £200, so that, taking the one-fifth earned income relief into account this means that at present many workers pay tax at a maximum rate of 4s. 10d. in the £ on overtime and extra earnings while in other cases the rate is 2s. 5d. or even nothing at all. The proposals I have now made will reduce these 78 rates to 4s. and 2s. in the £ respectively over the same range.
§ I will now give the Committee one or two instances of how this change in rate in the tax works out. I remind the Committee that the present starting point for the payment of tax for earned incomes is £145 for the single man; £233 for the married man with no children and whose wife does not get a separate allowance of her own; £308 for the married man with one child; and £383 for the married man with two children. Thereafter the next £50 of taxable income, that is, after deducting earned income relief, is charged at 3s.—in future it will be 2s. 6d.—and the next £200 at 6s.—in future it will be 5s. The single man earning £6 a week will get a reduction of 2s. in his tax weekly from 12s. 4d. to 10s. 4d. If he earns £8 a week the tax comes down from 22s. to 18s. 4d. a reduction of 3s. 8d. a week. The married man with two children pays no Income Tax below £7 7s. a week income. At £10 a week his tax will come down from 9s. 8d. to 8s. and so on.
§ This will cost us £72 million this year and £82 million in a full year. The change will necessitate new P.A.Y.E. tables, which will be in the hands of employers for use on the first pay day after 8th June. As a result of these changes a minor adjustment will be necessary in the marginal provisions relating to the exemption limit.
§ Though these reductions give no direct relief to industry as such, I would remind the Committee that in my last Budget I doubled the initial allowances upon machinery and plant, which will cost the Exchequer £40 million this year and £75 million next year. This means that that amount less of tax will be collected from industry this year and next year, so they cannot expect to have any further remission this year.
§ The Committee will therefore see that what we propose—apart from a few minor adjustments—is the increase of an indirect tax which is very broadly spread in order to give proportionately more relief in direct taxation to the lower income groups, although all Income Tax payers will get some benefit. This is a move in the right direction, always bearing in mind that the growing volume of our social service expenditure, the size of our investment programme, and the need for keeping down inflation makes it 79 absolutely impossible for us to envisage any appreciable overall deficit on the Budget.
§ The nett result of the whole of the changes should be to give us an above the line surplus of £443 million, on the alternative classification a surplus of £413 million, and overall a deficit of £7 million. We can, I think, regard that in a Budget of nearly £4,000 million as substantially an overall balance.