§ The remissions in indirect taxation 1 have just described will give a valuable stimulus to the economy. But nothing has so great or widespread an effect as the levels of direct taxation. Our present rates of Income Tax and Surtax are high. The standard rate rose from 5s. 6d. in 1938–39 to a maximum of 10s. in the war years and, even after two reductions made by my right hon. Friend the Home Secretary, still stands at 8s. 6d. The combined top rate of Income Tax and Surtax, which was 15s. in the £ in 1938–39, rose to a maximum of 19s. 6d. in the £ and even now stands at 18s. 6d. in the £ I have no doubt that these high rates are bad for industry because they cut unduly into profits that can be put to reserve for development and expansion. They also tend to discourage effort and initiative on the part of individuals, and so doubly harm the national interest.
§ I am glad this year to be able to do something to lessen those effects. I think it right this year to give a more than proportionate reduction in the reduced rates of tax, taken as a whole, particularly the lowest band which now pays 2s. 3d. in the £. I have, therefore, decided to propose a reduction of 9d. in the standard rate of Income Tax and 6d. in each of the reduced rates. This change will cost £192 million this year and £229 million in a full year. Of these amounts, £57 million this year and £63 million in 1960–61 will be in respect of the profits of companies put to reserve.
§ These changes will involve a complete recasting and reprinting of the P.A.Y.E. tables. This will mean that for P.A.Y.E. purposes the tax changes cannot become effective until the first pay day after 7th June.