§ I have now described a series of measures designed to remove obstacles to growth and to encourage the development of our national resources, both human and material. These are the foundations of long-term growth. The cost of all the tax changes I have so far announced amounts to £83 million this year. On the Budget judgment that I explained to the Committee, this clearly leaves room for a further large impetus to demand this year to take up the existing slack in the economy.
§ I have decided to concentrate this further relief in the field of direct taxation, as this is the method best calculated both to stimulate the economy and to encourage individual effort. At the same time, in view of the importance of incomes policy to our plans for expansion without inflation, I have framed the reductions in such a way as to spread the benefits as evenly as possible over the whole range of incomes, while giving particular attention to those with family responsibilities or other special claims.
§ The reliefs will be concentrated on individuals. Companies will gain a great deal from the capital allowances I have already described; indeed, the annual benefit to companies will rise over the next four years to as much as £165 million a year. I do not think that the rate to which the tax on company profits has been reduced is generally understood. People often talk as if all companies actually paid a rate of nearly 54 per cent. of their commercial profits. But, in fact, no industrial company could pay tax at such a rate unless it failed to buy a single piece of new equipment in the course of a year for any purpose, including replacement. The effect of the investment allowances is that the average rate of taxation on industrial profits will not now exceed 48 per cent.
§ Taxpayers who, quite recently, were subject to Surtax on earned income beginning at a little over £2,000, have just benefited, and in my opinion rightly, 491 from the substantial reduction in Surtax made by my predecessor.
§ The increases in social service benefits that are now becoming effective represent for their recipients one of the biggest improvements ever made.
§ In these circumstances, I conclude that this year the purposes of economic expansion and, in particular, the essential needs of incomes policy can best be served by a series of changes in the Income Tax structure involving the allowances and the reduced rates of tax. By this method I can distribute the benefit as widely as possible. Of any reduction in the standard rate, 32 per cent. would go to companies. So far as individuals are concerned, the standard rate has become something of a misnomer. With the present allowance for earned income no one pays tax at 7s. 9d. in the £ on any earnings under £5,000. For the family man with two children the effective overall rate of tax on earnings—including both Income Tax and Surtax—does not reach 7s. 9d. until he is making £10,000 a year.
§ The changes I shall explain to the Committee will involve remissions of £186 million this year and £240 million in a full year, 42 per cent. of which will accrue to those earning below £1,000 a year and 50 per cent. to those earning between £1,000 and £2,000 a year. While, in most cases, the benefit in absolute terms will be higher at higher levels of income, which is both inevitable and just with any reduction of direct taxation, proportionately the benefits that I will propose will be greatest in the lower ranges of income.
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- NATIONAL INSURANCE CONTRIBUTIONS 100 words c492
- AGE EXEMPTION 58 words c492
- AGE RELIEF 126 words c492
- SMALL INCOME RELIEF 40 words cc492-4
- INCOME TAX GRADUATION 801 words