HC Deb 03 April 1963 vol 675 cc492-4

I turn now to the general range of Income Tax payers. I think that my main effort should be directed to improving the position of married people, particularly those with children.

First, some changes at the bottom of the Income Tax scale. At present, the starting point for liability to Income Tax is about £200 for a single person and £330 for a married couple without children, that is, nearly £4 a week and £6 10s. a week respectively. That seems to be too low under modern conditions. For example, no one would wish to tax the war widow of a private soldier who, under the new arrangements, will receive £234 a year.

To raise the starting point simply by making sizeable increases in the single and married allowances would be very expensive and would distort the pattern of relief which should be given. I propose, therefore, to couple increases in these allowances with adjustments in the present reduced rate bands.

The effect of the present reduced rates is that the first £60 of taxable income is taxed at 1s. 9d. in the £ and then there are two bands of £150 each taxed at 4s. 3d. and 6s. 3d. respectively. It is only after paying tax on the first £360 of taxable income that the standard rate applies.

My proposal for raising the starting point and giving some relief higher up is to abolish the 1s. 9d. band. In place of the present 4s. 3d. and 6s. 3d. bands I propose to substitute one of £100 at 4s. and one of £200 at 6s. The abolition of the lowest band will be effected by raising single and married allowances by £60. The effect of this and of the alterations in the reduced rate bands is that those who pay only at 1s. 9d. in the £ will cease to pay at all. But the full benefit will not be carried all the way up the scale.

The proposals I have just described will absorb rather less than half of the sum I mentioned. The major part I propose to devote to improving the relative position of families by increasing by £20 the difference between the single and the married allowances and by raising all the child allowances by £15. There will also be an increase in the child income limit from its present figure of £100 to £115.

I should now summarise the changes which I have outlined. I propose that the single allowance should go up by £60 from £140 to £200, the married allowance by £80 from £240 to £320 and that all the child allowances should be increased by £15. The 1s. 9d. reduced rate disappears and the three reduced rates are replaced by one of 4s. on £100 and one of 6s. on the next £200.

The effect of my proposals as a whole is to give relief to all existing Income Tax payers on a scale that proportionately gives greatest benefit at the lower levels. As incomes rise the benefits become greater for the family man, which, I believe, will generally be regarded as right. I will give some practical examples of the effect of these proposals.

At the average level of earnings of the ordinary man in employment, now £840, the effect will be a benefit for a single man of £5 11s., for a married man with no children £13 6s. and for a married man with two small children £17 15s.

For a married man with two small children, at £700 a year, his present tax of £10 17s. is abolished; at £800 a year it falls from £27 8s. to £10 1s.; at £1,000 from £71 9s. to £51 15s.; and at £1,500 from £219 0s. to £194 0s. At £20,000 a year, and at present rates of Surtax, the full benefit in 1964–65 will be £51 19s.

A reduction of 3d. in the standard rate would have given the married man with two small children no benefit at all at £1,000 a year and only about £4 at £1,500 a year.

Full details are available in the Financial Statement. It will be seen from this that there will also be some relief for investment income, which as a result of the improvement in small income relief will be most valuable around the level of £500 a year investment income.

The effect of all my proposals is to exempt from tax about 3¾ million people.

All these changes will involve the preparation of new P.A.Y.E. tax tables and the Inland Revenue will have to do a lot of work in recoding tax payers for P.A.Y.E. The new scale of allowances and reliefs will be brought into operation for P.A.Y.E. on the first pay day after 5th July.

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