HC Deb 19 March 1968 vol 761 cc293-5

I now come to the major aspects of personal taxation. We already have a commitment to recover the full amount of the April increases in family allowances from people who pay tax at the standard rate, with small recoveries from those who pay only at the reduced rates. The most accurate and therefore the best way to do this is not by an across-the-board reduction in the children's Income Tax allowance. This might be the more easily comprehensible, but it would also be the more crude method. It would create a number of anomalies, associated with the fact that some families would lose their Income Tax allowances without getting family allowances. I therefore propose a reduction in the total tax allowances of a family by the necessary amount for each child who qualifies for family allowances. The reduction called for on behalf of the 7s. increase previously announced is £30. This would do the job for standard-rate payers with an almost tailor-made precision.

But, as I announced earlier in this speech, we have decided to make a further increase in family allowances early in October. There will thus be a "two stage" operation, an increase of 7s. a week in April, 1968 and a further increase of 3s. in October, 1968, making a total increase of 10s. a week from midway through the financial year. The benefit of this further increase, as with the 7s. increase, will be confined to the poorer families. This will mean a somewhat bigger reduction in tax allowances than £30. In the simple case where the child ranks for family allowance for the whole of 1968–69, the reduction in tax allowances for that year will be £36, that is, at the rate of £30 per annum for the 7s. increase in the first half of the year and £42 per annum for the 10s. increase in the second half of the year. Appropriate adjustments will be made for cases where the child ranks for family allowance for part of the year only.

Similar arrangements will be applied to the allowances paid to the Armed Services abroad in lieu of the statutory family allowances.

In the case of families where long-term social security benefits are part of their taxable income—widows receiving pensions under the National Insurance and Industrial Injuries Acts, National Insurance retirement pensioners, and war widows—these reductions in tax allowances will not be applied, since the adjustments in their child dependancy allowances will largely offset the increases in family allowances.

The Inland Revenue will need to re-code parents in the P.A.Y.E. field to take account of the second increase in family allowances, as well as the year's reduction in tax allowances. This will not be practicable straightaway; and at the beginning of the tax year 1968–69 tax will be deducted on the basis of existing codes, so that too little tax will be deducted for a time. But in order to bring the revised code numbers into operation as soon as possible, the Inland Revenue propose to concentrate their efforts on the P.A.Y.E. recoiling, and the new code numbers will come into effect in the P.A.Y.E. week beginning on 27th April. In this week the taxpayers affected will begin to pay tax on the basis of their new code numbers, and at the same time the tax underpaid in the three previous weeks by the use of their existing code numbers will be collected. But the number of weeks' arrears to be collected will be of manageable proportions, and of course in the cases affected there will be the extra 7s. family allowance from April and a further 3s. from October.

The revenue yield from these recoveries is estimated at £83 million for a full year and £57 million in 1968–69. These increases, though in part announced earlier, will, of course, be in addition to the revenue on the basis of existing taxation, the figures for which I gave the House earlier.

The increase in family allowances, combined with the recovery arrangements, will have the inevitable result of bringing about 300,000 additional people into tax. This I regret, both because I regard it as in general highly desirable, on grounds both of fairness and administrative economy, to avoid the collection of small amounts of tax from people with small incomes. But it was not possible to produce a sound scheme for their exemption without the sacrifice of appreciable amounts of revenue. This year I cannot afford that. But I regard a raising of the threshold of tax as a strong priority for a Budget in easier circumstances.

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