§ Turning now to personal taxation, there is one particular matter on which I should briefly report to the House. This past year has seen the beginning of the end of post-war credits. Thanks to the special arrangements made by the Inland Revenue, this has been a remarkably trouble-free operation, despite the fact that the credits relate to a period beginning more than 30 years ago. Since last April, about £130 million, including interest, has been paid to 3¼ million people, mostly to those who produced certificates but, since 1st January, also to those who—like myself—had mislaid them.
§ Next, one matter consequential on unification. The Finance Bill will provide that the investment income surcharge shall apply to all income of trusts that is or may be accumulated. A beneficiary who receives income from such a trust and is not himself liable to the surcharge will be able to reclaim it in the same way as he can reclaim basic rate tax.
§ The yield from this change is estimated to be £5 million in a full year.
§ I come now to a change concerning the dependent relative allowance. It has long been the practice that the full allowance is given for maintaining a dependent relative whose only income is the basic National Insurance retirement pension or other income of an equal amount. In consequence there have in the past been frequent changes in the dependant's income limit as pensions have been increased. Now that there is a review of pensions every year the changes would be even more frequent. The traditional practice will therefore be formalised so that instead of fixing the dependant's income limit in figures it will be stated as a general principle that the full allowance will be due if the dependant's income is no more than the amount of the basic pension at any particular time. The purpose, of course, is to ensure that a person contributing to the support of a relative does not have his or her tax 266 allowance reduced as a result of an increase in the pension.
§ Next, the age exemption. The purpose of this exemption is to recognise the special position of the elderly. The limits will be raised so that no married couple, where either spouse is aged 65 or over, will pay any tax on an income of £1,000 or less. For any single person, aged 65 or over, the new limit will be £700. The cost of this will be £7 million in 1973–74, and £12 million in a full year.
§ The new unified system of personal taxation will come into effect on 6th April, but there is one matter left over from the old system, and that is surtax for 1972–73, the last year for which it will be imposed. There will be no change in the starting point or rates. As far as the new unified system is concerned, all the rates were provisionally fixed last year. Those rates will stand.
§ I have no hesitation in saying that I believe that most people will consider top rates of 75 per cent. for earned income, and 90 per cent. for investment income, to be quite high enough. These top rates are still significantly higher than in almost all other developed countries.
§ I see that the Federal Republic of Germany has recently imposed a 10 per cent. temporary surcharge on higher incomes. Even with that, the top rate in Germany will still be only 60 per cent.
§ It is, at this stage, relevant to remind the House that, taking all the changes in taxation which have been made since we came to office, taxation has been reduced in the current year by over £3,000 million.
§ Of this nearly a quarter represents reductions in taxation on spending—in purchase tax and SET.
§ The balance represents reductions in direct taxation. Some of this has gone to industry—with the object of encouraging investment and creating jobs. But most has gone to individuals. The greater part of this represents the big increases in the income tax allowances, which cost over £1,000 million. First, the increased allowances for children and then, last year, the biggest increases ever made in the married and single allowances—giving everyone remaining liable to tax a flat rate tax reduction of £1 a week.
267§ Two facts are beyond dispute. First, taking the whole of the changes in personal direct taxation, 80 per cent. of the total has gone to people with incomes of less than one-and-one-half times the average adult manual wage. Second, the tax threshold—the point at which people start paying tax—has been raised, not just in money terms, but in real terms. For example, since we took office, the threshold for a married man with two young children has been raised by 8½ per cent. in real terms. It is perhaps not without significance that, taking the period 1964–70, the tax threshold for the same family was lowered, in real terms, by no less than 12 per cent.