§ Finally, I turn to the rates of income tax. As I have already made clear, I require to raise from the taxpayer a substantial amount of additional revenue for the coming year. In order to bring in the necessary sum, I propose to increase the basic rate of income tax by 3p in the pound. This increase in the basic rate will have two consequences. The first is an increase in the rate of Advance Corporation Tax, which will be adjusted to keep in step. The second will be a change in the family allowance deduction, more commonly known as claw-back. This is necessary or the amount recovered through tax would be greater than the addition to family allowances to which the deduction relates.
§ The higher rates of income tax—and that includes the intermediate band 5 per cent above the basic rate which I have just announced—will also be increased by 3p in the pound, with the exception of the highest rate of all. This rate, at present 75 per cent., will be increased to 83 per cent., that is, there will be an increase of 5 percentage points over and above the general 3 per cent. increase. The result of this will be that for the biggest investment incomes the rate of tax will be significantly higher than in 1970–71. It will become 98 per cent., that is a top rate of 83 per cent. plus 15 per cent. investment income surcharge.
§ The higher tax deductions will take effect from the week beginning 4th May. This is the earliest date by which the new tax tables can be printed and distributed 326 to employers. I recognise that this unavoidable lapse of time before the new tax rates can be brought into effect will mean that employees will have to face heavier PAYE deductions in the first week of the new rates, since the tax for that week will include the back tax due at the new rates from the beginning of the income tax year. But this effect will be cushioned by the increases in the single and married allowances which will also take effect at that time. The result will be that extra tax will be paid that week only by people earning more than £17–75 per week if single or £34 if married. Below these points the level of tax deduction will in fact drop.
§ It will take rather longer for tax offices to make the PAYE coding changes needed to give effect to the increased child allowances. These will come into operation generally in the week starting 20th July. I estimate that the changes in the rates of income tax which I am proposing will yield £778 million in 1974–75 and £954 million in a full year.
§ The composite rate charged for building societies in the coming year will as usual be determined by the changes taking place in the rates of tax and the taxable income of their depositors. Taken by itself, however, an increase in the basic rate of income tax tends to result in a smaller increase in the composite rate. Second, the building societies will benefit from their exemption from the general increase in the rate of corporation tax and from the ending of the tax advantage on guaranteed income bonds. I recognise that all this falls short of a solution to the problems which the building societies now face, but I hope that the House will welcome it at least as a step in the right direction.