HC Deb 15 April 1975 vol 890 cc317-8

I come lastly to the rates of income tax for the coming year. I made it clear in my Budget speech last November that if wages rose above the level laid down in the guidelines of the TUC I would find it necessary to raise taxation in order to remove the excess demand involved. The House knows that wages and salaries have risen overall substantially above what was envisaged by the guidelines. I therefore have no alternative but to raise the income tax, as I warned five months ago. The increase I am about to announce can be regarded as an anti-inflation surcharge. I must warn the House that similar measures may be necessary in future unless the increase in wages and salaries is kept under better control.

My proposal is to raise the basic and higher rates of income tax by 2 percentage points—with the exception of the highest rate of all, where the increase of eight points made last year means that the level, in cases where the 15 per cent. investment income surcharge also applies, is already 98 per cent. The new basic rate of income tax will therefore be 35 per cent., and there will be a corresponding adjustment in the rate of advance corporation tax. The rate of deduction from payments to uncertificated sub-contractors will also go up to 35 per cent. in September.

The additional revenue from this increase in the rate will be £662 million in the first year and £771 million in a full year. The higher tax deductions will take effect for PAYE taxpayers in the week beginning 25th May. Because of the cumulative nature of the PAYE system, the initial effect of these changes will, I recognise, be significant, since the extra tax due as a result of the rate increase on pay received since the start of the tax year will be taken from the first pay packet after the change. At the lowest income levels, however, the effect of the higher tax rate will be more than offset by the higher personal allowances, and the increases in the single and married allowances will take effect at the same time as the new tax rates. The increase in the additional personal allowances will take a little longer, as tax offices will need to recode the people affected, and the new allowances will take effect on the first pay day after 14th June. The elderly and the blind have, of course, benefited, from the start of the tax year, from the allowance increases I announced last November.

The combination of the measures I have announced today will reduce the public sector borrowing requirement by about £1,200 million in the current year.

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