HC Deb 15 April 1975 vol 890 cc314-7

Before I come to the major issues of personal tax rates and allowances, there is a further point, relating to national insurance contributions with which I must deal.

When the House voted last year, against the Governments recommendation, to relax substantially the earnings rule for pensioners, I made it clear that we would have to find ways of financing this addition to our spending plans and this addition to the public sector borrowing requirement. and that we should not want this burden to fall on those with low incomes. The cost is considerable. We estimated that the extra cost to the National Insurance Fund—at the enhanced rates of benefit introduced earlier this month—will be £60 million in 1975–76, £110 million in 1976–77 and £145 million in 1977–78.

In the coming months my right hon. Friend the Secretary of State for Social Services will be reviewing the finances of the national insurance scheme with a view to settling the rates of contribution from April 1976 and the earnings limit up to which these contributions are paid. In this review, she will need to take into account the extra cost imposed on the National Insurance Fund by the relaxation of the earnings rule. The earnings ceiling for contributions will in any case need to be substantially increased in 1976 because of the increase in average earnings. In order to recoup the extra cost of relaxing the earnings rule in 1975–76 and 1976–77, the earnings ceiling will need to be increased by up to £8 a week more than it would otherwise have been. In this way the cost will be met without imposing extra burdens on the less-welloff contributors.

A major concern of any Chancellor in the personal taxation field must be the level of tax thresholds. Inflation reduces the real level of these thresholds just as it does the real level of cash payments, so that the employee or the pensioner, if nothing is done, can find that he has begun to pay tax even though in real terms, as distinct from money terms, his income has not increased. In my Budget speech in November I made provision for the elderly by my proposal for a new age allowance, and I proposed an increase, from £130 to £180, in the blind allowance. But I then deferred my decision about the other allowances, which I undertook to review in this Budget.

I now propose to increase the single allowance, with the associated wife's earn- ings allowance, by £50, from £625 to £675 and the married allowance by £90, from £865 to £955. I recognise that these changes from last year, though substantial, fall some way short of full compensation for inflation, and I would have liked to be able to make larger increases. But in the present situation these increases, which will cost the Revenue £437 million in the first year and £546 million in a full year, are as far as I can go. By taking 400,000 people out of tax altogether they will at least ensure that some of the least-well-off members of our society do not have their small incomes yet further reduced by tax deductions.

I have also decided, after careful consideration, that it would be right to accept the proposal of the Finer Committee that the additional personal allowance—which can be claimed by a single parent who is also entitled to child allowance for a child living with him—should be increased, so as to make the aggregate of the single parent's tax allowances equal to those of a married man. I recognise that the two cases are not entirely similar, as the married allowance is an allowance for two people. Nevertheless, I think—and I am sure the House will agree—that one-parent families are a group which must command special consideration. The additional personal allowance will therefore be increased by £100, from £180 to £280, at a cost of £7 million in the first year and £8 million in a full year.

Apart from these changes, I propose to leave unaltered for the coming year personal tax allowances and the points at which the higher rates of tax take effect, and also the levels and rates of the investment income surcharge. I recognise that the result for most people will be, in spite of the increases in allowances. I have just proposed, that the burden of income tax in the coming year will be significantly increased, because I am not adjusting the various tax levels in step with money values. But I am afraid that my need for revenue is paramount, and I cannot offer any general relief beyond the increase in allowances proposed. The level of the main personal allowances will, of course, need to be looked at again in next year's Budget, as has been done this year.

For the rest, I would remind the House of the undertaking the Government have already given to review the levels of the high rates of tax on earned income once the additional taxable capacity represented by ownership of wealth has been brought into charge by the wealth tax—proposals for which I shall be bringing forward, in the light of the report of the Select Committee at present sitting under the chairmanship of my right hon. Friend the Member for Battersea, North (Mr. Jay). I think the House will agree that when I review the higher tax rates on earned income I should also take action to deal with fringe benefits and with tax evasion.