HC Deb 07 August 1975 vol 897 cc712-4
13. Mr. Mike Thomas

asked the Chancellor of the Exchequer whether he will now take steps to increase the personal tax allowances and introduce a reduced rate first band of tax to ameliorate the marginal tax rate of low earners.

11. Mr. Hooley

asked the Chancellor of the Exchequer if he will now introduce a reduced rate of income tax for the first band of taxable earnings.

Mr. Denzil Davies

I share my hon. Friends' concern about the burdens on those who are just within the tax-paying field, but I do not think that the introduction of reduced rates of income tax will provide an effective solution. In his last Budget my right hon. Friend put up the allowances for both single and married people and single parents, and these increases will have helped to ease matters for many among the least well-off taxpayers.

Mr. Thomas

Is my hon. Friend aware that although the £6 limit has been advocated as of help to the low paid, in many cases the low paid will lose almost all the £6 through loss of means-tested benefits, so they may suffer a net loss in income? Does my hon. Friend agree that the Treasury must take steps to ameliorate the situation? Otherwise, we shall face serious consequences this autumn.

Mr. Davies

I share my hon. Friend's concern. The difficulty is that at the end of the day any substantial improvement will have to be financed. To be realistic, the only true way of financing a substantial improvement would be by either reducing the rate of personal allowances or increasing the basic rate of income tax. If we reduced personal allowances, more people would be brought into the poverty trap. If we increased the basic rate, many people who now pay tax and also receive rent and rate rebates would move into a higher marginal withdrawal rate, which at present is about 60 per cent. At the end of the day any relief must be financed.

Sir A. Meyer

Is it not a fact that, by dispensing with the reduced rate for the lower bands of income the Treasury has deprived itself of a most useful way of avoiding the problem of the poverty trap? Should this not be looked at again?

Mr. Davies

No, Sir. I do not agree. At the end of the day there are many ways in which we can assist, but we must still find substantial sums of money, whether by a reduced rate, by personal allowances, or in any other way.

Mr. Pardoe

Will the hon. Gentleman consider again the reduced rate band? Why are the Government not prepared to introduce a new reduced rate? Will he indicate whether 35 per cent. is the highest low rate in Europe? Does he recognise the substantial disincentive, even to people on comparatively low earnings, caused by the considerable impact of taxation coming in at the lowest rate, including national insurance contributions?

Mr. Davies

I agree with the latter part of the hon. Gentleman's statement, but if we had a reduced rate of 25 per cent. on, for instance, the first £300 of taxable income, the cost would be £1,000 million. I am not saying that we should not spend that money, but that £1,000 million will have to come from the main bands of income tax in one way or another. Whether we have a reduced rate or any other system, at the end of the day we must find the money.

Mrs. Bain

Does the Minister agree that his replies so far are very disappointing for those who are concerned about the poorer sections of the community? Does he further agree that the only way for people to escape from the poverty trap is to have indexed-linked personal tax allowances, together with social security benefits, and a qualifying level for those benefits? Has the Minister considered the positive alternative, put forward by the Scottish National Party in the recent debate, of indexation as an alternative to the £6 flat-rate increase referred to by the Chancellor?

Mr. Davies

We have debated indexation in the House on a number of occasions since the beginning of the year. Indexation involves many large questions which go outside the income tax area. We are constantly considering the matter and are aware of the problems of the lower income earners.

Mr. Dalyell

Will the Treasury lose no opportunity to point out how costly various schemes for separate direct and indirect taxation in Scotland and England would be?

Sir G. Howe

Does not the volume of questions from both sides of the House drawing attention to the burden of direct taxation on low income earners, as well as on every other class in the community, demonstrate that we have now reached the limit of the taxable capacity of our people? Does it not underline the strong case for concentrating on reducing public expenditure in the light of the burdens about which complaints have been made in this series of questions?