HC Deb 26 October 1977 vol 936 cc1442-3

We can now be confident of substantial headroom below the ceiling which I set for the PSBR this year. It is important that we should take advantage of this headroom by measures which are quick acting and which have a maximum effect in bringing unemployment down as soon as possible. The measures should also, if possible, reinforce our attack on inflation and our commitment to the industrial strategy. This points strongly to the speediest possible reduction in income tax.

I have therefore decided to bring forward the 12 per cent. increase in the main personal income tax allowances which I have just undertaken to make next April in accordance with the Finance Act 1977 and to implement it straight away. The Inland Revenue is making a major effort in order to make possible this further cut in income tax for the current year. I wish to place on record my appreciation to all the hard-pressed staff concerned.

In order to make room for the additional work the Government have decided to exempt from tax for the current year, 1977–78, only the increase in National Insurance pensions and in other social security benefits which will come into effect next month. The cost of this will be £40 million.

This further raising of tax thresholds means that the single personal allowance will be increased by £100 to £945; the married allowance will be increased by £160 to £1,455; there will be a consequential increase to £510 in the additional personal allowance; and there will be a similar percentage increase to new totals of £1,250 for the single age allowance and £1,975 for the married age allowance. These reliefs will have effect in the normal way from the beginning of the present fiscal year. The cost will be £940 million in the current year.

These further increases in personal allowances will take around 900,000 people out of tax altogether. This is in addition to the 1,200,000 people already taken out of tax by this year's Finance Act.

I hope that it will be possible for most wage earners to receive the benefit of these reliefs in their first pay packet after 22nd November, and for the remainder in their first pay packet after 6th December.

Thus, most people can expect to receive a tax rebate in their pay packet before Christmas of some £20 for a single person and £35 for a married man. Thereafter, the relief will be worth approximately 65p a week for a single person paying basic rate tax, and £1.05 for a married man.

Further details of these measures are included in Press notices being issued today.

These reliefs will represent a significant further addition to take-home pay in the current pay round. For a married man on average earnings they will be the equivalent of an addition of £1.74, or nearly 2¼ per cent., to his weekly gross pay. When we add in the effect of the tax reliefs in my spring Budget, this figure rises to the gross equivalent of some £5 per week, or nearly 61 per cent. This is, of course, in addition to the 10 per cent. average increase in gross earnings which is provided for under the Government's pay guidelines.

The overall total of some 16½ percent. contrasts with an increase in retail prices which is now well on course for single figures in the first half of next year. It therefore means some increase in living standards in the current pay round. I look to those responsible on both sides of the negotiating table to give full weight to these considerations in reaching settlements during the remainder of the round.