HC Deb 26 March 1981 vol 1 cc1072-3
Mr. Wigley

asked the Chancellor of the Exchequer if he will estimate the number of people who will be drawn into the income tax net during 1981–82, who were below the threshold for income tax during the current financial year, as a result of his proposal to suspend the automatic increase in personal tax allowances.

Mr. Brittan

It is estimated that there will be about 500,000 more taxpayers in 1981–82 than there were in 1980–81, and that there will be 1¼ million more taxpayers in 1981–82 than there would have been had allowances been fully indexed.

Mr. Wigley

Is it not grossly unfair that those who will have to bear the brunt of paying the extra direct taxation as a result of the Budget will be those with the lowest earnings? Does the right hon. and learned Gentleman accept that, taking a combination of all the factors in the Budget, the marginal tax rate for some could be as high as 104 per cent.? What about incentives, which are supposed to be behind the Government's policies?

Mr. Brittan

I do not accept the hon. Gentleman's figure. Had allowances been fully indexed, it would have been necessary to increase the basic rate by 3p to recoup lost revenue, which would have meant that 24 million taxpayers would have had a 3 per cent. increase in their marginal rate, which in turn would have had an extremely harmful effect on incentives.

Mr. Robert Sheldon

Does the right hon. and learned Gentleman recall that the tax cuts of two years ago were supposed to improve incentives? Since the Budget the burden for basic rate taxpayers is higher than it was under the previous Government. What effect will that have on incentives?

Mr. Brittan

I did not say that the figure given by the hon. Member for Caernarvon (Mr. Wigley) was correct. As I said, by retaining the change in the basic rate that my right hon. and learned Friend introduced it has been possible to keep the benefit of a basic rate for 24 million taxpayers which encourages incentives.

Mr. Stoddart

Does not the right hon. and learned Gentleman feel ashamed that the Budget has had the result pointed out by the hon. Member for Caernarvon (Mr. Wigley), in view of the promises made by the Prime Minister and his right hon. and hon. Friends at the election to reduce income tax, and the promise of the Chancellor and the Financial Secretary prior to the election to index tax allowances?

Mr. Brittan

I do not feel ashamed of the fact that, in spite of economic pressures, my right hon. and learned Friend has been able to retain in the Budget the reduction in the basic rate of income tax that he introduced. That demonstrates the priority that he gives to retaining incentives.