§ In 1979 I reduced the basic rate of income tax from 33 per cent to 30 per cent. and cut the top rates. That was one of the first, and most radical, of the many changes that found a place in my first four Budgets. This year we can cut personal taxation again. But I do not propose any further reductions in rates. For the reasons I have just given it is thresholds and allowances that must take priority.
§ Two years ago, in order to curb inflation and allow lower interest rates, income tax allowances were not raised at all. That was a difficult decision, but necessary in the circumstances, and it has since brought great benefits. It was the firmness of that 1981 Budget which paved the way towards the lower inflation and lower interest rates which today offer the prospect of lasting economic recovery.
§ It is right that the benefit of the sacrifices of 1981 should be enjoyed now by those who made them then.
§ Last year I increased tax thresholds and bands by 14 per cent. This year I also propose an increase of 14 per cent. But because inflation is today so much lower, that now represents a real increase of not 2 per cent. as last year, but 8.5 per cent.
§ Income tax thresholds will be increased for the single person from £1,565 to £1,785 and, for the married man, from £2,445 to £2,795. The additional personal allowance paid to single parents, and the widow's bereavement allowance, will be increased in consequence from £880 to £1,010 The age allowance for a single person will go up from £2,070 to £2,360, and for a married person from £3,295 to £3,755.
§ Corresponding increases will be made in the higher rate thresholds and bands and the threshold for the investment income surcharge.
§ Effect will be given to these changes under PAYE as from the first pay day after 10 May. For a married man on the basic rate they will be worth £2 a week. The cost to the PSBR, above indexation, will be £1 billion next year. Including indexation, the total revenue forgone will amount to some £2 billion in 1983–84 and £2.5 billion in a full year. Some 1,250,000 fewer people will pay tax in 1983–84 than if thresholds had remained at their present levels.