§ Before turning to income tax, I should briefly mention capital transfer tax. Since 1979, the burden of this tax has been very significantly reduced, and I propose to maintain that position this year by raising the threshold and rate bands set last year in line with statutory indexation. In addition, I propose to widen the scope of the existing exemption for amenity land surrounding a house of outstanding heritage quality. I am sure that this will be welcomed by all those concerned with the preservation of our national heritage.
I now turn to income tax. On 6 April, the banks will move over to the composite rate system for the payment of tax on bank interest. I now need to legislate to put the corresponding composite rate payments by building societies on a similar footing, starting next year. This will not produce any additional revenue. As an administrative saving, I also propose to legislate this year to bring new loans above the mortgage interest relief ceiling into the MIRAS system by April 1987. The ceiling itself will remain at £30,000 for 1985–86.
I need to set the 1986–87 car benefit scales for those whose employers provide them with the use of a car. As last year, I propose to increase both the car and fuel scales by 10 per cent. with effect from April 1986. This will still leave the scale levels well short of the true value of the benefit.
To give further help to charities, I propose to increase from £5,000 to £10,000 the limit to which relief at the higher rates of tax is allowed for covenants.
I now turn to my main income tax proposals. I propose to make no change this year in the rates of income tax. Once again, I believe that it is right to concentrate most of the limited resources at my disposal on raising the starting point for tax. Increases in the basic tax thresholds benefit all taxpayers, but they give proportionately more help to those on low incomes. This year, a Budget for jobs and for enterprise has to give high priority to raising the tax thresholds.
The statutory indexation formula means that I should increase all the principal income tax allowances and bands by 4.6 per cent., which is the increase in the RPI over the year to last December, and then rounded up. For the higher rate thresholds and bands I propose this year to do just that. The first higher rate of 40 per cent. will be reached at a taxable income of £16,200 and the top rate of 60 per cent. will apply to taxable income above £40,200.
For the basic thresholds I can do more. Statutory indexation would imply an increase in the single person's allowance of £100. I propose to increase it by precisely twice as much — £200 — from £2,005 to £2,205. Statutory indexation would imply an increase in the married man's allowance of £150. Again, I propose to raise it by precisely twice as much—£300—from £3,155 to £3,455.
I propose to increase the age allowances this year by the same cash amount as the corresponding basic allowances. Thus the single age allowance will rise by £200 from £2,490 to £2,690 and the married age allowance will go up by £300 from £3,955 to £4,255.
798 These increases mean that most single people will enjoy an income tax cut of at least £1.15 a week and most married couples an income tax cut of at least £1.73 a week. Some 800,000 people on low incomes — 100,000 of them widows—who would have paid tax if thresholds had not been increased, will pay no tax at all in 1985–86. That is almost twice as many as would have been taken out of tax had the allowances merely been indexed.
The income tax changes I have announced today will take effect under PAYE on the first pay day after 17 May. Their cost is considerable: £1.6 billion in 1985–86, of which roughly half represents the cost of indexation.
The increase in the basic allowances of almost 10 per cent., or some 5 per cent. in real terms, means that for 1985–86 they will be more than 20 per cent. higher in real terms than they were in 1978–79, Labour's last year.