Income Tax (Hansard, 16 January 1986)

§ 3. Mr. Chope
asked the Chancellor of the Exchequer what is the effective marginal tax rate on earnings of those in the lowest tax band; and how this compares with other major industrial countries.

§ 6. Dr. Twinn
asked the Chancellor of the Exchequer what is the effective marginal tax rate on earnings of those in the lowest tax band; and how this compares with other major industrial countries.

§ The Financial Secretary to the Treasury (Mr. John Moore)
The marginal income tax rate on earnings for those in the lowest tax band in this country is 30 per cent. This is the second highest national rate among the OECD countries.

§ Mr. Chope
I thank my right hon. Friend for that reply. Does he agree that our marginal tax rate is far too high, particularly for those on low earnings, when compared with 10 per cent. in France and 11 per cent. in the United States? Does he also agree that the high marginal rate is contributing to the increase in the black economy?

§ Mr. Moore
There is no question but that the high marginal rate, as well as the problem of regulation, has an impact on the black economy. That is one of the factors in the burden of taxation. I concur with my hon. Friend's two specific points: the United States rate is 11 per cent. and the French initial rate is 10 per cent.

§ Dr. Twinn
Does my right hon. Friend agree that these are startling comparisons? Does he know of any of our competitors with such a high rate?

§ Mr. Moore
The only nation with a rate above us in the OECD is Ireland. To give some illustrations, the United States rate is 11 per cent., Japan 11 per cent., West Germany 22 per cent. and France 10 per cent. All our industrial competitors have an initial rate substantially below ours.

§ Mr. Meadowcroft
Is it correct that other countries have a different starting level at which one begins to pay tax, that virtually every PAYE taxpayer pays only the standard rate, and that therefore the tax system is hardly progressive for higher earners?

§ Mr. Moore
It is right that the initial rate starts at a different point. In the United States, for example, the average production worker has a threshold that starts at about 17 per cent. of his overall initial wage against the United Kingdom comparison of 27 per cent. The hon. Gentleman is right to say that on thresholds we are approximately in the middle of the OECD ranking.

§ Mr. Terry Davis
Has the Financial Secretary noticed that the question refers to the effective marginal tax rate, which is usually taken to include national insurance and other surcharges? Will he confirm that the new family credit scheme and the proposed changes in housing benefit suggested in the Fowler review mean that the number of people facing an effective marginal tax rate of more than 70 per cent. will be doubled from 250,000 to 500,000?

§ Mr. Moore
I reconfirm that the question relates to the effective marginal tax rate as opposed to the national insurance rate. I draw to the attention of the House the fact that the proposals of my right hon. Friend the Secretary of State for Social Services reduce below 100 per cent. for the first time all the effective marginal rates.

§ Mr. Alan Howarth
If my right hon. Friend has occasion, with his colleagues, to reflect on the respective merits of lowering the basic rate of income tax or increasing the threshold at which it is paid, will he bear in mind that there are important economic and indeed constitutional arguments in favour of making the Government, in their public expenditure, accountable to a larger rather than a smaller number of taxpayers?

§ Mr. Moore
That point has beeen made in public debate. I shall draw it to the attention of my right hon. Friend the Chancellor of the Exchequer if there is scope to reduce taxes—one cannot say at this time—when he considers his Budget.