HC Deb 17 July 1986 vol 101 cc1159-60
5. Mr. Chapman

asked the Chancellor of the Exchequer what percentage of his gross wage a single person earning £100 per week pays in income tax and national insurance contributions.

Mr. Norman Lamont

Twenty five per cent.

Mr. Chapman

Although I appreciate that there has been a significant reduction in the tax liability of the low-paid under this Government, will my right hon. Friend confirm that it must continue to be a top priority of the Government further to reduce these tax levels, bearing in mind that a person on only half average earnings must pay a quarter of his gross salary in tax? Is that not another reason why we must control public expenditure?

Mr. Lamont

My hon. Friend is correct. He will recall that my right hon. Friend the Prime Minister said in the House on 10 July that it was the Government's objective to reduce the burden of tax for those on average earnings or the lower paid. Anyone reflecting on these matters would realise that, given certain events on the other side of the Atlantic, lower-paid workers in this country might pay a higher marginal rate than American multimillionaires. Tax cuts matter to the lower-paid. It is rather surprising that the Opposition do not give them a higher priority.

Mr. Penhaligon

Will the Minister confirm that the Government have changed the position so that less tax is now paid on an unearned £100 than on an earned £100? Can he explain the logic of that?

Mr. Lamont

We have rightly got rid of the investment income surcharge, because it was a tax on savings. The hon. Gentleman implies that there should be national insurance contributions on unearned income. That would mean that there would be no national insurance contributions, as such, but rather a social security tax. Why does he not put it that way?

Mr. Dorrell

Is it not a fact that, in addition to taxing national insurance, incentives for many people on £100 a week are also directly affected by the tapers of means-tested social security benefits? Can my right hon. Friend assure the House that in deciding those tapers, the incentive effect, when coupled with tax and national insurance, is taken into account?

Mr. Lamont

My hon. Friend is absolutely right. This is an extremely serious matter and it is one of the problems that my right hon. Friend the Secretary of State for Social Services has been addressing. We have taken some steps to meet this problem, but of course we have not solved it. We regard it as an important matter.

Mr. Hattersley

If the Government are so concerned about reducing taxes for the lower paid, why is it that over the past seven years taxes have increased for virtually everybody earning less than £500 a week and decreased for literally everybody earning more than £500 a week, as was revealed in the Minister's predecessor's answer on 20 April?

Mr. Lamont

Compared with the 1978–79 indexed regime, the proportion of incomes taken in tax and national insurance contributions is lower for every group except those on half average earnings. That one group is the exception. Below that level the proportion compares favourably with the 1978–79 indexed regime.