§ The measures that I have just announced will encourage people to save, but there is another side to the story, for the fall in the saving ratio at the end of the 1980s was a result not of a fall in gross savings so much as an increase in borrowing, particularly mortgage borrowing.
§ In part, that reflected the remarkable increase in home ownership over the last decade. That has been, and remains, a key objective of policy for the Government. A less desirable development, however, was the dramatic boom in house prices during the late 1980s, which fuelled borrowing and helped boost inflation. Many first-time buyers found prices rising much faster than their incomes. We need to do all we can to ensure that, when recovery comes, it is not accompanied by another bout of house price inflation, with the unwelcome consequences that that would have for inflation and interest rates.
§ I propose to leave the ceiling for mortgage interest relief unchanged at £30,000, but from 6 April 1991 I propose that, relief should be allowed only at the basic rate. That will yield £220 million in 1991–92 on the basis of current interest rates, and £420 million in 1992–93.
§ I recognise that some people have arranged their affairs on the assumption that higher rate relief will continue. Therefore, to reduce the amount of extra tax they have to pay, I propose to increase the starting point for higher rate tax from £20,700 to £23,700, £1,000 more than required to match inflation. That will keep the number of higher rate payers broadly stable and mean that a married man will not become liable to higher rate tax until his earnings rise to nearly £29,000.
§ My objective is to reduce the tax subsidy to borrowing without significantly increasing the average tax burden on higher rate taxpayers. Taking those changes with the changes to the personal allowances that I am about to 179 announce, the typical increase in liability for a higher rate taxpayer with a £30,000 mortgage will be only around £1 a week.
§ Of course, the main determinant of the cost of a mortgage is not tax relief, but interest rates. For a higher rate taxpayer with a £50,000 mortgage, the fall in the typical mortgage rate that has already taken place since last autumn fully offsets the change that I am making to mortgage interest relief.