HC Deb 09 June 1976 vol 912 cc690-1W
Mr. Kilroy-Silk

asked the Chancellor of the Exchequer what would be: (a) the increase in the borrowing requirement and (b) the loss to the Exchequer if the maximum amount of tax on investment income was 75 per cent.

Mr. Robert Sheldon

Income tax is charged on the total taxable income and there are difficulties in distinguishing the tax on earned income from the tax on investment income. For 1976–77, assuming the conditional as well as the unconditional increases proposed in the allowances, the tax cost would be about £45 million in a full year if the maximum higher rate of income tax on all taxable income including both earned and investment income was 75 per cent. but the investment income surcharge was retained. On the arbitrary assumption that the earned income formed the bottom slice of any mixed income, the cost of a top rate of 75 per cent. on earned income only would be about £20 million. The difference of £25 million is therefore the best estimate that can be made of the cost in a full year of a maximum higher rate of 75 per cent. on investment income apart from the investment income surcharge. The cost in the first year would be negligible. The increase in the public sector borrowing requirement would correspond with the tax cost. These estimates do not take account of the effect of the proposed changes on the general level of economic activity.