Tax Credit Scheme (Hansard, 4 April 1977)

§ Mr. Peter Bottomley
asked the Chancellor of the Exchequer, further to the statement of the Secretary of State for Social Services to the House, Official Report, 9th February, columns 1509–10, what would be the net cost to the public funds of introducing the tax credit scheme as amended by the following assumptions (a) child tax allowances for children under 11 years of age to be abolished and allowances for children over 11 years of age to be reduced correspondingly and child benefit to be introduced at a weekly rate of £2.34 plus a 30p supplement for each third and subsequent child, (b) the single and married tax allowances to be replaced by credits equivalent to the cash
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and if he will state the cost of the appropriate changes in each case.

§ Mr. Robert Sheldon
, pursuant to his reply [Official Report, 24th March 1977; Vol. 928, c. 646], gave the following answer:
The information is as follows:
value of the tax allowances at the basic rate of income tax, (c) the age allowances for single and married people to be replaced by credits equivalent to the cash value of the allowances at the basic rate of income tax, and (d) the tax allowance for married men in work and the self-employed tax arrangements to continue as at present; and whether he will show the overall cost less the savings on social security and also provide a breakdown of cost as between categories (a) to (c) above.

§ Mr. Robert Sheldon
, pursuant to his reply [Official Report, 24th February 1977; Vol. 926, c. 698], gave the following information:
A tax credit scheme based on the same broad assumptions as those made in the 353W Conservative Government's Green Paper "Proposals for a Tax-Credit System" (Cmnd. 5116, October 1972), but modified as suggested by the hon. Member, would have resulted in a net yield of the order of £600 million had it been introduced in the current tax year.
A saving of very roughly £625 million relating to people under age 65 would have accrued mainly from taxing benefits such as sickness and invalidity benefits. A further £75 million or so would have accrued from the reduced support for children inherent in the hon. Member's proposals. These savings would have been partially offset by an additional cost of about £100 million relating to people over age 65. The hon. Member's proposals are based on levels of credit that in real terms are well below those illustrated in the Green Paper scheme. The result is that they would not have met the social objectives of that scheme, in particular the objective of a significant reduction in reliance on means-tested benefits.

§ Mr. Tim Renton
asked the Chancellor of the Exchequer what was the estimated increased yield in personal income tax between 1975–76 and 1976–77 due solely to the effect of inflation on gross incomes.

§ Mr. Robert Sheldon
, pursuant to his reply [Official Report, 28th March 1977; Vol. 929, c. 38], gave the following information:
The increase in the yield of personal income tax between 1975–76 and 1976–77 was £2,250 million. Between these years real personal income in aggregate declined, and on that basis the whole of the tax increase could be said to be due to inflation. Within aggregate income however, some incomes rose in real terms, but it is not possible to distinguish that part of the total increase in income tax which relates to those incomes.

Percentage of total income^* taken in income tax and National Insurance Contributions

1973–74 1976–77 1977–78(a) 1977–78(b)

Average earnings† … … … … 20.4 25.3 25.8 24.7

× Average earnings … … … … 25.8 31.9 31.7 30.3

× Average earnings … … … … 27.8 39.1 37.8 36.8

The 1977–78 figures assume a basic rate of tax of (a) 35 per cent. and (b) 33 per cent. Respectively.

^* Total income for 1973–74 and 1976–77 includes family allowance; for 1977–78 child benefit is included.

† Average earnings are the annual equivalents of the new Earnings Survey estimates of the average weekly earnings of full-time adult male workers at April of each year, except for 1977–78 where the April 1976 estimate has been updated by the Monthly Index of Average Earnings to January 1977, the latest month for which a figure is available.

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§ Mr. Newton
asked the Chancellor of the Exchequer what was the total amount of income tax paid in the year 1973–74 and the estimate of the amount that will be paid in 1977–78, divided in each case by the number of households in the United Kingdom.

§ Mr. Robert Sheldon
, pursuant to his reply [Official Report, 31st March 1977; Vol. 929, c. 237], gave the following information:
The figures are:

1973–74 1977–78

Income tax and surtax paid and to be paid in the year (£m.) 7,444 18,095^*

Amount per household† (£) 384 902

^* As shown in the latest Financial Statement and Budget Report, including these changes which will be implemented when a satisfactory agreement on a new pay policy is reached.

† Based on the estimated numbers of households in the United Kingdom at the end of the calendar year (including the recently revised estimate for end-1973).

§ Mr. Newton
asked the Chancellor of the Exchequer if he will publish in the Official Report a table showing for 1973–74. 1976–7 and 1977–78 the effective rate of tax plus social security contributions for a married man with two children aged under 11 years with income, all earned, equivalent to average earnings, twice average and three times average, taking for April 1977 the best forecast of average earnings available.

§ Mr. Robert Sheldon
, pursuant to his reply [Official Report, 31st March 1977; Vol. 929, c. 237], gave the following information:
Assuming the tax rates and allowances proposed for 1977–78 the figures for a married man with two children not over 11 are as follows:

	Percentage of total income^* taken in income tax and National Insurance Contributions
	1973–74	1976–77	1977–78(a)	1977–78(b)
Average earnings†	…	…	…	…	20.4	25.3	25.8	24.7
× Average earnings	…	…	…	…	25.8	31.9	31.7	30.3
× Average earnings	…	…	…	…	27.8	39.1	37.8	36.8
The 1977–78 figures assume a basic rate of tax of (a) 35 per cent. and (b) 33 per cent. Respectively.
^* Total income for 1973–74 and 1976–77 includes family allowance; for 1977–78 child benefit is included.
† Average earnings are the annual equivalents of the new Earnings Survey estimates of the average weekly earnings of full-time adult male workers at April of each year, except for 1977–78 where the April 1976 estimate has been updated by the Monthly Index of Average Earnings to January 1977, the latest month for which a figure is available.

	1973–74	1977–78
Income tax and surtax paid and to be paid in the year (£m.)	7,444	18,095^*
Amount per household† (£)	384	902
^* As shown in the latest Financial Statement and Budget Report, including these changes which will be implemented when a satisfactory agreement on a new pay policy is reached.
† Based on the estimated numbers of households in the United Kingdom at the end of the calendar year (including the recently revised estimate for end-1973).