§ Lord KALDOR
asked Her Majesty's Government:
Whether they will provide figures showing the percentages of total income payable in tax, distinguishing between (a) income tax and (b) indirect taxes (including VAT and excise duties and excluding social insurance contributions) for the financial year 1978–79 and (in accordance with the Chancellor of the Exchequer's recent proposals) for the financial years 1979–80 and 1980–81 (assuming that except for the compulsory indexation of income tax allowances, the same taxes are applicable to both of these years for a married couple without children (husband only earning) in three types of case: (1) with an income of two-thirds average earnings, (2) at full average earnings and (3) 1½ times average earnings. [For 1978–79 the earnings figures should be those given by the earnings survey of April 1978; for 1979–80 based on the estimate of average earnings in April 1979 (the earnings of other categories being derived algebraically) and for the year 1980–81 calculated on the assumption that the rise of both earnings and prices (excluding such increases in prices as are directly attributable to increases in indirect taxation proposed in the recent Budget Statement) will be 14 per cent. between April 1979 and April 1980].744WA
§ Lord COCKFIELD
The figures are as follows:
Income tax per cent. Indirect taxes per cent. Total per cent. 1978–79: Two-thirds average earnings 14.7 13.0 27.7 Average earnings 20.8 10.4 31.2 1½ average earnings 24.8 8.8 33.7 1979–80: Two-thirds average earnings 13.2 15.3 28.6 Average earnings 18.8 12.4 31.2 1½ average earnings 22.6 11.0 33.5 1980–81: Two-thirds average earnings 13.4 15.2 28.5 Average earnings 18.9 12.4 31.3 1½ average earnings 22.6 11.1 33.7
Note: Elements do not necessarily sum to total due to rounding.
The figures assume that real expenditure patterns remain constant in spite of the changes in indirect taxes and other factors. In so far as consumers may switch spending from goods subject to the increase in taxes this would reduce the share of indirect taxes below that shown in 1979–80 and 1980–81.
The calculations include imposed assumptions about earnings in 1979–80 and for 1980–81. No provision is made for changes in the 1980–81 Budget. The figures are not on the same basis as the references to the effect of the Budget changes made by the Chancellor of the Exchequer in his Budget Statement. In the Statement the Chancellor pointed out that the income tax reductions for a full 12 months would be paid out over 10 months. The implied reduction in the income tax burden was related to the pre-Budget level of income tax and was based on the assumed level of earnings in 1979–80.
The rise in incomes between April 1978 and April 1979 would, at unchanged income tax rates, have led to an increase in the proportion of income going in 745WA direct taxes. The fall shown in this proportion between 1978–79 and 1979–80 fails, therefore, to measure the effect of the Budget.