§ Mr. Greenwayasked the Chancellor of the Exchequer if he will estimate the effect on total tax revenue of reductions in the marginal rates of tax since 1979.
§ Mr. Norman LamontI assume that the hon. Member is referring to income tax rates. If the 1986–87 income tax allowances, thresholds, and rates were replaced by the 1978–79 income tax allowances, thresholds and rates, indexed to 1986–87 levels by reference to the statutory formula, the direct revenue cost on the 1986–87 income tax base would be about £8.1 billion in a full year. But this estimate makes no allowance for any behavioural changes.
The direct revenue cost can be attributed to the following changes in allowances, thresholds, and rates:
Changes from 1978–79 tax regime indexed to 1986–87 to obtain 1986–87 tax regime Yield (+)Cost (-)£million 1. Increases in personal allowances -3,270 2. Abolition of reduced rate band at 25p +1,400 3. Decrease in basic rate of 4p -3,920 4. Increase in basic rate limit of £1,100 -185 5. Changes in higher rate thresholds up to 60 per cent. -500 6. Abolition of higher rates above 60 per cent. -800 7. Abolition of investment income surcharge -825 Total -8,100 In the table, the effect of each change has been calculated on the assumption that each of the previous changes has already been made.