§ Mr. Lawsonasked the Chancellor of the Exchequer, further to the Written Answer to the hon. Member for Norfolk, South (Mr. MacGregor) Official Report, 26th January, columns 779–80, how much of the difference between the figures in the first two columns for 1974–75, 1975–76 and 1976–77 is due to the non-indexation of tax allowances and tax brackets, and how much to increases in tax rates.
ESTIMATED INCOME TAX DUE IN THE YEAR (£million) on the allowances and rates of the year If yield had risen in line with prices since 1973–74 If allowances and thresholds had risen in line with prices since 1973–74, with 1973–74 tax rates On the allowances and thresholds of the year, but with 1973–74 tax (1) (2) (3) (4) 1973–74 … 8,100 — — — 1974–75 … 11,600 9,500 10,000 10,500 1975–76 … 15,700 11,900 11,700 13,500 1976–77 … 17,800 13,700 13,000 15,400 The differences between the figures in columns (1) and (2) reflect not only changes in tax rates and allowances, but also changes in real incomes and in the distribution of income. The differences between the figures in columns (2) and (3) arise from changes in the real level of incomes and from changes in the distribution of incomes.
Thus the differences between the figures in columns (1) and (3) are due to changes since 1973–74 in tax rates and the real value of allowances—including higher rate thresholds. The differences between the figures in columns (1) and (4) give an estimate of one component of this: that due to increases in tax rates alone since 1973–74; that is, on the assumption that allowances and thresholds are not revalorised.
For the calculation on the higher rates in column (4), the number of which was one less in 1973–74 than in subsequent years, it has been assumed that the first higher rate band in 1973–74 corresponded to the first two higher rate bands in later years.