§ Mr. Norman Lamontasked the Chancellor of the Exchequer whether he will estimate the percentage increase in the yield of direct taxation and the yield of indirect taxation, assuming the following (a) indexation of personal allowances, (b) no indexation of income tax thresholds, (c) a 10 per cent. rise in retail prices,(d) a 3 per cent. rise in real gross domestic product, (e) revalorization of specific customs and excise duties.
§ Mr. Robert SheldonIt is not possible, without incurring undue expense, to calculate the change in the yield of both direct and indirect taxation that would 403W take place on the assumptions outlined in the question. It is, however, possible to look at those changes in revenue which might occur taking each assumption in turn. It should be noted that the effects are not additive. Indexation of the personal allowances by 10 per cent. would reduce the yield from income tax by approximately 5 per cent. Indexation of the higher rate bands would reduce the yield from income tax by less than 1 per cent. Revalorization of the specific duties by 10 per cent. would add approximately 4 per cent. to the yield of central Government indirect taxes.
A rise in prices—assuming equivalent increases in money incomes, profits, etc.—of 10 per cent. would lead to approximately a 13 per cent. rise in total tax revenue.
It is not possible to state unambiguously the effect on total tax revenue of a 3 per cent. increase in economic growth. Such a calculation depends crucially on the pattern of growth at least in the short run. For example if the increase in economic growth was concentrated on consumers' expenditure more revenue would be raised from indirect taxes than if it occurred through, say, growth in investment. However, in the long run the average tax yield might be expected to rise by between 3.5 per cent. and 4.5 per cent.