Personal Taxation (Hansard, 26 April 1982)

§ Miss Richardson
asked the Chancellor of the Exchequer (1) what would be the cost of introducing a system of separate taxation of earned income with non-transferable personal tax allowances which took no account of the sex of the recipient and were equal to: (a) the ordinary and (b) the long-term adult single householder supplementary benefit scale rate plus an estimate of average housing costs of supplementary benefit recipients, assuming that the savings from the abolition of the married 178W man's tax allowance were used to improve cash benefits; what would be the level of the allowances; and what would be the cost if the allowances were allowed against the standard rate of tax only;
(2) what would be the effect on the number of taxpayers if tax allowances were raised to (a) the ordinary and (b) the long-term adult single householder supplementary benefit scale rate plus an estimate of average housing costs of supplementary benefit recipients, assuming independent taxation and non-transferable personal tax allowances which took no account of the sex of the recipient.

§ Mr. Ridley
The information is as follows:

Supplementary benefit scale

(a) ordinary (b)long-term

Level of allowance £2,195 £2,535

Full year direct cost to revenue at 1982–83 income levels^* £1billion £3½billion

Full year direct cost if allowances allowed against basic rate only^* £½billion £3 billion

Numbers taken out of tax (counting earning wives separately) 1.1 million 2.5 million

^* There is no saving in respect of abolishing the married man's allowance; in case (b) the allowance level is above that of the existing married allowance, and in case (a) the saving from the reduction in the allowance for married men is more than offset by the cost of increasing allowances for single people and earning wives. If, however, an amount of money equivalent to the saving from abolishing the existing lead of the married allowances over the single were spent on improving cash benefits, the total direct cost would rise by £3½ billion in each case.

The estimates should be regarded as broad orders of magnitude only, they have been calculated on the assumption of unchanged behaviour, whereas in reality such large changes to the income tax system would give rise to significant second-order effects, including changes in patterns of employment. Moreover, no account has been taken of the possibility that a large direct loss of revenue would need to be compensated for in whole or in part by an increase in another source of revenue which would generate additional changes in behaviour. Other important assumptions are that all investment income of a married couple would be taxed as the husband's; and that aged people would receive the same level of allowances as non-aged.

§ Miss Jo Richardson
asked the Chancellor of the Exchequer (1) what would be the cost of introducing a system of separate taxation of earned income with non-transferable, personal tax allowances which took no account of the sex of the recipient and were equal to (a) 40 per cent., (b) 50 per cent. and (c) 66 per cent. of average male earnings, assuming that the savings from the abolition of the married man's tax allowance were used to improve cash benefits; what would be the level of the allowances; and what would be the cost if the allowances were allowed against the standard rate of tax only;
(2) what would be the effect on the number of taxpayers if tax allowances were raised to (a) 40 per cent., (b) 50 per cent. and (c) 66 per cent. of average male earnings assuming independent taxation and non-transferable personal tax allowances which took no account of the sex of the recipient.

§ Mr. Ridley
The information is as follows:
179W

Percentage of average male earnings Level of allowance Full year direct cost to revenue at 1982–83 income levels^*† Full year direct cost if allowances allowed against basic rate only^*† Numbers taken out of tax (counting earning wives separately)

per cent. £ £ bn £ bn million

(a) 40 3,330 8½ 8 5.5

(b)50 4,160 13½ 13 8.7

(c)66 5,490 19½ 18½ 13.3

^* As the level of allowances is in each case greater than that of the existing married man's allowance there is no saving in respect of abolishing that allowance. If, however, an amount of money equivalent to the saving from abolishing the existing lead of the married allowances over the single were spent on improving cash benefits, the total direct cost would rise by £3½ billion in each case.

† The estimates of the effects on costs and taxpayer numbers take as their base the allowances proposed in the current Finance Bill. The estimates are subject to the same qualifications as specified in my answer today to the hon. Member's similar questions on independent taxation with the allowance levels set at supplementary benefit scale rates.

Supplementary benefit scale
	(a) ordinary	(b)long-term
Level of allowance	£2,195	£2,535
Full year direct cost to revenue at 1982–83 income levels^*	£1billion	£3½billion
Full year direct cost if allowances allowed against basic rate only^*	£½billion	£3 billion
Numbers taken out of tax (counting earning wives separately)	1.1 million	2.5 million
^* There is no saving in respect of abolishing the married man's allowance; in case (b) the allowance level is above that of the existing married allowance, and in case (a) the saving from the reduction in the allowance for married men is more than offset by the cost of increasing allowances for single people and earning wives. If, however, an amount of money equivalent to the saving from abolishing the existing lead of the married allowances over the single were spent on improving cash benefits, the total direct cost would rise by £3½ billion in each case.
The estimates should be regarded as broad orders of magnitude only, they have been calculated on the assumption of unchanged behaviour, whereas in reality such large changes to the income tax system would give rise to significant second-order effects, including changes in patterns of employment. Moreover, no account has been taken of the possibility that a large direct loss of revenue would need to be compensated for in whole or in part by an increase in another source of revenue which would generate additional changes in behaviour. Other important assumptions are that all investment income of a married couple would be taxed as the husband's; and that aged people would receive the same level of allowances as non-aged.

Percentage of average male earnings	Level of allowance	Full year direct cost to revenue at 1982–83 income levels^*†	Full year direct cost if allowances allowed against basic rate only^*†	Numbers taken out of tax (counting earning wives separately)
per cent.	£	£ bn	£ bn	million
(a) 40	3,330	8½	8	5.5
(b)50	4,160	13½	13	8.7
(c)66	5,490	19½	18½	13.3
^* As the level of allowances is in each case greater than that of the existing married man's allowance there is no saving in respect of abolishing that allowance. If, however, an amount of money equivalent to the saving from abolishing the existing lead of the married allowances over the single were spent on improving cash benefits, the total direct cost would rise by £3½ billion in each case.
† The estimates of the effects on costs and taxpayer numbers take as their base the allowances proposed in the current Finance Bill. The estimates are subject to the same qualifications as specified in my answer today to the hon. Member's similar questions on independent taxation with the allowance levels set at supplementary benefit scale rates.