HC Deb 13 May 1983 vol 42 cc536-43W
Mr. Robert Sheldon

asked the Chancellor of the Exchequer, further to the reply of 4 May, Official Report, c. 62–63, concerning take-home pay, if he will provide similar information for an individual on three quarters, one and a half, twice, and five times average earnings.

Sir Geoffrey Howe

[pursuant to his reply, 10 May 1983, c. 283–84]: The information is shown in tables 1 to 5. Table 1 summarises the changes in take-home pay at various earnings levels between (i) August 1982 and (ii) the second pay day after 10 May 1983 and 31 August 1983. Tables 2 to 5 set out the figures in more detail.

2. The estimates are made on the following illustrative bases:

  1. (a) it is assumed that the individual involved has no increase in earnings over the period shown. This is generally speaking untypical, and any increase in earnings would increase take-home pay.
  2. (b) the sizes of mortgages are taken as £12,000 for three quarters average earnings, £16,000 for average earnings, £24,000 for one and half times average earnings and £25,000 for five times average earnings. This last is generally the largest building society mortgage taken out in 1982–83 which would be handled under MIRAS during 1983–84. These are new mortgages. Generally speaking average mortgages are less.
  3. (c) the effect of the increase in child benefit from £5.25 per week to 0.85 per week in November 1982 — to be 537 further increased to £6.50 per week in November 1983—is not shown. Nevertheless, this goes to increase total household take-home income where appropriate.
  4. (d) the third column in table 1 and the final column in tables 2 to 5 show the position up to 31 August 1983. For three quarters, one and one and a half times average earnings the position continues thereafter. For two and five times average earnings, the Finance Bill as it now stands could result in an underpayment of tax to be subsequently recovered. At twice average earnings the mortgage interest relief removes any liability to higher rate tax. At five times average earnings, and on the assumption that

Table 1
Take-home pay*—£ per week
Multiple of average earnings August 1982 Second pay day after 10 May 1983 up to 31 August 1983 Increase
£ £ £ per cent.
¾ 65.23 70.55 5.32 8.2
1 82.29 88.70 6.51 7.9
1½ 118.37 125.67 7.30 6.2
2 173.08 180.72 7.64 4.4
5 415.86 434.08 18.22 4.4
* See footnotes to tables 2 to 5.

Table 2
Weekly Pay and Deductions at ¾ Average Earnings for Married Man with a Mortgage of £12,000 taken out in 1982–83
£ per week
August 1982 November 1982 Budget Week First Pay-day after 6 April 1983 First Pay-day after 10 May 1983 Subsequent Pay days after 10 May 1983
Mortgage Interest Rate (per cent.) 13.5 12 10 10 10 10
1.¾ average earnings 121.35 121.35 121.35 121.35 121.35 121.35
Deductions From Pay
2. National Insurance Contributions* 10.62 10.62 10.62 10.92 10.92 10.92
Income Tax
3. Tax due assuming married man's allowance only 22.30 22.30 22.30 22.30 10.18 20.28
Less
4. Mortgage interest relief given through
PAYE
(i) Relief due at prevailing rate of interest 9.34 8.30 6.92 — — —
(ii) Excess relief included in PAYE code — 1.04 2.42 — — —
(iii) Recovery of excess relief — — — -1.07 -1.07 -1.07
(iv) Total mortgage interest relief given through PAYE code = (i) + (ii) + (iii). 9.34 9.34 9.34 -1.07 -1.07 -1.07
5. Total income tax collected = 3–4(iv) 12.96 12.96 12.96 23.37 11.25 21.35
6. Total deductions from pay = 2+5 23.58 23.58 23.58 34.29 22.17 32.27
7. Take home pay before allowing for effect of mortgage payment to lender = 1–6 97.77 97.77 97.77 87.06 99.18 89.08
8. Mortgage payment (gross) 32.54 29.44 25.45 †25.45 †25.45 †25.45
9. Less interest relief given at source — — — 6.92 6.92 6.92
10. Net mortgage payment to lender = 8–9 32.54 29.44 25.45 18.53 18.53 18.53
11. Take home pay after net mortgage payment to lender = 7–10 65.23 68.33 72.32 68.53 80.65 70.55
* National insurance contributions are at the contracted-in rate
† Assuming that, if the lender has proposed a switch to a "constant net" basis of repayments, borrower has exercised his right to keep his payments at the lower level provided for by Section 28 of the Finance Act 1982. If the borrower has not exercised that right, his net payments to the lender would be £1.30 a week higher, and the figures in lines 7, 10 and 11 in the last three columns would be—

First pay day after 6 April First pay day after 10 May Subsequent pay days
£ £ £
7. Take home pay 87.06 99.18 89.08
10. Net mortgage payment to lender = 8 minus 9 19.83 19.83 19.83
11. Take home pay after net mortgage payment to lender = 7 minus 10 67.23 79.35 69.25

new PAYE tax tables would provide for increased levels of higher rate tax to be deducted from September 1983, there would be an underpayment of tax during the period 6 April to 31 August during which time the tax tables in force will reflect the thresholds proposed in the Budget. This underpayment would amount to about £330 at five times average earnings and would normally be recovered in 1984–85 by an adjustment of PAYE codes. It is the Government's intention, however, when returned to office, to introduce immediate legislation to avert this and to return to the position as proposed in the Budget.

Table 3
Weekly Pay and Deductions at 1¾ times average earnings for a married man with a mortgage of £24,000 taken out in 1982–83
£ per week
August 1982 November 1982 Budget Week First pay-day after 6 April 1983 First pay-day after 10 May 1983 Subsequent pay days
Mortgage Interest Rate (per cent.) 13.5 12 10 10 10 10
1. 1¾ times average earnings 242.70 242.70 242.70 242.70 242.70 242.70
Deductions from Pay
2.National Insurance Contributions* 19.25 19.25 19.25 21.15 21.15 21.15
Income Tax
3. Tax due assuming married man's allowance only 58.70 58.70 58.70 58.70 46.58 56.68
Less
4. Mortgage interest relief given through
PAYE
(i) Relief due at prevailing rate of interest 18.69 16.60 13.84 — — —
(ii) Excess relief included in PAYE code — 2.09 4.85 — — —
(iii) Recovery of excess relief — — — -2.14 -2.14 -2.14
(iv) Total mortgage interest relief given through PAYE code = (i) + (ii) + (iii) 18.69 18.69 18.69 -2.14 -2.14 -2.14
5. Total income tax collected = 3–4 (iv) 40.01 40.01 40.01 60.84 48.72 58.82
6. Total deductions from pay = 2+5 59.26 59.26 59.26 81.99 69.87 79.97
7. Take home pay before allowing for effect of mortgage payment to lender =1–6 183.44 183.44 183.44 160.71 172.83 162.73
8. Mortgage payment (gross) 65.07 58.88 50.90 †50.90 †50.90 ‡50.90
9. Less interest relief given at source — — — 13.84 13.84 13.84
10. Net mortgage payment to lender = 8–9 65.07 58.88 50.90 37.06 37.06 37.06
11. Take home pay after net mortgage payment to lender = 7 –10 118.37 124.56 132.54 123.65 135.77 125.67
* National Insurance Contributions at the contracted-in-rate.
† Assuming that, if the lender has proposed a switch to a "constant net" basis of repayments, the borrower has exercised his right to keep his payments at the lower level provided for by Section 28 of the Finance Act 1982. If the borrower has not exercised that right, his net payments to the lender would be £2.60 a week higher, and the figures in lines 7, 10 and 11 in the last three columns would be—

First pay day after 6 April First pay day after 10 May Subsequent pay days
£ £ £
7. Take home pay 160.71 172.83 162.73
10. Net mortgage payment to lender = 8 minus 9 39.66 39.66 39.66
11. Take home pay after net mortgage payment to lender = 7 minus 10 121.05 133.17 123.07

Table 4
Weekly Pay and deductions at twice average for married man with a mortage £25,000 taken out in 1982–83
£ per week
August 1982 November 1982 Budget Week First pay-day after 6 April 1983 First pay-day after 10 May 1983 Subsequent pay days to 31 August 1982
Mortgage Interest Rate (per cent.) 13.5 12 10 10 10 10
1. Twice average earnings 323.60 323.60 323.60 323.60 323.60 323.60
Deductions from Pay
2. National Insurance Contributions* 19.25 19.25 19.25 21.15 21.15 21.15
Income Tax
3. Tax due assuming married man's allowance only 86.02 86.02 86.02 86.02 55.60 80.95
Less
4. Mortgage interest relief given through PAYE
(i) Relief due at prevailing rate of interest 22.51 20.34 17.46 — — —
(ii) Excess relief included in PAYE code — 2.17 5.05 — — —
(iii) Recovery of excess relief — — — -2.23 -2.23 -2.23
(iv) Total mortgage interest relief given through PAYE code = (i) + (ii) + (iii). 22.51 22.51 22.51 -2.23 -2.23 -2.23
5. Total income tax collected = 3–4(iv) 63.51 63.51 63.51 88.25 57.83 83.18
6. Total deductions from pay = 2 + 5 82.76 82.76 82.76 109.40 78.98 104.33

August 1982 November 1982 Budget Week First Pay-day after 6 April 1983 First Pay-day after 10 May 1983 Subsequent Pay days to 31 August 1982
7. Take home pay before allowing for effect of mortgage payment to lender =1–6 240.84 240.84 240.84 214.20 244.62 219.27
8. Mortgage payment (gross) 67.76 61.30 †52.97 †52.97 †52.97 †52.97
9. Less interest relief given at source — — — 14.42 14.42 14.42
10. Net mortgage payment to lender = 8–9 67.76 61.30 52.97 38.55 38.55 38.55
11. Take home pay after net mortgage payment to lender = 7 –10 173.08 179.54 187.87 175.65 206.07 180.72
* National Insurance Contributions at the contracted-in-rate.
† Assuming that, if the lender has proposed a switch to a "constant net" basis of repayments, the borrower has exercised his right to keep his payments at the lower level provided for by Section 28 of the Finance Act 1982. If the borrower has not exercised that right, his net payments to the lender would be £2.70 a week higher, and the figures in lines 7, 10 and 11 in the last three columns would be—

First pay day after 6 April First pay day after 10 May Subsequent pay days to 31 August
£ £ £
7. Take home pay 214.20 244.62 219.27
10. Net mortgage payment to lender = 8 minus 9 41.25 41.25 41.25
11. Take home pay after net mortgage payment to lender = 7 minus 10 172.95 203.37 178.02

Table 5
Weekly pay and deductions at five times average earnings for a married man with a mortgage of £25,000 taken out in 1982–83
£ per week
August 1982 November 1982 Budget week First pay-day after 6 April 1983 First pay-day after 10 May 1983 Subsequent pay-days to 31 August 1983
Mortgage interest rate (per cent.) 13.5 12 10 10 10 10
1. Five times average earnings 809.00 809.00 809.00 809.00 809.00 809.00
Deductions from pay
2. National Insurance Contributions* 19.25 19.25 19.25 21.15 21.15 21.15
Income tax
3. Tax due assuming married man's allowance only 345.07 345.07 345.07 345.07 225.67 325.17
Less
4. Mortgage interest relief given through
PAYE
(i) Relief due at prevailing rate of interest 38.94 34.61 28.84 †14.42 †14.42 †14.42
(ii) Excess relief included in PAYE code — 4.33 10.10 — — —
(iii) Recovery of excess relief — — — -4.47 -4.47 -4.47
(iv) Total mortgage interest relief given through PAYE code = (i) + (ii) + (iii). 38.94 38.94 38.94 9.95 9.95 9.95
5. Total income tax collected = 3–4(iv) 306.13 306.13 306.13 335.12 215.72 315.22
6. Total deductions from pay = 2 + 5 325.38 325.38 325.38 356.27 236.87 336.37
7. Take home pay before allowing for effect of mortgage payment to lender = 1–6 483.62 483.62 483.62 452.73 572.13 472.63
8. Mortgage payment (gross) 67.76 61.30 52.97 ‡52.97 ‡52.97 ‡52.97
9. Less interest relief given at source — — — 14.42 14.42 14.42
10. Net mortgage payment to lender = 8– 9 67.76 61.30 52.97 38.55 38.55 38.55
11. Take home pay after net mortgage payment to lender = 7–10 415.86 422.32 430.65 414.18 533.58 434.08
* National insurance contributions are at the contracted-in rate.
Relief at the excess over basic rate.
† Assuming that, if the lender has proposed a switch to "constant net" basis of repayments, the borrower has exercised his right to keep his payments at the lower level provided for by Section 28 of the Finance Act 1982. If the borrower has not exercised that right, his net payments to the lender would be £2.70 a week higher, and the figures in lines 7, 10 and 11 in the last three columns would be—

First pay day after 6 April First pay day after 10 May Subsequent pay days to 31 August
£ £ £
7. Take home pay 452.73 572.13 472.63
10. Net mortgage payment to lender = 8 minus 9 41.25 41.25 41.25
11. Take home pay after net mortgage payment to lender =7 minus 10 411.48 530.88 431.38