HC Deb 08 February 1985 vol 72 cc698-700W
Mr. Ralph Howell

asked the Prime Minister what would be (a) the loss of revenue if tax and national insurance thresholds were raised to £3,250 per year for a single person and £4,250 for a married couple with an additional tax allowance of £780 for each child in 1985–86 and (b) the saving in expenditure if all benefits, including child benefit, for those in full-time work were abolished in 1985–86; and if she will also estimate the net weekly spending power of a man with a wife and two children whose gross wages are £110 per week, given the assumptions in the tax/benefit model tables November 1984, if each of the above changes were introduced simultaneously.

The Prime Minister

The information required is as follows:

  1. (a) The cost of increasing the single pension tax allowance to £3,250, the married man's allowance to £4,259 and of introducing child tax allowances of £780 per child is estimated at about £9.5 billion in a full year at 1985–86 levels of income, as compared with statutory indexation of personal allowances. The estimated reduction in national insurance contributions if the lower earnings limit was raised to £3,250 per year for single people and to £4,250 per year for married couples, in relation to their joint earnings, is £1.2 billion in 1985–86. This estimate assumes no change in the contracted-out rebate in respect of people remaining liable to contributions.
  2. (b) The estimated saving in expenditure in 1985–86 if child benefit, family income supplement and housing benefit were abolished for those in full-time work is £3.8 billion.

After the changes specified the net weekly spending power of a married man with two children whose gross earnings were £110 a week would be £71.50.

Mr. Ralph Howell

asked the Prime Minister what would be the cost of raising tax and national insurance thresholds for 1985–86 to £3,500 for a single person and £5,000 for a married couple, with an additional tax allowance of £780 per child, and the saving in expenditure and the revenue benefit, by abolishing all social security benefits for those in work and abolishing mortgage tax relief, assuming current interest rates, for 1985–86; and if she will estimate the effect of these changes on the net weekly spending power of a married man with two children, man working only, with a gross wage of £125 a week (a) paying rent and rates with assumptions laid out in tax/benefit model tables and (b) with a mortgage of (i) £20,000, (ii) £25,000 and (iii) £30,000, assuming average levels of rates.

The Prime Minister

The cost of increasing the single person's tax allowance to £3,500, the married man's tax allowance to £5,000 and of introducing child tax allowances of £780 per child is estimated at about £12–5 billion in a full year at 1985–86 levels of income, as compared with statutory indexation of personal allowances.

The estimated reduction in national insurance contributions if the lower earnings limit was raised to £3,500 per year for single people and to £5,000 per year for married couples, in relation to their joint earnings is about £1.5 billion in 1985–86. This estimate assumes no change in the contracted-out rebate in respect of people remaining liable to contributions.

The estimated saving in expenditure in 1985–86 from abolishing child benefit, family income supplement and housing benefit for those in full-time work is £3.8 billion. The yield from abolishing mortgage interest relief in 1985–86 would be about £4 billion on assumptions of no change in interest rates and levels of mortgage lending.

The table shows the effect of these changes on the current net weekly spending power of a married man, with two children aged four and six, whose gross earnings are £125 a week, and with the specified rent-mortgage commitments. Although it illustrates the effects of these particular assumptions the table has no general application. Such levels of mortgage would not be consistent with normal building society policy of relating the size of loan to the mortgagor's gross income.

Net weekly spending power of a married man, with two children aged four and six, whose gross earnings are £125 a week
Current position Position after changes outlined above
£ £
(a)Rent of £15.60 a week 83.82 85.15
(b)Mortgage of
(i) £20,000 65.15 50.75
(ii) £25,000 56.40 38.25
(iii) £30,000 47.65 25.75

Assumptions:

  1. 1. Mortgages are in their first year.
  2. 2. Mortgage capital repayments are ignored.
  3. 3. Mortgage interest rate is 13 per cent.
  4. 4. Mortgage tax relief is given at source.
  5. 5. General rates are £5.85 and water rate £1.50 a week in all examples.
  6. 6. Except for the changes specified all other assumptions are as in the November 1984 DHSS tax/benefit model tables.