§ Mr. ClayTo ask the Chancellor of the Exchequer how much it would cost to restrict(a) personal tax allowances, (b) age allowance, (c) mortgage interest tax relief and (d) tax relief for occupational and private pensions to the basic rate of tax in (i) 1988–89 and (ii) 1989–90, assuming tax allowances are indexed according to the statutory formula.
§ Mr. Norman Lamont[holding answer 19 December 1988]: Estimates of the effect on tax liabilities in each case if relief were allowed only at the basic rate of income tax are given in the table. No allowance has been made for possible behavioural effects if allowances and reliefs were restricted to the basic rate.
The estimates are based on projections of the 1986–87 survey of personal incomes and are therefore provisional.
Direct revenue cost of allowances and reliefs in excess of the basic rate, 1988–89 and 1989–90 £ million Cost in 1988–891 Cost in 1989–901 Personal allowance 710 810 Age allowance2 — — Mortgage interest 330 3.. Retirement annuity premiums 80 85 Employee's superannuation contributions 160 180 1 Estimates for different reliefs are not additive; combined costs would be greater than the sum of the separate components due to the cumulative affect of keeping people out of higher rate tax. 2 Taxpayers liable to higher rate income tax do not qualify for age allowance. The allowance is withdrawn at the rate of £ of allowance for every additional £3 of income above the aged income limit (£10,600 for 1988–89, £11,300 for 1989–90). 3 It would be premature to provide an estimate for 1989–90, since the cost will depend on the amounts of mortgage lending and level of interest rates, as well as on 1989–90 income tax rates and bands.