HC Deb 29 February 1988 vol 128 cc440-2W
Mr. Nicholas Bennett

To ask the Chancellor of the Exchequer (1) if he has any estimate of what a 1p, 2p, 3p, 4p, 5p, 6p and 7p cut in the standard rate of income tax would represent as a percentage increase in gross pay for a man on average national earnings;

(2) if he has any estimate of what a cut of 1p, 2p, 3p, 4p, 5p, 6p and 7p in the standard rate of income tax would represent as a percentage increase in gross pay for a man on 75 per cent., 80 per cent., 90 per cent., 125 per cent., 150 per cent., 175 per cent and 200 per cent. of national average earnings.

Mr. Norman Lamont

The information is in the table. The calculations assume that the man's earnings are his only source of income. Average earnings are those for men in all occupations paid at adult rates who work a full week

Reduction in basic rate of income tax Increase in Income after Tax as a Percentage of Gross Earnings for a Married Man, 1988–89
pence Gross earnings as a percentage of average earnings
75 80 90 100 125 150 175 200
1 0.6 0.6 0.7 0.7 0.7 0.8 0.8 0.7
2 1.2 1.2 1.3 1.4 1.5 1.6 1.6 1.5
3 1.8 1.8 2.0 2.1 2.3 2.4 2.5 2.2
4 2.3 2.4 2.6 2.8 3.0 3.2 3.3 2.9
5 2.9 3.1 3.3 3.4 3.8 4.0 4.1 3.6
6 3.5 3.7 3.9 4.1 4.5 4.8 4.9 4.4
7 4.1 4.3 4.6 4.8 5.3 5.5 5.8 5.1

Mr. Nigel Griffiths

To ask the Chancellor of the Exchequer whether, in the manner of the answer given on 11 February 1986,Official Report, columns 427–28, he will update and publish the table detailing the breakdown of the costs or yields of reinstating the 1978–79 tax regime, taking the 1987–88 income tax base.

Mr. Norman Lamont

[holding answer 15 February 1988]: If the 1978–79 income tax regime were indexed to 1987–88 levels by reference to the statutory formula and applied to the 1987–88 income tax base, the direct revenue effect would be an additional yield of £11.7 billion in a full year.

The levels of the main allowances and thresholds, compared with the actual 1987–88 values would be:

Personal allowances Indexed 1978–79 regime 1987–88
£ £
Single and wife's earned income allowance 2,055 2,425
Married man's allowance 3,205 3,795
Additional personal allowance 1,150 1,370
Aged single allowance (over 65 but under 80) 2,720 2,960
Aged single allowance (over 80) 2,720 3,070
Aged married allowance (either partner over 65 but neither partner over 80) 4,335 4,675
Aged married allowance (either partner over 80) 4,335 4,845
Aged income limit 8,400 9,800

Bands of taxable income
Rate of tax (percentage) Indexed 1978–79 regime 1987–88
£ £
25 0–1,600
27 0–17,900
33 1,601–16,700
40 16,701–18,800 17,901–20,400
45 18,801–20,900 20,401–25,400
50 20,901–23,000 25,401–33,300
55 23,001–26,200 33,301–41,200
60 26,201–29,400 Over 41,200
65 29,401–33,600
70 33,601–38,900
75 38,901–50,400
83 Over 50,400

and whose pay is unaffected by absence. This figure is projected to 1988–89 in accordance with the assumptions given to the Government Actuary for reviewing national insurance contribution in paragraph 3.02 of the Autumn Statement 1987. The married man's allowance and higher rate thresholds for 1988–89 have been calculated by reference to the statutory formula for indexation.

Investment Income Surcharge: Indexed 1978–79 regime
Non-aged Aged Rate of surcharge
£ £ (percentage)
0–3,550 0–5,250 Exempt
3,551–4,700 5,251––6,300 10
Over 4,700 Over 6,300 15

Investment income surcharge was abolished in 1984–85.

Taking the 1987–88 income base as given, the direct revenue costs of the 1987–88 tax regime compared with the indexed 1978–79 tax regime can be broken down as follows:

Yield (+) Cost(-)
£ million
Increases in personal allowances -3,970
Abolition of reduced rate band at 25p + 2,850
Decrease in basic rate of 6p -7,980
Increase in basic rate limit of £1,200 -400
Changes in higher rate thresholds up to 60 per cent. -800
Abolition of higher rates above 60 per cent. -590
Abolition of investment income surcharge -830
Total -11,720

In the table above, the effect of each change has been calculated on the assumption that each of the changes which precede it has already been made.