§ Sir Ian GilmourTo ask the Chancellor of the Exchequer what is his estimate of the increased revenue in 1988–89 if(a) the personal income tax allowances, (b) mortgage interest, (c) superannuation and personal pension contributions and (d) self-employed retirement annuity premiums were restricted to basic rate tax; by how much child benefit could be increased if all the extra revenue were used for this purpose; what would be the redistributive effects, by family type and income decile; and how many working families with children would be lifted off entitlement to family credit.
§ Mr. Lawson[holding answer 31 January 1989]: Almost two-thirds of those who would pay more tax as a result of restricting personal allowances and other tax reliefs to the basic rate currently pay tax at the basic rate only: those near the top of the basic rate band would be pushed into paying tax at the higher rate. About 3½ million single people and married couples would pay more income tax: of those, about 2¼ million currently pay tax at the basic rate only.
Revised estimates of the direct revenue yield in 1988–89 if the allowances and reliefs had been restricted to the basic rate are:
630W
£ million a. Personal allowances 1,160 b. Mortgage interest relief 330 c. Employees' superannuation and personal pension contributions 200 d. Retirement annuity relief1 100 1 Including relief for retirement annuity payments made by employees.
Note: These estimates are based on a projection of the 1986–87 survey of personal incomes. No account is taken of, possible behavioural changes or the effect on receipts of capital gains tax.
The yield arising from making the changes (a) to (d) simultaneously is £2,100 million, somewhat more than the sum of the yields from the four changes separately, since even more basic rate taxpayers would become higher rate payers. If all this were used to increase child benefit, it could be raised by about £4.40 a week in a full year and at 1988–89 prices. This assumes that child allowances in income support would be unchanged, with child benefit, as now, fully deductible from income support payments; and that there would be compensating reduction in the child additions for family credit.
Estimates of the effect on family credit case-load are very uncertain. On the basis of the assumptions in "Impact of reformed structure of income-related benefits" (October 1987), the case-load might he reduced by about a third, (around 150,000 families).
The tables show the combined effect, analysed by type of tax unit and income decile, of the net revenue yield or costs from restricting the allowances and reliefs to the basic rate and increasing child benefit.
(a) gain to Net effect by type of tax unit tax unit ( + ), loss to tax unit ( - ) £ million With children Without children Total Single + 90 - 210 - 120 Married one earner + 280 - 230 + 50 Married two earners + 770 - 700 + 70 Total + 1,140 -1,140 0
(b) Net effect by decile of total income1 gain to tax unit ( + ). loss to lax unit ( - ) Decile £ million Lowest 2 2 2 3 2 4 + 20 5 + 40 6 + 120 7 + 290 8 + 470 9 + 500 Highest -1,440 Total 0 1 Deciles of income have been defined in terms of total income, including non-taxable benefits, but before the additional £4–40 per week of child benefit. Income has not been adjusted to equivalence levels to take account of the need of different types of tax units. 2 Under £5 million. The gains in the lower deciles from the increase in child benefit are negligible since the families with children in them will generally be entitled to income support or family credit. The increase in child benefit would therefore, in most cases, be offset by a corresponding reduction in income-related benefits.