Orders of the Day — Finance Bill

Part of the debate – in the House of Commons at 12:00 am on 28 April 1971.

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Photo of Mr Anthony Barber Mr Anthony Barber , Altrincham and Sale 12:00, 28 April 1971

No.

I think that the whole House will agree that these far-reaching reforms of our tax structure were long over-due, and certainly during the Budget debates they were welcomed genuinely on both sides of the House.

Coming to the details of the reforms, the first and most important change is that the tax system will be based on the rate applicable to a broad first band of earned income—the rate which the vast majority of taxpayers pay. In this way we leave no room for the real doubt that now exists about the tax paid on extra earnings.

For all but a small minority of taxpayers the tax on extra earnings from overtime or extra effort will be, and will be known to be, the basic rate of tax—provisionally fixed at 30 per cent. This is higher than I would wish, but it is certainly much less than the level of tax which many people think they pay. In recent years we have been used to a standard rate of 8s. 3d. in the £, and certainly many people have rounded this up in a rough and ready way to a belief that taxation took almost half their extra earnings. All that will become a myth of the past.

After this first broad band, the rate for which is provisionally fixed at 30 per cent. by Clause 29, there will be higher rates charged on successive slices of income. Although these rates will not be fixed until 1973, it is the intention, as I have already stated, to ensure that the top rate on earnings will be 75 per cent., reached at about £20,000. The intermediate steps will be fixed so as to ensure that the graduation between the basic rate and the top rate is smoother and more regular than at present.

The second major point of the new tax system is this. Modest amounts of investment income will be treated on the same basis as earned income, because the surcharge that is proposed will apply only to investment income exceeding a certain level. I think it is fair to say that since the Budget Statement informed commentators almost everywhere have welcomed this change; and many share the conviction of my hon. Friends and myself that this will lead to a revival of savings.

I would, of course, very much have liked to have been able to say now what the surcharge will be and how much investment income will be exempt from it. I must explain why I did not feel able to do that. It seemed to me that clearly it would be wrong to make such a commitment now concerning the rates of tax to apply in two years' time. That was the sole and, I believe, the compelling reason why I reached that conclusion.

The third point which I want to make about those changes in personal taxation is this. It is clearly absurd that we should have in effect two income taxes—one assessed in local tax offices, and the other on the same income but assessed by the surtax office. This is to a large extent a duplication of effort, and by getting rid of this duplication, we shall in due course be able to close down the Surtax Office.