Surtax Rates for 1972–73

Part of Clause 10 – in the House of Commons at 12:00 am on 11 April 1973.

Alert me about debates like this

Photo of John Horam John Horam , Gateshead West 12:00, 11 April 1973

I cannot do that. I am speaking specifically of a man earning £8,500 or £9,000 a year, which is what I regard as a high income, as would most of our constituents. One cannot argue that there is any equity when a man earning £1,000 or £1,500 is paying 30p in the pound and a man earning £8,500 is paying 30p in the pound.

The Secretary of State for Employment, as he now is, said in a debate on a similar clause two years ago: … on the whole those who have the largest income should pay higher rates of tax and contributions towards communal expenditure."—[OFFICIAL REPORT, 11th May 1971; Vol. 817, c. 331.] That is the general proposition that the Opposition are arguing. If the right hon. Gentleman accepts that, I do not see how he can accept that people earning £8,500 a year should pay the same rate of tax as those earning £1,000 a year.

That was why I intervened in the speech of the hon. Member for Ciren-cester and Tewkesbury when he said that we should not talk about gross salaries, whether of people earning £1,000 or £20,000, but should talk about aftertax salaries. It cannot be right that people with such huge disparities in income should be paying the same rate of tax.

It is not therefore surprising that our tax system as a whole is not merely not progressive and not proportional but is regressive. According to the Central Statistical Office, total taxes as a percentage of original income in 1971 worked out at 35 per cent. for people earning between £800 and £986 a year, declining to 32 per cent. for those earning over £3,750. Even if we add cash benefits— which are of greater benefit to a person on less than £1,000 than to a person on more than £3,000 or £4,000—the figures still work out at 32 per cent. total tax as a percentage of original income with cash benefit for those at the bottom end of the income scale as well as 32 per cent. for those earning more.

5.45 p.m.

We have heard much about international comparisons of marginal tax rates. We hear about the 90 per cent. as it was and the 75 per cent. as it is now. We hear about the German rate of 50 per cent., now 60 per cent. as a result of the 10 per cent. surcharge on surtax. These are not important comparisons. What is important is the effective tax rate paid by people on relatively high incomes in different countries, what they actually pay as a result of the personal allowance system and the marginal rate of taxation. There is little to be said for the present system.

I concede the case argued by the hon. Members for South Angus and for Ciren-cester and Tewkesbury that if one pays no regard to equality one need not take account of these arguments. But that is not a case that the Government can deploy, given the counter-inflationary policy they are pursuing. They have to pay regard to post-tax as well as pretax equity, and they clearly are not doing so in Clause 10, nor are they likely to do so in the future. We cannot conceive of any major changes if the Conservative Government remain in office.

What should we do about this? I have two suggestions. First, there should be tighter limits on allowances which can be set against tax. There is the good example of insurance premiums. One cannot set against income tax more premiums than would add up to one- sixth of the total taxable income. In that way a limit is set. But the Government have relaxed all the previous limits. There is now no restriction on the amount of allowable bank overdraft interest, and close companies are allowed to lend money at favourable rates to a far greater extent than previously.

Secondly, the point of entry to the surtax range should be set at a lower level. I should like to see the level set at £2,000 instead of £5,000, given all the allowances which bring the level higher. That would make the taxation system far more progressive.