Income Tax (Higher Rates)

Oral Answers to Questions — National Finance – in the House of Commons at 12:00 am on 4 March 1976.

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Photo of Mr John MacGregor Mr John MacGregor , South Norfolk 12:00, 4 March 1976

asked the Chancellor of the Exchequer what the starting level for the higher rates of income tax would now be for a married man with two children under 11 years of age to produce the equivalent of the £5,000 starting point for surtax established in 1961–62, taking into account the fall in purchasing power of the £ sterling since then.

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

Direct comparisons are complicated by the changes that have been made to the tax structure. With income all earned, the surtax thresh-hold for a married man with two children under 11 for 1961–62 was £5,338. On the basis of the increase in the retail price index between April 1961 and January 1976 the present day equivalent would be £15,725.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

Does not that illustrate the dramatic extent to which the tax burden has increased on middle management, hospital consultants and the like, thus seriously reducing their take-home pay? Does the hon. Gentleman agree that the Chancellor has been so successful in making the pips squeak that there is now serious disillusionment among many groups and that that could damage our prospects of economic recovery, not least in the number seeking jobs abroad? Does he not agree—

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. We are arguing cases instead of asking questions. Perhaps the hon. Gentleman will conclude his sentence.

Photo of Mr John MacGregor Mr John MacGregor , South Norfolk

Does not the hon. Gentleman agree that it is urgent that the Chancellor does something about the tax burden and the poverty trap by reducing the burden of direct taxation?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

I think that the answer illustrates the point that I made earlier. Under successive Administrations the tax threshold has gone lower and lower, mainly due to inflation. It should be pointed out that those on surtax have a little more money with which to cushion themselves against this trend than have those suffering from the poverty trap.

Photo of Mr George Cunningham Mr George Cunningham , Islington South and Finsbury

Now that we have accepted the principle that relief should be limited to relief at the basic rate, would it not make sense and make the whole system easier to administer and understand if all tax reliefs were transformed from being reductions in the amount of income taxable to being reductions in the amount of tax payable?

Photo of Mr Denzil Davies Mr Denzil Davies , Llanelli

My hon. Friend makes an interesting point. It would mean a withdrawal of certain kinds of relief. Many groups and many people would dislike that way of changing our tax system. If we were to do away with all the reliefs, we could lower the basic rate of tax, but many issues would be involved.