Clause 4

Part of Finance Bill – in a Public Bill Committee at 12:15 pm on 19th May 2009.

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Photo of Greg Hands Greg Hands Shadow Minister (Treasury) 12:15 pm, 19th May 2009

It is a pleasure to serve under your chairmanship, Mr. Atkinson, and I look forward to our deliberations in the coming weeks. This is my second Finance Bill; last year I considered it from the Back Benches. I can only assume that I did something wrong to be put on it pretty much full time from then on, but I am looking forward to it.

It is ironic that this is called clause 4—I refer to the intervention by my hon. Friend the Member for Wellingborough’ intervention about this marking the end of new Labour. The clause allows us to examine the perverse structure of the marginal tax rates proposed by the Government. What the Government propose is, thankfully, slightly simpler than the two-stage proposal outlined in the pre-Budget report 2008, to which the Minister referred. Nevertheless, the proposals introduce considerable complexity into the income tax system and associated tax calculations.

In terms of the revenue raised, which is important to look at, the withdrawal of the personal allowance from individuals with incomes above £100,000 is estimated to raise £890 million in 2010-11, rising to £1.4 billion in 2011-12. As before, those figures combine the estimates for the 2008 PBR staged restriction of the personal allowance with the Budget 2009 announcement. The Budget report estimates that the total yield from removing the personal allowance will be £1.5 billion come 2012-13.

As the Minister says, the Government propose that, from 6 April 2010, the personal allowance for individuals with an adjusted net income of over £100,000 will be limited by £1 for every £2 over the limit. Based on 2009-10 personal allowances, that means that individuals with an adjusted net income of £112,950 or more will not benefit from the tax-free personal allowance. Meanwhile, using the 2009-10 personal allowance figure of £6,475, withdrawing the personal allowance at a rate of £1 for every £2 of income over £100,000 results in a marginal income tax rate of 60 per cent., or 61.5 per cent. with national insurance contributions, on income between £100,000 and £112,950.