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Tax Allowances

Treasury written question – answered on 4th May 2004.

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Photo of David Willetts David Willetts Shadow Secretary of State for Work and Pensions

To ask the Chancellor of the Exchequer what the effect of a 0.05 per cent. reduction in the rate of inflation would be on (a) total spending on social security benefit, (b) total spending on interest payments on Government debt and (c) tax revenues if tax allowances were to be raised in line with inflation.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury

The inflation indices used to uprate social security benefits, tax allowances and debt interest payments are rounded to one decimal place prior to publication, and the impact of such a small reduction in inflation would depend on its effect on the recorded inflation index rounded to this level. Moreover, for social security benefits and some tax allowances the actual benefit and allowance levels are also affected by statutory rules on rounding. Therefore it is not possible to give accurate estimates for the effect of a 0.05 per cent. reduction in the rate of inflation. It might not have any effect at all.

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