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Treasury

Answer

Mr. Frank Field: To ask the Chancellor of the Exchequer pursuant to the answer to the hon. Member for Yeovil (Mr. Laws) of 9 February 2005, Official Report, column 1598W, on taxation, if he will re-state Table 4.2, page 88, of the December 2004 pre-Budget report, Cmnd 6408, to include figures for the marginal deduction rates of over 40 per cent. [217499] Mr. Timms: The table shows estimates of the numbers facing marginal deduction rates (MDRs) in excess of 40 per cent. _________________________________________________________________________________________________. Marginal deduction rate (percentage) Before budget 1998 2005-06 system of tax and benefits Over 100 5,000 0 Over 90 130,000 45,000 Over 80 300,000 195,000 Over 70 740,000 275,000 Over 60 760,000 1,715,000 Over 50 760,000 1,865,000 Over 40 800,000 2,035,000 _________________________________________________________________________________________________. Figures are cumulative. This table shows marginal deduction rates for working households in receipt of income related benefits or tax credits, where at least one person works 16 hours or more a week and where higher earnings would lead to reduced benefits or tax credits. They include the marginal effects of income tax and national insurance contributions, and the withdrawal of housing benefit and council tax benefit. This analysis does not take into account the way in which the new tax credits will respond to rises in income. The new tax credits only respond to rises in income in the current year of more than £2,500, disregarding the first £2,500 of any rise. This means that recipients will not see their tax credits reduced as soon as their income rises, so reducing the effective marginal deduction in any one year. As a result of the Government's reforms, almost half a million fewer low-income households now face marginal deduction rates in excess of 70 per cent. than did so in April 1998. The increase in the number of households facing marginal deduction rates of between 40 and 70 per cent. is primarily due to the introduction of tax credits, and more recently the extension of support to workers aged 25 or over without children.

Secondary information

Type

Written question

Reference

217499; 431 c843-4W;431 c839-40W

Session

2004-05

Subjects

Deductions Social security benefits Welfare tax credits Taxation Marginal tax rates

Contains statistics

Yes

Link

View this Written question on www.publications.parliament.uk