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Treasury

Answer

Mr. Willetts: To ask the Chancellor of the Exchequer if he will extend Table 3 on page 30 of "Tax credits: reforming financial support for families" (March 2005) so as to show marginal deduction rates of over 50 per cent. and over 40 per cent. (a) before 1998 and (b) in 2005-06. [224664] Dawn Primarolo: The table is an extension of table 4.3 in "Tax credits: reforming financial support for families", and also of table 4.2 in Budget 2005 (HC 372). _________________________________________________________________________________________________. Marginal deduction rate (percentage) Before budget 1998 2005-06 system of tax and benefits Over 100 5,000 0 Over 90 130,000 30,000 Over 80 300,000 165,000 Over 70 740,000 235,000 Over 60 760,000 1,730,000 Over 50 760,000 1,900,000 Over 40 800,000 2,095,000 _________________________________________________________________________________________________. 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, where the head of the household is not disabled, 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, around 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. The number of heads that face an excess of 70 per cent. has fallen. This is because administrative data suggests a reported fall in the number of families on multiple tapers, i.e. non-disabled persons working more than 16 hours in receipt of tax credits and housing benefit and/or council tax benefit.

Secondary information

Type

Written question

Reference

432 c1176-7W; 224664

Session

2004-05

Subjects

Deductions Finance Families Personal income Welfare tax credits Reform Taxation Marginal tax rates

Contains statistics

Yes

Link

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