Britain proposes new income-tax scheme

Press, Volume CXII, Issue 33047, 14 October 1972, Page 22

Britain proposes new income-tax scheme

(N.Z. Press Assn.—Copyright) LONDON, October 12.

The British Government has published a Green Paper outlining comprehensive plans for changing the British taxation system.

The document, issued for discussion, outlines a radical scheme replacing the present complicated pay-as-you-eam (P.A.Y.E.) system, and linking personal taxation with social security.

It involves a flat-rate tax of 30 per cent on each pound sterling of income, and the payment of a weekly cash credit to the taxpayer. Under the scheme, an employee would be charged tax on 30 per cent of his wages or salary—but he would be entitled to the credit depending on his family circumstances.

This would be used first to offset his tax due, but second, where the credit was greater than the tax due, it would become a cash addition to income.

The Green Paper sets out an example: Where a married man with three children is earning £2O stg (about $40.60) he at present pays no tax and is entitled to £1.90 (about $3.86) in family allowances and £l.lO (about $2.23) in family income supplement. Under the new scheme he would be liable to £6 (about $12.19) tax on his earnings, but entitled to £l2 (about $24.40) in tax credits — £6 married credit and £2 (about $4.06) for each child which brings his income, automatically to £26 (about $53), an increase of £3 (about $6.40). The break-even point for a three-child family—the point at which their tax liability would equal their credits, and at which they would begin to bear tax—would be earnings of £4O (about $81.30) a week, compared with £29 (about $59) a week under the present system. The paper claims that pensioners, invalids, and widows would be better off under its special provisions. Unemployment and sickness benefits would no longer be free of tax but beneficiaries would qualify for tax credits whether they were at work or on benefit. National Health Service contributions will not be affected by the scheme. The Green Paper says: "The tax credit scheme cannot be a complete solution

to all the problems of, poverty, but by paying taxi credits, positively as benefit, the scheme offers a major new system of family support which would be easier to understand, would provide benefits largely auto-

'.matically and could give thei :|full benefit of tax allowances!

, to people who have in- ■ sufficient income to pay tax.” The Government wants a ' parliamentary select committee to examine the scheme, and accepts that

more preparatory work will be needed. ; Legislation to introduce I the proposals is hoped for in the course of the present Parliament, but even if the select committee accepts the principle the Government believes five years will be needed to get the scheme working. The Chancellor of the Exchequer (Mr Anthony Barber) told a press conference that it would cost the Exchequer about £1,300,000 (about $2,643,000), a measure of the benefits it would bring to so many. It should also mean a reduction in the number of civil servants by 10,000 to 15.000. Mr Barber said the tax revolution would take five years to bring into operation because it was the biggest reform of the system for a quarter of a century. The scheme would bring an immense simplification in the income tax system. P.A.Y.E. had been in use for 30 years. “It has served us well, but it is a complicated system involving hundreds of different codes. With the introduction of the tax credit scheme, all this would disappear completely.” The chancellor said the extent of means testing would be considerably reduced. Instead, many people entitled to benefits would receive them automatically. “One consequence of the change would be that perhaps Im people would no longer need to claim supplementary benefits,” he said.