Ministerial statement on tax and benefit reforms

Ministerial statement on tax and benefit reforms (extract from column by Adrian Rudd of PricewaterhouseCoopers, Tax Adviser’s representative on the Technical Committee, published in the May 2001 issue of Tax Adviser).
Ministerial statements 3: Tax and benefit reforms

Lord McIntosh of Haringey wrote to Lord Kingsland on 12 October 2000 as follows:

‘This letter sets out the detail and the rationale behind the statements about the effects of tax and benefit reforms on households over this Parliament made during the Second Reading debate on the Finance Bill on 28 July ...

‘The Government is committed to building a fairer and more inclusive society in which everyone can contribute to and benefit from rising economic prosperity. Where work is an option, it provides the best route out of poverty and social exclusion. The Government has introduced reforms that help people move from welfare to work and help make work pay. For those who cannot work, the Government is also providing security through tax and benefit reform. In addition, the Government recognises the extra costs and responsibilities which come with parenthood. It has introduced measures that provide financial support for all families with children and targeted extra help on those who need it most.

‘The measures that help to make work pay for all households include:

• the new 10 per cent starting rate of income tax, the lowest starting rate since 1962;

  · the new 1 per cent reduction in the basic rate of income tax to 22 per cent, the lowest basic rate for 70 years;

  · reforms to National Insurance Contributions which mean that around 1 million employees on low pay will not have to pay NICs at all by 2001-02;

  · the introduction of the minimum wage, removing the worst excesses of low pay.

  ‘The measures that improve financial support for families with children include:

  · increases in child benefit, currently £15 a week for the first child and £10 a week for other children, a 26 per cent real terms increase since 1997;

  · the new Children’s Tax Credit, which will be worth up to £442 a year and will give extra help to around 5 million families with children under 16;

  · the introduction of the Working Families Tax Credit to make work pay for low- and middle-income families with children. This is already helping 1.1 million families, who are on average receiving around £30 a week more than under Family Credit is predecessor’

  · increases in income support and other income-related benefits. Rates for children under 11 are now more than 70 per cent higher in real terms compared to April 1997.

  ‘As a result of these and other personal tax and benefit measures introduced over this Parliament, households are on average £460 better off and families with children are on average £850 better off.

  ‘These figures are calculated using the Treasury’s tax and benefit simulation model. This applies the tax and benefit system to data on household incomes and composition from the Family Expenditure Survey, uprated to current prices and grossed up to reflect the composition of the overall population.

  ‘The impact of all personal tax and benefit changes is calculated by comparing disposable income, after including all measure introduced during this Parliament, against disposable income under the system in place at the beginning of this Parliament. For consistency, both systems are indexed to 2000-01 prices.’

  Technical Department
  020 7235 9381

  May 2001 by