Select Committee on Work and Pensions Written Evidence


APPENDIX 2


£m

HMRC Table 1.5
Note
Cost of tax reliefs and allowances (2006-07)
Personal allowance (income tax)
30,100
(1)
Age-related personal allowances
2,400
Tax credits (treated as negative income tax)
4,600
(2)
Income tax relief for approved pension schemes
16,300
(3)
National insurance rebates for pension schemes
16,970
(4)
PEP, ISA, VCT and EIS reliefs
2,325
(5)
HMRC Table 1.6 (2007-08
(6)
Additional tax if all earned income were taxed at 33%
Increase starting rate from 10% to 22%
6,600
(7)
Remove lower earnings/profits limit (National Insurance)
12,610
(8)
Align Class 4 and Class 1 National Insurance rates
945
(9)
Align upper earnings/profits limit with higher rate tax threshold (National Insurance)
1,502
(10)
------------------------
94,352

(1)  Table 1.5 gives a figure of £40,000 million, but this assumes that the basic state pension would be taxable, which would raise £9,900m (£44,837m x 22%). The potential saving shown here is lower as the CI paid to pensioners will be non-taxable.
(2)  These are in addition to the Tax Credits treated as benefit payments.
(3)  Table 1.5 shows £16,300 million as the net cost, ie the cost of tax relief (at up to 40%) minus tax paid on pensions in payment (largely at 22%). If tax relief for pension contributions is restricted to 22% at source, the net long-run cost will be minimal.
(4)  Under a CI scheme, NI will be merged into the overall tax rate and all benefits will be non-contributory, so there will be no additional National Insurance rebates or reliefs.
(5)  These are regressive subsidies. A higher rate taxpayer benefits twice as much as a basic rate taxpayer and benefit claimants lose benefits if they have significant savings.
(6)  The figures for 2006-07 are no longer published.
(7)  12 x £550 million.
(8)  £97 ÷ £2 x (£240 million + £20 million) = £12,610
(9)  3 x £315 million = £945 million.
(10)  Higher rate threshold £38,335 minus upper earnings/profits limit £33,600 = £4,735 ÷ £520 x (£150 million + £15 million) = £1,502.

2 April 2007





 
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