REFORM OF INCOME TAX RATES AND ALLOWANCES

The Chancellor today unveiled a three year package to reform the
structure of income tax and meet the Government's commitments to
improve work incentives and help both pensioners and families with
children.

A new 10 pence rate of tax will be introduced for the new tax year,
which begins on 6 April. The 10p rate will be the lowest rate of
income tax this country has seen for more than 35 years, and will
ensure that people on lower pay keep more of what they earn. And
from April 2000, the basic rate of income tax will also be cut by a
penny, taking it to 22p, the lowest it has been for almost 70 years.
Together, these changes will improve work incentives by making work
pay.

A new children's tax credit, designed to support families by
supporting children, will be introduced from April 2001. The
children's tax credit will be available to all families with one or
more children, and will be worth up to #8 per week. The married
couple's allowance (MCA) for people aged under 65 and its associated
allowances will be abolished from April 2000. The new credit will be
worth more than twice as much as the MCA.

The Chancellor will meet his promise of a minimum tax guarantee for
pensioners by increasing the age-related personal allowances by up to
#200 more than statutory indexation. Everyone aged 65 or more will be
able to have an income of at least #110 a week before they have to
pay any income tax. People aged 75 and over will be able to have an
income of #115 a week without paying income tax.

DETAILS

1. The Government is committed to improving work incentives and
    promoting a fair and efficient tax system. Introducing a new 10p
    rate of tax and cutting the basic rate will help to ensure that
    work pays. The 10p rate will apply to taxable income up to
    #1,500 and replaces the lower rate of 20p. The rates of tax on
    savings income remain at 20p for income below the basic rate
    limit and 40p above that. The Chancellor has also increased the
    basic rate limit in line with indexation, so people will now pay
    tax at the higher rate only if they have income of at least
    #32,335. These changes are part of the Government's strategy to
    help people into work.

2. The Chancellor has said that a primary aim of the Government
    must be to support families by supporting children. In last
    year's Budget, he announced a substantial increase in Child
    Benefit, to be funded by restricting the rate at which relief for
    the MCA (and associated allowances) is given to 10 per cent. The
    replacement of these allowances by the children's tax credit is
    the next step in reforming the way in which the Government
    supports families and children. It will benefit around five
    million families, and will target resources more closely on
    families with children.

3. The children's tax credit can be claimed by families who have
    one or more children under 16 living with them. It will take the
    form of an allowance for which relief is given at 10 per cent.
    In 2001-02, the amount will be #4,160 at 10 per cent.

4. To target the benefit of the children's tax credit on the
    families that need it most, the credit will gradually be
    withdrawn where the person claiming it is liable to tax at the
    higher rate.

5. As part of the package to make work pay and improve support
    for families with children, the Chancellor has also announced
    increases in the Working Families Tax Credit. The basic credit
    in the WFTC will be increased by #2.50 and the credit for
    children under 11 years old will be increased by #4.70, from
    October 1999. From April 2000, there will be a further increase
    of #1.10 in the credit for children under 11.

6. The Chancellor announced in the Comprehensive Spending Review
    in July last year that he would introduce a minimum tax guarantee
    for pensioners. The increase in the age-related personal
    allowance meets that commitment. The personal allowance for
    someone aged 65 to 74 years old will rise by #310 to #5,720, and
    the allowance for someone aged 75 and over will rise by #380 to
    #5,980. These increases will save pensioners up to #1.68 a week
    in tax by comparison with the 1998-99 allowances. The Budget
    package will mean that 200,000 pensioners are taken out of income
    tax altogether.

7. For 1999-2000, the MCA for the under 65s will rise in line
    with statutory indexation to #1970. When the Chancellor
    announced in the Budget last year that relief for MCA would be
    restricted to 10 per cent from April this year, he also said that
    the enhanced MCA available to couples where at least one spouse
    is aged 65 or over would be increased to preserve its value.
    Today he announced that it would increase further, in line with
    indexation. This will take MCA to #5,125 for a couple where at
    least one spouse is aged 65 to 74, and to #5,195 for couples
    where one of the spouses is 75 or older.

8. Couples in which at least one of the spouses is aged 65 or
    more on or before 5 April 2000 will be able to keep the MCA when
    it is abolished for younger couples. After that date, people
    will not be able to make new claims for the MCA when they or
    their spouse reach the age of 65. However, when a person born on
    or before 5 April 1935 newly gets married, they or their spouse
    will still be eligible to claim MCA.

9. To target resources on pensioners with lower incomes, the
    age-related allowances are progressively withdrawn from people
    with income above a certain limit. This limit will also rise in
    line with indexation by #600, to #16,800. The limit applies to
    both the age-related personal allowance and the age-related MCA.
    But these allowances cannot be reduced below the level which is
    given to people under 65.

10. The Chancellor announced in his pre-Budget Report in November
    that the personal allowance for 1999/2000 would rise in line with
    statutory indexation to #4,335. The Blind Person's Allowance
    will also rise in line with indexation to #1,380.

NOTES FOR EDITORS

1. For couples where neither of them is a higher rate taxpayer,
    it will be open to them to choose to allocate the whole credit to
    either of them or to share it equally between them. Any surplus
    credit that one spouse or partner cannot use can be passed to the
    other.

2. The children's tax credit will gradually be withdrawn where
    the person claiming it is liable to tax at the higher rate. These
    people will lose #1 of tax credit for every #15 of income above
    the point at which they start to pay higher rate tax until their
    entitlement to the credit is exhausted (at an income of about
    #38,500). Those who are affected by these withdrawal provisions
    will not be able to transfer the credit to their spouse or
    partner. This will prevent one spouse or partner's income
    affecting the income tax liability of the other.

3. Where more than one person is eligible to claim the children's
    tax credit in respect of the same child, they will be able to
    apportion the credit between them as they agree. If they cannot
    agree, the credit will be shared out on the basis of the length
    of time for which the child is resident with each of them during
    the tax year - this will be similar to the current rules for
    apportioning the Additional Personal Allowance (APA). In years
    in which a change of circumstance arises - for example, the year
    when a couple get married or stop living together - the credit
    will be apportioned for the periods when the different
    circumstances apply, and the appropriate rules about entitlement
    to the credit will apply in each part of the year.

4. Other reliefs and allowances, which are generally worth the
    same as the basic MCA, will also be abolished from April 2000.
    These include the APA, relief for maintenance payments, and the
    widow's bereavement allowance (WBA). The APA is mainly available
    to separated and unmarried parents.

5. Tax relief for maintenance payments will be retained where one
    or both of the parties to the marriage is aged 65 or over at 5
    April 2000. But the special transitional relief for payments
    under arrangements originally set up before 15 March 1988 is
    being ended. Instead, the relief for payments under maintenance
    arrangements set up on or after 15 March 1988 will apply to all
    maintenance payments for those who remain entitled to relief.
    Recipients of payments made under arrangements set up before 15
    March 1988 will no longer be taxable on the payments they
    receive.

6. The WBA is given to widows for up to two years. It is
    discriminatory because it is not available to widowers. Widows
    will be more than compensated for the loss of this allowance by
    the proposed Bereavement Payment in the Welfare Reform and
    Pensions Bill. This will be available to widows and widowers, and
    will help taxpayers and non-taxpayers alike.

7. The rates of income tax and the allowances for 1999/2000 are
    set out in the tables overleaf. The revenue effects of the
    income tax measures are set out in the Financial Statement and
    Budget Report. Tables showing the effects of the Budget package
    for people in different circumstances will also be available on
    the Inland Revenue website at www.inlandrevenue.gov.uk.

INLAND REVENUE PRESS OFFICE
Media enquiries to: 0171 438 6692/6706/7327
(Out of hours: 0860 359544)
Non-media enquiries to: 0171 438 6420/6425
(Office hours only)
Inland Revenue information is on the Internet:
www.inlandrevenue.gov.uk

# = pounds sterling

(# a year) 1998-99 1999- 2000 Increase
Income tax allowances

Personal allowance 4 195 4 335 140

Married couple's allowance *, 1 900 1 970 70
additional personal allowance *,
and widow's bereavement allowance *

For people aged 65-74
personal allowance 5 410 5 720 310
married couple's allowance * 4 965 5 125 160

For people aged 75 and over
personal allowance 5 600 5 980 380
married couple's allowance * 5 025 5 195 170

Income limit for age-related allowances 16 200 16 800 600

Blind person's allowance 1 330 1 380 50

1. Tax relief for these allowances is restricted to 15 per cent for
1998-99 and 10 per cent for 1999/2000. The amounts for
age-related MCA in 1999-2000 were increased so that the value of
this allowance for people aged 65 and over would be protected.
For consistency, the figures shown for 1998-99 for these
allowances reflect these increases. Only the further increase (in
line with indexation) is reflected in the table.

Bands of taxable income
1998-99 (# a year) 1999-2000 * (# a year)

Lower rate 0 - 4 300 Starting rate 0 - 1 500
20 per cent 10 per cent

Basic rate 4 301 - 27 100 Basic rate 1 501 - 28 000
23 per cent 23 per cent **

Higher rate over 27 100 Higher rate over 28 000
40 per cent 40 per cent

* For 1999/2000, the rates of tax applicable to savings income in
Section 1A ICTA 1988, other than dividends, remain at 20 per cent for
income below the basic rate limit and at 40 per cent above that. The
rates applicable to dividends will be 10 per cent for income below
the basic rate limit and 32.5 per cent above that.

** The basic rate for 2000/2001 will be 22 per cent.