^{page 44 note (1)} London, HMSO 1972 Cmnd 5116.

^{page 44 note (2)} There are controls to ensure that all able-bodied men and single women without dependants seek work. Benefit may be withdrawn after a period of time if the claimant is thought to be workshy.

^{page 44 note (3)} Rent and rates are paid in full except where the rent is ‘unreasonable’ and payment may also be made for special needs (e.g. dietary) and to ensure that members of the house hold are adequately clothed. Total entitlement must not ex ceed the ‘normal’ income of the hous old if the breadwinner were in full-time employment.

^{page 44 note (4)} For a fuller discussion of the problems of low pay and minimum wage legislation see A. B. Atkinson, ‘Poverty in Britain and the Reform of Social Security’, Cambridge University Press, 1969.

^{page 46 note (1)} Lower paid workers without children may be entitled to rent and rate rebates, which we treat as essentially benefits in kind.

^{page 46 note (2)} Here we assume that ‘household’ is equivalent to ‘tax-unit’.

^{page 46 note (3)} Royal Commission on the Taxation of Profits and Income, Second Report, Cmd 9105.

^{page 46 note (4)} Assume all transfers are met from current taxation, T, and that T=kY where k is the proportion of gross tax revenue to national income, Y. If N households receive an average cash benefit of b, the total cost of transfers will be Nb, and net tax revenue, G (equal to other government expenditure) will be given by the equation G=kY—Nb. The average benefit paid is b=kN-G/N. The value of each transfer to the recipient house hold will be offset to the extent that the household also pays taxes, either directly or indirectly.

^{page 47 note (1)} In addition, old persons' pensions were introduced in November 1970 for those who had already retired in 1948 when the national insurance scheme was introduced, and attendance allowances for the severely disabled began in December 1971. The total value of these new benefits (in cluding FIS) in 1972-73 was approximately £57 million, although the net cost to the Exchequer would have been partly offset by tax on old persons' pensions, and savings in supplementary benefit payments.

^{page 47 note (2)} The higher rates of tax would continue to be levied on large incomes, credit values being converted into allowance equivalents.

^{page 48 note (1)} Employees with expenses in excess of £30 p.a. would be able to claim for the extra amount.

^{page 48 note (2)} Working wife's allowance would be £625 p.a. (£595+£30 standard expenses) or £187.50 in credit terms, whilst the annual married credit would be £312, a difference of £124.50. The man would receive the ‘married’ credit whether he were formally single or married.

^{page 48 note (3)} Low income families with children outside the tax-credit system not drawing supplementary benefit would be eligible for a residual form of Family Income Supplement, the details of which were not set out in the Green Paper.

^{page 49 note (1)} For a discussion of the problem and an extensive biblio graphy, see M. Wynn, ‘Family Policy’, London, Michael Joseph 1970 and Harmondsworth, Penguin 1972.

^{page 50 note (1)} The breakeven point in a tax-credit system is equal to the total credit divided by the rate of tax, for example, for a two- child family £10 credit divided by 0.3 equals £33.33.

^{page 50 note (2)} Chart 2 also shows that the value of the married and child credits was set so that no claimants of FIS would have been made worse off at October 1972.

^{page 50 note (3)} Written answer, Hansard, 21 March 1973, Vol. 853, Col. 148.

^{page 51 note (1)} On incomes up to £13.46 per week single, £19.23 married, no tax is payable: on the excess of these levels up to £16.48 (£25.71), tax is payable at 50 per cent. At higher levels of in come no exemption is given. These rates became operative with the unified tax system in April 1973.

^{page 51 note (2)} Of the national insurance benefits only the retirement pension, the widow's benefit and the guardian's and child's special allowance are at present taxable. It is proposed that attendance allowance and pensions paid on acccount of war or industrial disablement would still be exempt from tax, but they would also not, of themselves, give entitlement to the tax-credit system ‘where (exceptionally) this did not already exist’.

^{page 51 note (3)} Single people with normal earnings over £28 per week would lose absolutely in terms of net cash income during any one week of absence from work.

^{page 52 note (1)} See, for example, C. V. Brown and D. A. Dawson, ‘Personal Taxation, Incentives and Tax Reform’ London, PEP 1969. Broadsheet 506. An earlier version of a guaranteed income scheme was put forward in Lady Rhys Williams' ‘Something to Look Forward To’, London, Macdonald 1943.

^{page 52 note (2)} Taxpayers outside the tax-credit system would benefit from higher personal allowances equivalent to the new credits less the standard expenses allowance; they would continue to claim expenses separately.

^{page 53 note (1)} Certain single persons with earnings-related national in surance benefits would have been made marginally worse off (see above).

^{page 53 note (2)} See page 55-56 below.

^{page 53 note (3)} A notable exception has been the family allowance.

^{page 53 note (4)} For example, the values of the supplementary benefit scale rate for a married couple as a percentage of average male manual earnings were, respectively, 30.3 per cent, 29.9 per cent and 30.8 per cent at September 1951, April 1961 and September 1971.

^{page 54 note (1)} The recent White Paper Public Expenditure to 1976-77 (Cmnd 5178) suggested that, in terms of claims on real resources, government expenditure might grow at an average annual rate of 3.1 per cent over the period 1971-72 to 1976-77.

^{page 54 note (2)} That is ‘gross' credit, as opposed to net credit payments.

^{page 55 note (1)} We have argued in terms of a constant share of tax revenue to national income. It has been suggested that the cost of the scheme could be met from ‘fiscal drag’. This is a phenomenon arising from the rigidity of tax rates, whereby the proportion of revenue to national income changes as national income increases. In the case of direct taxes drag leads to an increasing share; the value of personal allowances lags behind the growth of personal incomes, so that the pro portion of income subject to tax rises and, as well, more income becomes subject to the higher (surtax) rates. As in comes grow, therefore, the share taken by the Exchequer rises. However, it is the aim of the tax-credit proposals that tax thresholds should rise relative to average income; in addition, if social security benefits increase in value, as we have argued they are likely to, tax thresholds must rise in absolute terms. The effect of fiscal drag is that thresholds do not rise in absolute terms and fall behind relatively. If this were to happen, the cost of the scheme would increase the further personal allowances had fallen behind in relative terms. The cost of the scheme to the Exchequer could not therefore be met through fiscal drag.

^{page 55 note (2)} It is estimated (Appendix page 64) that credits would have to be set at 83 per cent of their illustrated levels to produce a no-cost scheme. Most single people and many families drawing FIS would be made worse-off under such a scheme.

^{page 55 note (3)} The yield of surtax in 1972-73 is provisionally set at £350 million in the Financial Statement for 1973-74. We estimate (Appendix page 65) that a further 10 per cent tax on all income over £3,500 p.a. would have raised approximately £250 million, or about one fifth of the cost of the proposals to the Exchequer.

^{page 56 note (1)} This corresponds to the illustrative examples in the Green Paper. For households with little or no investment income and incomes that would not have been subject to surtax the tax paid under the unified system approximately equals that paid under 1972-73 rates and allowances.

^{page 56 note (2)} For a fuller discussion of this subject see D. Piachaud, ‘Poverty and Taxation’, The Political Quarterly, January- March 1971, pp. 31-44.

^{page 57 note (1)} The Programme for Controlling Inflation: The Second Stage, London, HMSO, January 1973, Cmnd 5205, para graph 21.

^{page 57 note (2)} The Green Paper's concept of net income did not take account of national insurance contributions. Since we have assumed contributions to be the same under both schemes, any change in net income from the changeover to tax-credits will be the same as that shown in the Green Paper.

^{page 60 note (1)} For a two-child family with earnings of £30 per week, for example, a £1 increase is reduced by 30p tax to 70p. In turn the rent rebate is reduced by 17 per cent of 70p or 12p. Additional national insurance would be 5p so that final in come increases by 53p.

^{page 60 note (2)} Once assessed, family income supplement is payable for 12 months, for example, despite intermediate increases in earnings.

^{page 62 note (1)} See National Institute Economic Review no. 63, February 1973, Ch. II, Table 5, personal disposable income plus taxes.

^{page 65 note (1)} London, HMSO 1972.