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Tax benefit reference manual: 2009-2010 edition

All enquiries: Analise Mercieca and Stefania Porcu Work Incentives and Poverty Analysis HM Treasury Tel 020 7270 6088/5045

July 2009

Tax benefit reference manual: 2009-2010 edition

July 2009

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Contents Contents Section 1: Personal income tax

Page 1

Section 2: Child and Working Tax Credits

45

Section 3: Financial support for children and young people

67

Section 4: Indirect tax

85

Section 5: National insurance contributions

137

Section 6: Contribution conditions

165

Section 7: Jobseeker’s Allowance and Unemployment Benefit

175

Section 8: State Pension

185

Section 9: Other contributory benefits

203

Section 10: Income Support

211

Section 11: Housing and Council Tax benefits

247

Section 12: In-kind benefits

273

Section 13: Other non-contributory benefits

289

Section 14: Time series

303

Section 1: Personal income tax

Section 1: Personal income tax Contents

Page

A: Current system Introduction Treatment of dividend and savings income Treatment of families with children Taxation of the elderly Statutory indexation Taxation of social security benefits Taxation of benefits-in-kind

3 6 8 8 9 12 13

Tables Table 1.1: Table 1.2a: Table 1.2b: Table 1.3: Table 1.4:

3 4 5 11 16

Some key figures Income tax allowances and tax credits for 2009-10 Bands of taxable income and tax rates, 2009-10 Statutory indexation Taxable benefits in kind and expenses payments

B: History Overview of the pre-April 1973 income tax system Overview of the system since 1973 Tax Returns Additional Personal Allowances and Widow’s Bereavement Allowance Treatment of dividend and savings income Treatment of earned and investment income The taxation of families with children The treatment of wife’s income Treatment of one parent families Taxation of the elderly Mortgage interest relief Statutory indexation Taxation of social security benefits Taxation of benefits-in-kind

17 18 19 19 19 20 21 21 25 25 26 27 27 28

Tables Table 1.5: Table 1.6: Table 1.7 Table 1.8:

28 29 29 30

Discounts available at different mileage/age levels for valuation of company cars Percentage of the car price charged for valuation of cars Car fuel scale charge Definitions for tax/ benefit terminology

C: Historical tables post-1990 Table 1.9: Table 1.10a Table 1.10b Table 1.11: Table 1.12:

Tax rates and allowances Child Benefit rates Child Benefit (£ per week) – financial year average rates Tax advantages for the elderly Cumulative income tax tables

31 32 32 33 34

D: Historical tables pre-1990 Table 1.13: Table 1.14: Table 1.15: Table 1.16:

Tax rates and allowances Rates of surtax Joint income at which wife’s earnings election was advantageous Tax advantages for the elderly 1

35 39 39 40

Section 1: Personal income tax Table 1.17:

Cumulative income tax tables

41

2

Section 1: Personal income tax

A.

CURRENT SYSTEM

Table 1.1 Some key figures 2005-06

Outturn 2006-07

31,100

31,800

2007-08

Provisional 2008-09

Forecast 2009-10

30,900

29,300

147,664

134,357

Thousands Number of taxpayers1

32,300 £ Millions

Income tax receipts2

130,481

143,327

147,324

(1) Figures after 2006-07 are projected estimates based upon the 2006-07 Survey of Personal Incomes, in line with the April 2009 Budget Report. (2) Figures for income tax treat payment of the personal tax credits as negative tax to the extent that the credits are less than or equal to the tax liability of the family. Payments exceeding this liability are treated as public expenditure. This approach is consistent with the presentation adopted by the Office for National Statistics in National Accounts, HM Treasury and OECD. Personal tax credits are therefore being treated in line with international accounting conventions so as to distinguish between negative tax and public expenditure.

Source: HM Revenue and Customs.

Introduction 1.1 Income tax is a tax on individuals and is characterised by a system of allowances and deductions, with earned and investment income treated broadly in the same way. 1.2 The UK tax system is cumulative in the sense that total tax payable for a particular financial year depends upon total income in that year. Thus low income in one month can be used to offset high income in another (unlike National Insurance contributions (NICs), which are based on pay period and usually calculated on the basis of one week's or month's income alone). The PAYE system1 achieves cumulation by crediting the taxpayer each week with 1/52 of his annual allowance, and 1/52 of the basic rate bands. His or her income in the tax year to date and the sum of these weekly allowances and bands are then used to calculate the tax he or she should have paid to date. Tax tables are issued to employers on request to make this task straightforward, although most employers now use software or agents/bureaux services. Tax payable is the difference between the result and tax already paid to date. So someone who has paid tax earlier in the financial year whose income in a week falls below his or her personal allowance for that week will be eligible for a tax refund (refunds for the unemployed are covered in paragraph 1.71). 1.3 The personal allowance is deducted from a taxpayer’s income before his or her tax liability is calculated, and gives relief at the taxpayer’s marginal rate of tax. The Married Couple’s Allowance (MCA), however, reduces the taxpayer’s tax bill by a set amount, irrespective of the taxpayer’s marginal rate. (From 2000-2001, only people born before 6 April 1935 are entitled to the MCA.) For example, for 2009-10 the MCA for individuals aged 75 or over is set at £6,965 and gives relief at the 10% rate, so the taxpayer’s tax bill is reduced by a maximum of £696.50. This is not repayable if the person does not have sufficient income to fully use it. However, surplus MCA can be transferred to the spouse to offset against their tax bill.

1

The Pay As You Earn system is used to deduct income tax at source from the earnings of employees and occupational and personal pension schemes.

3

Section 1: Personal income tax

1.4 Current tax rates and allowances for 2009-10 are shown in the tables below. Table 1.2a: Income tax allowances and tax credits for 2009-10 £ 2009-10 Personal allowance age under 65 1 age 65-74 1 age 75 and over Married couple's allowance 12 age 65 -74 on 5 April 2000 12 age 75 and over minimum amount Income limit for age-related allowances Blind person's allowance

6,475 9,490 9,640 6,865 6,965 2,670 22,900 1,890

Working Tax Credit3, 4, 5 Basic element Couples and lone parent element 30 hour element Disabled worker element Enhanced disabled adult element 50 plus return to work payment, 16-29 hours 50 plus return to work payment, 30+ hours Childcare element (weekly): - maximum eligible cost - maximum eligible cost for 1 child - per cent of eligible costs covered Child Tax Credit3, 6, 7 Family element Family element, baby addition Child element Disabled child additional element Enhanced disabled child additional element Common Features3 First income threshold First withdrawal rate (per cent) Second income threshold Second withdrawal rate First threshold for those entitled to Child Tax Credit only

1,890 1,860 775 2,530 1,075 1,300 1,935 300 175 80 545 545 2,235 2,670 1,075 6,420 39 50,000 1 in 15 16,040

1

These allowances are reduced if the taxpayer's income exceeds the income limit for age-related allowances. Allowance available at a flat rate of 10 per cent. 3 Working Tax Credit and Child Tax Credit were introduced in April 2003 and replace Working Families’ Tax 2

Credit, Disabled Person’s Tax Credit and Children’s Tax Credit. Apart from those mentioned in footnote 5, the elements for which claimants are eligible can be added together

4

to arrive at the maximum amount of tax credit available. These elements are mutually exclusive. Where an individual works enough hours to qualify for the 50-plus

5

return to work payment (30+ hours), they cannot also qualify for the 50plus return to work payment (16-29 hours). Only one family element is available per family. Families are entitled to the family element and the baby

6

addition in the first year of a child’s life. As well as one family element, a family will be entitled to a child element for each child for whom it has

7

responsibility. For each child, the child elements that are appropriate may be added together to arrive at the maximum amount available for that child.

4

Section 1: Personal income tax

Table 1.2b: Bands of taxable income and tax rates, 2009-101 Bands of taxable income (£) 0-37,400 Over 37,400

Rates Basic Higher

Earnings 20.0 40.0

Per cent Savings 20.0 40.0

Dividends 10.0 32.5

(1)The starting rate is abolished for all non-savings income (e.g. employment, self-employed trading profits, pensions and property income), which is the first slice of income to be charged to income tax. For 2009-10 there is a 10% starting rate for savings with a limit of £2,440. Where taxable non-savings income does not fully occupy the starting rate limit the remainder of the starting rate limit is available for savings income. Source: HM Revenue and Customs.

Using the allowances set out in Table 1.2b, the following example shows how tax payable is calculated. Example 1.1: How tax payable is calculated £ 45,000.00 6,475.00 38,525.00

Single person: Annual earned income Personal tax allowance Taxable pay of which: £37,400 taxed at 20 per cent £1,125 taxed at 40 per cent

7,480.00 450.00

Total tax payable

7,930.00

1.5 Income tax is charged for a tax year. A tax year ends on 5 April. Income tax is charged under the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) on the income received in the tax year: -

employment income: this includes salaries, wages and benefits.

-

pension income: this includes the United Kingdom state pension and foreign pensions.

-

social security income: but this does not include some non-taxable benefits, such as child benefit.

Income tax is charged under the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”) on: -

trading income: the charge is usually based on the profits shown in business accounts for a year that ends in the tax year (for example, the profits of the year ended 31 December 2009 are taxed in 200910).

-

property income: this includes all income from property whether in the United Kingdom or abroad. The charge is on the profit of the tax year.

-

savings and investment income: this includes interest (some of which may have income tax deducted at source) and dividends. The charge is on the income and dividends, received in the tax year.

-

miscellaneous income: this includes royalties and income from trusts.

The Income Tax Act 2007 contains the basic provisions about income tax, including the charge to income tax, tax rates, how a person’s liability is calculated, personal reliefs and general definitions. 5

Section 1: Personal income tax

1.6 The income tax affairs of the majority of individuals are settled without the need for a Tax Return. For about eight million people, however, a Return is needed. These individuals make their own assessments of their total incomes from all sources (‘self assessment’), and then either calculate their own tax or ask the HMRC to do it for them. 1.7 For the self-employed (people with earnings not paid for an office or employment), tax is payable on the income of the current tax year. 1.8 Mortgage interest relief for those aged 65 or over who took out loans to buy a life annuity (a home income plan) before 9 March 1999 will continue to get relief, but loans taken out after that date will not qualify, as tax relief on loans for house-purchase and home improvement loans were abolished from 6 April 2000. 1.9 The main income tax allowances for 2009-10 are shown in Table 1.2a. Treatment of dividend and savings income 1.10 Two examples of the treatment of dividend and savings income are shown below. Example 1.2 Treatment of dividend and savings income Annual figures, 2009-10 Income £16,000 of which: £8,000 earnings £6,000 building society interest £2,000 dividends Personal allowance Taxable income

Tax Liability

£6,475 £9,525 of which:

£1,525 earnings £6,000 building society interest £2,000 dividends (1,525 x 0.2)+(915 x 0.1)+(5,085 x 0.2)+(2,000 x 0.1)=£1,613.5

The £2,000*0.1 from dividends is only notional tax. Tax directly payable is therefore equal to £1,413.5. The £2000*0.2 from savings is collected at source. The tax on savings at 20% on £6,000 of interest in this example is collected at source but the taxpayer can claim a repayment for the amount liable at 10%.

6

Section 1: Personal income tax

Example 1.3 Treatment of dividend and savings income, higher earner Annual figures, 2009-10 Income £45,000 of which: £25,000 earnings £2,000 building society interest £18,000 dividends Personal allowance Basic rate limit

£6,475 £37,400

Taxable income

£38,525 of which:

£18,000 dividends £2,000 building society interest £18,525 earnings

Since dividend and savings income must always be regarded as the ‘top slice’ of income, (with dividends the highest) the taxable income is divided as follows: £18,525 £2,000 £16,875 £1,125

@ @ @ @

20% 20% 10% 32.5%

earnings less personal allowance £6,475 building society interest £25,000 dividends £27,000 dividends at higher rate of 32.5 per cent £43,875 (comprising 10% notional tax credit + 22.5% SA charge) £45,000 Calculated tax: £6,158.13 The £18,000*0.1 from dividends is only notional tax. Tax directly payable is therefore equal to £4,358.13. The £2000*0.2 from savings is collected at source. Note this taxpayer’s marginal rate on an extra pound of earned income is 42.5% (20% on the earnings + 22.5% on the extra pound of dividend income moved into higher rate). The marginal rate on an extra pound on savings income is 42.5% (20% on the savings and 22.5% on dividends moved into higher rate) and 32.5% for an extra pound on dividend income. Tax liability breakdown: total income £45,000 £1,125 @ 32.5%

Higher Rate £43,875 Dividends £18,000

£16,875 @ 10% £27,000

£2,000 @ 20%

Basic Rate

Building Society

Taxable

Interest £2,000 (tax payable at source)

Income

£25,000

£38,525

£18,525 @ 20% £6,475

Earnings £25,000

£6,475 @ 0%

Personal Allowance

Non taxable income £6,475

7

Section 1: Personal income tax

1.11 There is a 10 per cent rate of tax on dividends. Associated with UK dividends is a tax credit which meets the liability on dividends of all taxpayers whose incomes fall within the lower or basic rate bands. Those who pay tax at the higher rate have an additional liability of 22½ per cent of the gross dividend to cover the difference between the higher (32.5 per cent) and the ordinary rate (10 per cent). This 10 per cent rate is notional in the sense that it is met by an equal (notional) tax credit and is not payable to non-taxpayers. From 6 April 2008 the non-payable dividend tax credit was extended to dividends from non-UK companies providing the investor owns less a 10per cent shareholding. From 22 April 2009 this was extended to investors with a 10per cent or more shareholding except where the source country does not levy a tax on corporate profits similar to corporation tax. 1.12 From April 2008 there is a starting rate of 10 per cent on savings income only. For most taxpayers, tax at 20 per cent (the basic rate which applies to savings income in the basic rate band) is deducted at source and taxpayers continue to pay an extra 20 per cent on savings income in the higher rate band. Those taxpayers with some savings income covered by allowances or the 10 per cent band may claim a repayment. Dividends and savings income must always be regarded as the ‘top slice’ of income with dividends the highest. Treatment of families with children 1.13 Families with children receive Child Benefit to help with bringing up children. Child Benefit is not taxable and is payable in respect of each child under 17 and for 17-18 year olds in further education. Child Benefit is explained in more detail in Section 3. Support may also be available from the New Tax Credits (NTCs), which are composed of Working Tax Credit and Child Tax Credit. NTCs are explained in Section 2. Taxation of the elderly 1.14 The elderly receive a higher personal tax allowance unless their total income exceeds a ceiling (calculated from the aged income limit). For those with incomes above this limit, the difference between the age allowances and ordinary personal allowances is reduced by £1 per additional £2 of income. Thus at a certain point the difference between the age allowance and the ordinary personal allowance disappears (the 'run out' point). Married couples or civil partnerships where the eldest spouse or partner was born before 6 April 1935 are also eligible for the MCA (note that since age is assessed at the end of the tax year a person eligible for MCA would be, for tax purposes, at least 75 years old in 2009-10). For elderly people with the MCA the personal allowance is withdrawn first and then the MCA (as appropriate), but the MCA can only be withdrawn until it reaches the value of the non-aged MCA. With the abolition of the non-aged MCA from 200001, it is tapered until it reaches a minimum value of £2,670 in 2009-10. Pensioners with income above the ceiling but below the 'run out' point face a marginal tax rate of 1½ times the basic rate i.e. 30 per cent (or 25 per cent if MCA is being reduced).

8

Section 1: Personal income tax

1.15 See Table 1.2a for current age allowances. Two examples are given below: Example 1.4: A married man born between 6 April 1934 and 5 April 1935 with earned income of £30,000 per annum Annual figures, 2009-10 Taper

= ½ (30,000-22,900) =3,550

Personal allowance MCA Taxable income

= £6,475 maximum reduction of £3,015 (min((£9,490 - £6,475), £3,550) = £6,865 - (£3,550 - £3,015) = £6,330 = £30,000 - £6,475 = £23,525

Tax

= ((23,525) x 0.2) - (6,330 x 0.1)) = £4,072

Example 1.5 A married man aged 75+ with earned income of £30,000 per annum and his wife aged 65-74 with earned income of £12,000 per annum Annual figures, 2009-10 Husband Taper = ½ (30,000-22,900) =3,550 Personal allowance = £6,475 maximum reduction of £3,165 (min((£9,640 - £6,475), £3,550) MCA = £6,965 - (£3,550 - £3,165) = £6,580 Taxable income = £30,000 - £6,475 = £23,525

Wife

Tax

= ((23,525) x 0.2) - (6,580 x 0.1)) = £4,047

Taper Allowance Taxable income

£12,000 is less than £22,900 so no tapering required. = £9,490 = £12,000 - £9,490= £2,510

Tax

= £502

Statutory indexation 1.16 Since 1977 there is a statutory obligation to raise personal allowances and tax bands by at least the rate of inflation as measured by the Retail Prices Index (RPI) in the twelve months to the September preceding the start of the tax year Budget. This was implemented by the Rooker-Wise amendment to the 1977 Finance Act and prior to the November 1993 Budget operated by reference to percentage increase in RPI in the twelve months to the December preceding the Budget. If, as in 1982 and 1993, the government wants to introduce allowances of less than this amount it must introduce a measure to rescind its obligations (which happened to the aged personal allowance in 1999-00). In applying these obligations to index, certain rounding conventions and definitions are used. Increases in each parameter have an associated rounding amount (£10 or £100) set out in legislation so that they increase by: Previous year’s parameter * (RPI(year 0)/RPI(Year-1))-1, ( rounded up to the next multiple of the rounding amount).

9

Section 1: Personal income tax

This is the increase in the parameter specified by the statutory rules which say that the increase is “by the same percentage as the percentage increase in the retail prices index”. Note that the starting and basic rate limits are indexed, and the bandwidths and thresholds2 are then calculated by adding or subtracting the appropriate allowances and limits. 1.17

Statutory indexation rules apply to the range of allowances and thresholds shown in Table 1.3. The

personal allowance for those aged under 65 increased by more than indexation in 2009-10. See Table 1.2a for current personal allowances over the course of the last parliament. 1.18

Table 1.3 shows the allowances for 2008-09 uprated to 2009-10 based on the September 2007 RPI

(208.0) movement to September 2008 (218.4) as published by ONS. The ONS also publishes a year-on-year movement rounded to a percentage with one decimal place (5.0 % in this case) but the legislation is framed in terms of the change in the index itself rather than this rounded increase. This can make a difference. For example in 1996-97 the increase in the age 65-74 personal allowance was 4630*(150.6/145.0 - 1) = 178.8 rounding up to 180 rather than 4630*0.039 = 180.57 rounding up to 190. And the fact that it is the increase in the parameter that is rounded up rather than the absolute value ensures that the three allowances that end in a 5 will continue to do so. 1.19

As part of the Tax Law Rewrite project Income Tax Act 2007 includes provisions to increase

allowances and thresholds by indexation which work in exactly the same way as previous legislation. The value of the increase is determined by following these steps (the steps are identical for increases which are rounded up to the nearest £100): Step 1 Multiply the allowance, amount or (as the case may be) the minimum amount for the previous tax year by the same percentage as the percentage increase in the retail prices index. Step 2 If the result of Step 1 is a multiple of £10, it is the increase for the tax year. If the result of Step 1 is not a multiple of £10, round it up to the nearest amount which is a multiple of £10. That amount is the increase for the tax year. Step 3 Add the increase for the tax year to the allowance, amount or (as the case may be) the minimum amount for the previous tax year. The result is the allowance, amount or (as the case may be) the minimum amount for the tax year.

2

These are non-statutory concepts.

10

Section 1: Personal income tax

Table 1.3: Statutory indexation £

Rounding amount

Income tax Personal allowance age under 65 age 65-74 age 75 and over 1 Married couple's allowance age 65 -74 on 5 April 2000 age 75 and over on 5 April 2000 minimum amount Income limit for age-related allowances Blind person's allowance Lower rate band (for savings only) Basic rate limit 1

Tax relief for these allowances is restricted to 10 per cent.

11

2008-09

2009-10

10 10 10

6,035 9,030 9,180

6,475 9,490 9,640

10 10 10 100 10 10 100

6,535 6,625 2,540 21,800 1,800 2,320 34,800

6,865 6,965 2,670 22,900 1,890 2,440 37,400

Section 1: Personal income tax

Taxation of social security benefits 1.20 A full list of taxable and non-taxable benefits is shown in the table below (see ITEPA 2003 Section 660 Table A for taxable benefits and Section 677 Table B for non-taxable benefits). Taxable benefits Bereavement Allowance Incapacity Benefit, higher rate and long term (except increases for children) Income Support (strikers or people interested in a trade dispute) Industrial death benefit, whose entitlement arose before 11 April 1988 Carer’s allowance (except increases for children) Jobseeker’s Allowance Retirement Pension (except increases for children)

Statutory Adoption Pay Statutory Sick Pay Statutory Maternity Pay Statutory Paternity Pay Supplementary allowance (for students) Widowed Mother’s Allowance (except increases for children) Widowed Parent’s Allowance, replaced Widowed Mother’s Allowance from 9 April 2001 although WMA is still paid whose entitlement arose before 9 April 2001 (except increases for children) Widow's Pension, whose entitlement arose before 9 April 2001

Non-taxable benefits 1. Income Support and Social Fund

4. Benefit in respect of children

Income Support (except strikers or people interested in a trade dispute) Community care grants, e.g. clothing, furniture, Travelling expenses Cold weather payments Funeral expenses payments Maternity expenses Interest free loans Winter fuel payments Back to work bonus In work credit In work emergency discretion fund payment In work emergency fund payment Return to work credit

Child Benefit Guardian's allowance Incapacity Benefit, higher rate and long term, increases for children Carer’s allowance increases for children Retirement Pension increases for children Severe Disablement Allowance Widowed Mother's Allowance increases for children Widowed Parent’s Allowance increases for children

2. Short-term benefits Bereavement Payment, replaced Widows Payment from 9 April 2001 Incapacity Benefit lower rate Invalidity Benefit, replaced by Incapacity Benefit by April 1995 but still payable where invalidity commenced before April 1995 Maternity Allowance Widow's Payment

5. Other benefits Attendance Allowance Christmas bonus Council Tax Benefit Discretionary housing payments Disability Living Allowance Educational maintenance allowance Fares to hospital Health benefit refunds Housing Benefit War disablement benefits War widow's pension

3. Industrial injury benefits Constant Attendance Allowance Exceptionally Severe Disablement Allowance Industrial Injuries Disablement Benefit Injury benefit (ceased after 5 April 1983) Reduced earnings allowance Retirement allowance Unemployability supplement Workmens Compensation (Supplementation) Scheme Pneumoconiosis, Byssinosis and Miscellaneous Diseases Benefit Scheme [both these apply to pre 5 July 1948 schemes still in payment]

12

Section 1: Personal income tax

Taxation of benefits-in-kind 1.21 Benefits-in-kind and expense payments cover a wide range of types of remuneration which an employee receives from his employer. For example, company cars, low interest loans and entertainment expenses are all types of benefit-in-kind.

Most of them are liable to tax, but there are a few specific

exemptions like accommodation provided for certain occupational groups, the value of goodwill entertainment provided for employees by third parties, and in house sports and recreational facilities. Table 1.4 details the taxable amounts, tax liability, NICs liability and number of recipients of various types of benefit and expenses payments in 2006-07. (Enquiries on Taxation of benefits-in-kind should be addressed to [Dawn Kelly, Analysis, HMRC, Room 2/64, 100 Parliament Street, Westminster, London SW1A 2BQ, 020 7147 2936)]. 1.22 The calculation of the taxable value of a benefit-in-kind benefit depends on the type of benefit received. In most cases the benefit derived is valued as the cost to the employer of providing that benefit. Notable exceptions are: Company cars available for private use. -

Since 2002-03 the taxable value of company cars has been based on a percentage of the list price (plus

accessories) of the car that varies with the carbon dioxide (CO2) emissions of the vehicle. The price of the car for tax purposes is restricted to an upper limit of £80,000. For 2008/09, cars with up to 135g/km emissions are charged at 15 per cent, with a one per cent increase for each 5g/km increase in emissions to a maximum of 35 per cent. -

Diesel powered cars are subject to a three per cent supplement to reflect that, although they have lower

CO2 emissions than comparable petrol cars, they have higher particulate emissions. This supplement is waived if the car meets Euro IV emissions standards and was registered before 1 January 2006. -

Battery electric cars, which do not emit CO2, are charged at nine per cent.

-

Alternatively fuelled vehicles such as hybrid electric cars or bi-fuel cars qualify for a reduction. The

current reductions are: three per cent for hybrid petrol/electric cars; two per cent for cars manufactured to run on road fuel gas (liquid petroleum gas or compressed natural gas), whether alone or with petrol. -

Since 6 April 2008 a 10 per cent band also applies to cars that have emissions of exactly 120g/km or

less. The three per cent supplement still applies to diesels, but there is no further reduction for alternatively fuelled cars within this band. Finally, there a reduction of two per cent applies to cars capable of running on E85 fuel. Fuel for private use -

Since 2003-04 the company car fuel benefit charge has been based on a percentage of a set figure, which from April 2008 is set at £16,900, and from April 2009 onwards will increase at least in line with 13

Section 1: Personal income tax

inflation. The percentage is calculated by reference to the car’s carbon dioxide emissions and is the same percentage used to calculate the taxable value of a company car based on its list price, and reflects any diesel supplement or discounts for alternative fuels. See above. Vans available for private use -

The private use of an employer provided van (including any fuel provided for private use) incurred a scale charge of £500 from 1993-94 to 2006-07 (£350 if the van is over four years old). In other words, the taxpayer paid a tax charge equivalent to that he would have paid if he/she had received an additional £500 from his/her employer.

-

Since 2005-06 a nil charge has applied to employees who have to take their van home and are not allowed other private use. From 2007-08 the discount for older vans was removed and the scale charge for unrestricted private use increased to £3,000 and if the employer provides fuel for unrestricted private use an additional fuel charge of £500 also applies.

Beneficial loans -

If an employee receives a loan, or enjoys any form of credit by reason of his employment, the benefit chargeable is the difference between the amount of interest payable using the official rate of interest and the actual interest paid. Certain exemptions can apply and loans totalling up to £5,000 are exempted, but for other loans the benefit chargeable is added to the employee’s other income and taxed at his or her marginal rate of tax.

Mobile telephones -

From April 2006 the number of phones an employer can provide tax-free to their employees for private

use is restricted to one. Accommodation -

The taxable value of accommodation provided by an employer (where this is taxable) is determined by reference to the 'annual value' of the accommodation. There is a long standing concessionary practice of using the value from the 1973 domestic rating lists, the gross rateable value (GRV) for the value of benefit. In some circumstances there will be an additional charge based on the original cost (or sometimes the current market value) of the accommodation. Most employees with accommodation provided by their employer are in exempt categories such as agricultural workers, clergymen, members of HM forces, police officers etc.

14

Section 1: Personal income tax

Employer supported childcare -

Where an employee receives the provision of childcare or childcare vouchers as a benefit-in-kind the

following exemptions apply from 2005-06. -

Where a childcare place or service is obtained and provided to the employee by the employer (employer-

contracted childcare) the first £55 a week from April 2006 is exempt from tax and Class 1A NICs. -

Employer provided childcare vouchers are also exempt from tax and Class 1 NICs on the first £55 a week

from April 2006. -

Where an employer provides a place in a nursery on the employer’s premises or that they wholly or

partially fund and manage (a “workplace nursery”) the benefit to the employee is fully exempt from tax and Class 1A NICs. -

The exemptions outlined above are each subject to certain qualifying conditions. These are broadly that

the childcare used is either registered or approved childcare, that the child is a qualifying child for the purpose of the exemption and that the childcare benefit or vouchers is offered under a scheme that is open to all of the employer’s employees or all of the employer’s employees at a particular location.

1.23 A benefit-in-kind provided for an employee whose earnings are at a rate of less than £8,500 per year (including benefits) is taxable as his/her income only in certain circumstances. These are: -

if the benefit consists of the provision of living accommodation;

-

if the benefit can be converted into cash;

-

if a debt is settled on the employee's behalf; or

-

if the benefit is provided by means of a voucher or credit card.

1.24 Directors are liable to pay tax on all benefits-in-kind received, regardless of whether their income is at a rate of less than the £8,500. Most expenses payments are taxable irrespective of the level of an employee’s earnings. Broadly, a taxpayer may claim a deduction only where it can be shown that the expenditure was incurred purely for the purposes of her/ his employment. 1.25 Until April 2000, NICs were not liable on the majority of benefits-in-kind. The exceptions to this were company cars and fuel provided for private use, on which employer Class 1A NICs were liable. As from April 2000, all taxable benefits not subject to Class 1 NICs are subject to Class 1A NICs, with the exception of nursery provision.

15

Section 1: Personal income tax

Table 1.4: Taxable benefits in kind and expenses payments Recipients, taxable value and income tax and NICs liability, by each main category of benefit, 2006-07 Numbers: thousands; Amounts: £ million Category

Recipients

Taxable value

Tax liability

NICs liability

Number

% of total

Amount

Average £

% of total

Amount

Average £

Amount

Average £

Car Fuel Private medical and dental Beneficial loans General expenses Travelling and subsistence Entertainment Home telephone Mileage allowance Subscriptions Vans Services rendered Vouchers/credit cards Transferred assets Provided accommodation Payments on behalf of employee Other expenses Other benefits1

1,160 360 2,260 100 160 220 100 80 580 100 130 50 60 10 30 20 10 380

28 9 54 2 4 5 2 2 14 2 3 1 1 1 1 9

4,030 970 1,330 120 230 580 130 30 200 50 50 40 150 40 120 60 20 350

3,490 2,700 590 1,200 1,470 2,640 1,330 390 350 540 390 680 2,480 2,960 4,340 2,480 1,800 900

48 11 16 1 3 7 2 2 1 1 2 1 1 4

1,340 330 440 40 70 180 50 10 50 20 10 10 40 10 40 20 5 120

1,160 910 200 420 420 810 480 130 90 190 100 230 650 1,120 1,590 890 620 310

520 120 180 20 30 80 20 5 40 5 5 5 20 5 20 10 5 50

450 350 80 160 200 370 190 60 60 70 50 90 290 380 560 360 250 120

Total

4,170

8,490

2,040

2,790

670

1,120

270

(1) Includes Funded Unapproved Retirement Benefit Schemes NOTES 1. This table provides estimates of the number of recipients of each of the main categories of benefit in kind and expenses payments, along with the total taxable values and the estimated income tax and NICs liability for each category. 2. The total number of recipients is the number receiving at least one benefit and so is not the sum of the individual components. Similarly, as recipients may receive more than one type of benefit, the percentages for the number of recipients are not additive. 3. Numbers and amounts less than 10 are rounded to the nearest 5, greater than 10 rounded to the nearest 10. 4. The column totals may not equal the sum of individual components due to rounding.

Source: HM Revenue and Customs.

16

Section 1: Personal income tax

B.

HISTORY

Overview of the pre-April 1973 income tax system 1.26

Before April 1973, personal income taxation consisted of two separate taxes: regular income tax and

surtax. The former was based mainly on a single standard rate of tax whilst the latter imposed higher rates of tax on higher tranches of income. 1.27

Regular income tax (pre-April 1973) and surtax were applied to different definitions of taxable income

- the differences are shown in rows 1 and 2 of Table 1.8, while the actual rates of the reliefs and allowances are shown in Table 1.13. Most of the reliefs are discussed in more detail in the relevant subsections (below). One exception is a relief for NICs. This was intended to prevent the taxation of the part of NICs that go towards pensions. The relief was not available on unearned income (on which NICs are not paid). 1.28

Regular income tax was essentially a linear tax with a positive personal allowance and a single

marginal rate of tax known as the 'standard rate'. The size of the personal allowance depended upon marital status, number of children and other responsibilities (such as dependent relatives) or disabilities (such as blindness). Elements of non-linearity were introduced by some relatively small reduced-rate bands in force before April 1970 and by some aspects of earned income relief. In particular, in years when there was more than one rate of earned income relief, the effective marginal rate of tax on earned income increased as earned income relief dropped. For example in 1972-73 when taxable earned income increased above £4,005 the effective marginal tax rate increased from (38.75 x 7/9) = 30.14 per cent to (38.75 x 0.85) = 32.94 per cent. Surtax by contrast had a rising scale of rates applied to successive slices of income above an exemption limit (see Table 1.13)3. 1.29 Surtax was charged by one assessment for the year. It was payable in one sum on or before the 1 January following the year of assessment (e.g. 1 January 1974 in the case of the year 1972-73). Example 1.6: 1972-73 Single man (no deductions) Earning £150 pw Earned income relief Regular tax bill

= = = =

£7,800 per annum (pa) £1,459 £(7,800 – 1,459 - 460) x 38.75 per cent £2279

Further relief for surtax

= £2,000 (but only personal allowances above single man's are allowed)

Income liable to surtax

= £(7,800 - 1,459 - 2,000) = £4,341

Surtax

= (£500 x 11%)+(£500 x 13.75%)+(£1,000 x 19.25%)+(£341 x 24.75%) = 55 + 68.75 + 192.5 + 84.4 = £400.65

Total tax bill

= £2,679.65pa = £51.53 per week (pw)

1 One complication occurred in the period 1969-70 to 1972-73 when incomes below £2,500 (£3,000 in 1971-72 and 197273) were exempt from surtax but, for income above this limit, surtax was payable on all income above £2000. Since this would have implied a very high marginal rate of surtax at the exemption limit a marginal rate of 40 per cent (44 per cent in

17

Section 1: Personal income tax

Overview of the system since 1973 1.30 In April 1973 surtax and regular income tax were effectively combined into one system with a single set of allowances and deductions. One feature of the previous system that was retained was the long range of incomes over which the basic rate of tax applies; 93 per cent of taxpayers had the basic rate as their marginal tax rate in 1989-90. The basic rate is shown in Table 1.12; higher rates of tax are shown in Table 1.16. Examples of tax payments under different tax bands are given below: Example 1.7: 1978-79 Married couple, husband earning £20,000 pa Personal tax allowance Taxable pay of which: £ 750 taxed at 25 per cent £7,250 taxed at 33 per cent £1,000 taxed at 40 per cent £1,000 taxed at 45 per cent £1,000 taxed at 50 per cent £1,500 taxed at 55 per cent £1,500 taxed at 60 per cent £2,000 taxed at 65 per cent £2,465 taxed at 70 per cent

£1,535 £18,465 £ 187.50 £2,392.50 £ 400.00 £ 450.00 £ 500.00 £ 825.00 £ 900.00 £1,300.00 £1,725.50

Total tax payable

£8,680.50

=

Example 1.8: 1987-88 Married couple, husband earning £44,000 pa Personal tax allowance Taxable pay of which £17,900 taxed at 27 per cent £ 2,500 taxed at 40 per cent £ 5,000 taxed at 45 per cent £ 7,900 taxed at 50 per cent £ 6,905 taxed at 55 per cent Total tax payable

£3,795 £40,205 £4,833.00 £1,000.00 £2,250.00 £3,950.00 £3,797.75

=

£15,830.75

Example 1.9: 1989-90 Married couple, husband earning £44,000 pa Personal tax allowance Taxable pay of which £20,700 taxed at 25 per cent £18,925 taxed at 40 per cent

£4,375 £39,625

Total tax payable

£12,745

£5,175 £7,570

=

1972-73) was applied to income immediately above the exemption limit as a form of marginal relief. This relief was available up to the income level where the schedule without marginal relief implied less tax.

18

Section 1: Personal income tax

Tax Returns 1.31 Tax Returns are needed for about nine million people. For years up to 1995-96, tax inspectors issued tax bills to these people (or their partnerships) based on assessments of their incomes, using data reported on these returns and on business accounts for the self-employed. These assessments have often been initially estimated, and separate assessments have often been made for different income sources. Since 1996-97, individuals have made their own assessments of their total incomes from all sources (‘self assessment’), and then either calculate their own tax or ask the HMRC to do it for them. 1.32 For the self-employed (people with earnings not paid for an office or employment), up to 1995-96, tax was normally assessable on the income of the previous tax year. However, since 1997-98, tax is payable on the income of the current tax year. In 1996-97, tax was payable on the average of 1995-96 and 1996-97 incomes. Additional Personal Allowance and Widow’s Bereavement Allowance 1.33 The Additional Personal Allowance and the Widow’s Bereavement Allowance were (like the MCA for the non-aged) abolished from 6 April 2000 for those born after 6 April 1935. However those widowed in 19992000 were able to claim their Widow’s Bereavement Allowance of £2,000 at 10 per cent for 2000-01 as long as they did not remarry before 6 April 2000. This is the only circumstance where Widow’s Bereavement Allowance was due for the tax year 2000-01. Widow’s Bereavement Allowance has not been available since 2001-02. Treatment of dividend and savings income 1.34 Since 1999-2000 there has been a starting rate of 10 per cent on savings income. For most taxpayers, tax at 20 per cent (the lower rate which applies to savings income in the basic rate band) is deducted at source and taxpayers continue to pay an extra 20 per cent on savings income in the higher rate band. Those taxpayers with some savings income covered by allowances or the 10 per cent band may claim a repayment. 1.35 A 10 per cent rate of tax on dividends was introduced in 1999-2000. This meets the liability on dividends of all taxpayers whose incomes fall within the lower or basic rate bands. Those who pay tax at the higher rate pay an additional 22½ per cent of the gross dividend to cover the difference between the higher and the ordinary rate. This 10 per cent rate is notional in the sense that it is met by an equal (notional) tax credit. Tax is not payable at the 10 per cent rate.

19

Section 1: Personal income tax

Treatment of earned and investment income 1.36 In most of the post-war period investment income was taxed more heavily than earned income. Before April 1973 this was achieved by giving a relief on earned income. Under the unified system an investment income surcharge was used to achieve a similar end until it was abolished in April 1984. 1.37 Earned Income Relief was a tax relief given against a proportion of earnings (usually up to a certain limit). If the earned income fraction were 2/9 then tax would be paid on 7/9 of earned income. For a taxpayer with earned income, the effective rate of tax would therefore be 7/9 of the standard rate. 1.38 The definition of earned income used in calculating earned income relief is shown in Table 1.8 while the actual rates of relief are shown in Table 1.12. The rates of relief often varied for different tranches of earned income and until April 1971 there was a maximum earned income relief. Earnings above this maximum were treated in exactly the same way as investment income. From April 1961, Earned Income Relief was available against surtax as well as regular income tax. At the same time a special earnings allowance was introduced to set against surtax, which was not available against income tax. This reduced surtaxable earnings by £2,000 but any unused relief could not be applied to investment income. Example 1.6 shows how this worked in practice for the 1972-73 tax system. 1.39 The favourable treatment of earned income relative to investment income meant that those with a high percentage of investment income in their total income could have a relatively large tax bill even if total income was small. As a result a small income relief was introduced in 1952-53, which allowed investment income to qualify for a relief if the tax unit's total income was small. This effectively removed the penalty on investment income. Marginal relief was also available for income slightly above this level4. 1.40 Earned Income Relief and small income relief can complicate comparisons of allowances and marginal rates. Thus when earned income relief was 2/9 of an individual's earnings the marginal tax rate on taxable earned income was 7/9 of the announced rates. For example the 38.75 per cent standard rate levied in 197273 gave an effective marginal rate of 30.14 per cent on the first £4,005 of earned income subject to tax. Conversely if a pre-1973 allowance was applied solely to earned income the allowance must be multiplied by 9

/7 (with an earnings relief at the rate of 2/9) in order to make a comparison with an allowance granted under

the unified system. 2 This meant that tax payable should not exceed the tax payable on income at the top of the small income range plus a

marginal tax rate (also given in Table 1.12) multiplied by the excess. For example, a single individual in 1957-58 with income of £300 would have paid tax of £14 2/3 (taxable income of £93 1/3) as he would have qualified for small income relief. If instead he had £350 investment income marginal relief meant his annual tax payment could not exceed (£14 2/3+ 0.45) x £50)= £37.17 (£37 3s 5d). If he did not claim small income relief his tax payable was £42.38 (£42 7s 6d) on a taxable income of £210. Since small income relief was always at the same rate as earned income relief it was only worth claiming if at least some income came from investments.

20

Section 1: Personal income tax

1.41 When Earned Income Relief and small income relief were abolished in April 1973, a distinction between earned and investment income was maintained with the introduction of an investment income surcharge whereby all investment income above an exemption limit was subject to a rate of surcharge of 15 per cent. The exemption limits are shown in Table 1.12. At different times there were different exemptions for those under and over 65 and between April 1974 and April 1979 a reduced rate of 10 per cent was payable on the first tranche of investment income. The effects of this system differed from the previous earned income and small income reliefs as the exemption limit applied to the size of investment income only. A person with high earnings could therefore have been exempt from investment income surcharge. In contrast small income relief applied only to people with a small total income. 1.42 Composite rate tax was abolished from 6 April 1991. Individuals with incomes less than their personal allowances are no longer liable to tax on interest from banks, building societies and other deposit-takers. This is estimated to include some five million married women with income below the tax threshold. The taxation of families with children 1.43 Throughout the post-war period the extra responsibility of having children has been recognised by the tax and benefit system, though the method has changed over time. Immediately after the war additional tax allowances were available for each child. These allowances are explained in more detail in Section 3. 1.44 This system of personal tax allowances in respect of children was of benefit only to taxpayers, although family allowances favouring non-taxpayers continued until April 1977.

Child tax allowances were then

gradually phased out – they were fully abolished in April 1979, while Child Benefit immediately replaced family allowance in April 1977. Child Benefit is explained in more detail in Section 3. 1.45 Support could also be available from tax credits, which are explained in Section 2. The treatment of wife’s income 1.46 Before Independent Taxation was introduced, the tax system tended to treat married couples as one unit for income tax purposes – in effect a wife’s income was treated as the husband’s for the purposes of tax and gave married men a higher personal allowance than single taxpayers (as shown in Table 1.12). In addition wives' earnings received an additional relief or allowance. 1.47 Before April 1973 a married woman's earned income received an additional relief of a fraction of her earnings subject to a maximum. The fraction and the maximum are shown in Table 1.12. However, in the

21

Section 1: Personal income tax

unified system a married woman was entitled to a wife's earned income allowance, which was equal to the smaller of a single person's tax allowance and her earned income5. 1.48 Any income above this limit was effectively transferred to the husband and taxed at his marginal rate. 1.49 Both before and after unification reduced rate bands (in years when they existed) applied to both the taxpayer's own income and his wife's earnings. So a married woman paid tax at her husband's marginal rate only on earnings over her personal allowance (from 1973) and her reduced rate bands. (But before April 1973, a wife's earned income relief was calculated on all her earnings not only that above her reduced rate bands.)

Example 1.10: Unified system with reduced rate band 1979-80

Married couple plus 2 children under 11 Husband earning £100 pw and family collection CB of £8 pw

Earned income = £100pw = £5,200pa Tax bill

= £(0.25 x 750) + 0.3 (5200 - 1815 - 750) = £978pa = £18.81pw

Net Income

= £89.19

1.50 As default, a husband got the married man’s allowance and his wife got an allowance against her earnings only but only to the greater of her actual earnings or the single person’s allowance. Alternatively a husband and wife could choose to have the wife's earnings taxed separately; this was called wife's earnings election. A taxpayer could make the election (or revoke one made earlier) within 12 months of the end of the tax year. If this was chosen the husband and wife were effectively taxed as two single people (except for any investment income accruing to the wife). So the husband and wife each had a single person's tax allowance (the married man lost his married man's allowance), and each has the lower, basic and higher rate bands of a single person. Even under wife's earnings election a wife's unearned income was always treated as part of her husband's income for tax purposes. See the examples below. Note that an ‘option to elect' applied to surtax only in 1972-73. In all previous years election only applied to regular income tax.

3

This ensures that a wife earning less than her personal tax allowance cannot transfer the unused balance to her husband. In contrast if a husband cannot make full use of his married man's allowance, this may be transferred to his wife.

22

Section 1: Personal income tax

Example 1.11: Wife's earnings election, 1989-90 Husband earns £25,000 pa Wife earns £12,000 pa If taxed jointly (ie no wife's earnings election) they have a taxable income of: £37,000 - £4,375 married allowance - £2,785 wife's earned income allowance = £29,840 taxable income On which they pay: = £(20,700 x 0.25 + 9,140 x 0.4)

= £8,831 tax

If wife's earning election is chosen, husband pays tax on: £25,000 - £2,785 single allowance = £22,215 taxable income Tax payable is (0.25 x 20,700) + (0.4 x 1,515) Wife pays tax on: £12,000 - £2,785 = £ 9,215

= £5,781.00 tax

single allowance taxable income

Tax payable is 0.25 x 9,215

= £2,303.75 tax

Combined tax bill

= £8,084.75 tax

So there is a tax saving of £8,831 - £8,084.74 = £746.25

Example 1.12: 1989-90; wife's earnings election with investment income If wife's income were made up of £4,000 pa earned income and £8,000 pa investment income, then under wife's earnings election, the wife's investment income would necessarily be included with her husband's income, and only her earned income would be taxed separately. Tax bill under joint taxation would be as before, ie £8,831. If wife's earnings election is chosen: Husband pays tax on £33,000 (£25,000 earnings + £8,000 wife's investment income) less £ 2,785 personal allowance = £30,215 taxable income tax payable: £8,981.00 Wife pays tax on £4,000 earnings less £2,785 personal allowance = £1,215 taxable income tax payable £303.75 Making total tax bill of £9,284.75 So, in this case there would be a loss from wife's earnings election of: £9,284.75 - £8,831 = £453.75

1.51 In deciding whether to elect or not a couple had to weigh the advantage of the wife paying tax according to her own separate schedule with her own basic rate and higher rate band (rather than at her husband's marginal rate) against the disadvantage of losing the married man's allowance. For 1989-90 an election

23

Section 1: Personal income tax

would normally have been worthwhile if a couple's combined income before deduction of allowances and relief was at least £30,510 including wife's earned income of at least £7,025. When there were multiple higher rates the calculation was more complex: break-even points for 1986-87 to 1989-90 are shown in Table 1.14. 1.52 As a result of the long basic rate band there was a large range over which the ratio of husband's income (and wife's unearned income) to wife's earned income could vary without affecting the income at which wife's earnings election became worthwhile. Consider a couple who were earning £30,510. When they had equal earnings their marginal rate of tax was 40 per cent if taxed as a couple; if taxed separately both paid tax at the basic rate. The couple would pay the same amount of tax under the two options. If taxed as a couple, changing the ratio of income between husband and wife would not affect their tax unless the wife could no longer claim all of her wife's earned income allowance (which was only the case if the husband earned more than 91 per cent of their joint income). Similarly if taxed separately, changing the ratio of income would only increase the tax bill if one earner reached the basic rate limit. Only when one partner earned more than 76.9 per cent of their joint income would higher rate tax become due under election. 1.53 The introduction of Independent Taxation in 1990-91 was accompanied by transitional protection to prevent couples for whom the wife's was the main income, from experiencing a reduction in their total allowance. 1.54 The current Independent Taxation system was announced in the 1988 Budget, and was introduced on 6 April 1990. The system's main features are: -

married women have independence and privacy in their tax affairs;

-

husbands' and wives' income and capital gains are taxed independently;

-

there is a new structure of income tax allowances, with a full personal allowance for married women; a Married Couple’s Allowance (abolished for people born after 6/4/1935 from 6th April 2000); and higher allowances for the elderly; and

-

it does not involve tax penalties on marriage. (NB: Those who continued to receive two lots of mortgage interest relief under joint taxation lost it on the introduction of the new system.)

1.55 The MCA was set initially against the husband's income, but was transferable to the wife if the husband has insufficient income to use it in full. From April 1993, a married couple has been able to transfer the whole MCA to the wife, or the wife has been able independently to claim half the allowance. For 1994-95 the MCA was restricted to 20 per cent and was no longer available at the taxpayer's marginal rate. Since April 1995 the allowances have been restricted. The restriction was at 15 per cent to 1998-99 and is 10 per cent since 19992000. From 1994-95 these allowances were therefore no longer deducted when calculating taxable income.

24

Section 1: Personal income tax

1.56 It is important to note that the MCA has been abolished for people born after 1935 (announced in the 1999 Budget) from 6 April 2000. Treatment of one-parent families 1.57 One-parent families were first recognised as being in need of special treatment by the tax system in April 1969 when single parents were awarded an additional personal allowance (APA) on top of the single person's allowance. From April 1973 onwards the APA was set as the difference between the married man's allowance and the single person's allowance so that a single parent family received a total personal allowance equal to the married man's allowance. From April 1990 it was set equal to the MCA. 1.58 No special treatment for single parent families was given in respect of family allowance until the financial year 1976-77 when a temporary benefit called 'Child Interim Benefit' was introduced pending the implementation in April 1977 of Child Benefit and child benefit increase (CB(I)). It was identical to FAM except that one-parent families could claim it in respect of their first child. Taxation of the elderly 1.59 The elderly receive a higher personal tax allowance unless their total income exceeds a ceiling (calculated from the aged income limit). For those with incomes above this limit, the difference between the age allowances and ordinary personal allowances was reduced by £2 per additional £3 of income until 198889, and by £1 per additional £2 of income since 1989-90. Thus at a certain point the difference between the age allowance and the ordinary personal allowance disappears (the 'run out' point). Married couples where the eldest partner was born before 6 April 1935 are also eligible for the MCA (note that since age is assessed at the end of the tax year a person eligible for MCA would be, for tax purposes, 70 years old). For elderly people with the MCA the personal allowance is withdrawn first and then the MCA (as appropriate), but the MCA can only be withdrawn until it reaches the value of the non-aged MCA. With the abolition of the nonaged MCA from 2000-01, it is tapered until it reaches a minimum value of £2,440 in 2007-08. Pensioners with income above the ceiling but below the 'run out' point face a marginal tax rate of 1½ times the basic rate i.e. 33 per cent (or 28 per cent if MCA is being reduced). 1.60 A taxpayer, or taxpayer couple, is regarded as 'elderly' where either partner is aged 65 or over, or reaches 65 during the tax year. Taxation of the elderly has been guided by two separate objectives: firstly that the elderly with more modest incomes should be taxed more leniently; and secondly that investment income to the elderly should be taxed less heavily since in many cases this is the return to lifetime savings. The latter aim prompted the age relief that was in force for the whole of the post war period until April 1973. This was granted instead of Earned Income Relief on total income (earned plus unearned) but was applicable only on total incomes up to a given limit. The limit and rate of allowance are shown in Table 1.15. For incomes

25

Section 1: Personal income tax

slightly in excess of these limits marginal relief was available so that tax could not exceed the tax payable if income had been at the limit plus a given rate of tax on the excess (also shown in Table 1.15). In April 1973 when the investment income surcharge was introduced age relief was abolished and the elderly were given the same exemption limit on investment income as all other taxpayers, though briefly, in financial years 197778 and 1978-79, a specially increased exemption was introduced for the elderly. 1.61 In addition to this relief to investment income an exemption for elderly people with small incomes was available from April 1957. Incomes below a limit (shown in Table 1.15) were exempt from income tax and a marginal relief was available for incomes slightly above the limit so that they should not be taxed any higher than the amount of tax they would have paid with income at the limit plus the marginal tax rate times the excess. This was abolished in April 1975 when the present system of age allowances was introduced but the new system was designed to have a similar effect. Mortgage interest relief 1.62 Until 6 April 2000 tax relief was available on loans for house-purchase (including caravans and houseboats) in the United Kingdom or Republic of Ireland provided that the property was used as the person's only or main residence. Relief was also available on home improvement loans, provided the loan was taken out before 6 April 1988. Mortgage interest relief was restricted to the basic rate in 1991-92, to 20 per cent from 1994-95, 15 per cent from 1995-96, and 10 per cent from 1998-99. It was abolished in April 2000. 1.63 For homeowners aged over 65, the interest on up to a further £30,000 of loans taken out before 9 March 1999 to buy an annuity also qualifies for tax relief, if secured on a main residence. The relief for annuities is at 23 per cent. 1.64 Before 6 April 1983 relief for mortgage interest was given through PAYE codings or tax assessments; but after then, for most borrowers, relief (other than higher rate relief) was given through the mortgage interest relief at source (MIRAS) scheme. Under the MIRAS scheme, the borrower made payments net of tax at the appropriate rate to the lender who then reclaimed the relief direct from the HMRC. Tax relief at higher rates of tax continued to be given through PAYE codings or tax assessment until April 1991 and relief for loans outside the MIRAS system is still given in this way. 1.65 Before 1974-75, there was no ceiling for mortgage interest relief. From 1974-1983 relief was limited to interest paid on loans up to £25,000. The ceiling has been £30,000 since 1983-84. Relief for mortgage interest was given through PAYE codings or tax assessment until 1983-84.

26

Section 1: Personal income tax

1.66 Before 1988-89 the ceiling applied to the loans of each tax unit: a married couple therefore shared a total ceiling of £30,000 whereas a separated, divorced or single person each had their own ceiling of £30,000, except where the mortgage was shared: in this case, a single limit of £30,000 per dwelling applied. Statutory indexation 1.67 Since 1977 there has been a statutory obligation to raise personal allowances and tax bands by at least the rate of inflation as measured by the Retail Prices Index during the twelve months to the September preceding the Budget. This was implemented by the Rooker - Wise amendment to the 1977 Finance Act. The following rounding conventions applied to the pre-independent taxation system from 1977:

Single, married, aged single and aged married allowance

-

round increase up to nearest £10

Additional personal allowance and widow's bereavement

-

Married allowance minus single allowance

Aged Income Limit

-

Round increase up to nearest £100

Thresholds

-

Round increase in band width up to nearest £100.

allowance

The thresholds are then calculated by adding up the relevant bands. See current system for an example of how the rounding conventions are currently applied.

1.68 From the November 1993 Budget onwards the statutory obligation to raise personal allowances was amended to the movement in the Retail Prices Index to the September preceding the tax year. Taxation of social security benefits 1.69 Originally most short-term benefits were liable to tax, but in 1949 they were exempted for administrative reasons. Successive governments have accepted that there is a strong argument for taxing them. As long as the benefits were exempt, those receiving them could be better off than other individuals with comparable income who were liable to tax. 1.70 Benefits paid to the unemployed and to people on strike were brought into tax from 5 July 19826. Up to October 1996, the taxable benefits for the unemployed were: -

Unemployment Benefit (UB) for the claimant and the addition for dependent spouse; and

-

Income Support (IS) - again for the claimant and dependent spouse - paid in lieu of Unemployment Benefit up to the rate of UB for the claimant and, where applicable, dependent spouse if, the UB rate exceeded the IS rate.

Additions to Unemployment Benefit and Income Support in respect of children were not taxable.

6

Prior to 5 July 1982, the unemployed who had paid tax earlier in the financial year could apply to the local tax office for refunds while unemployed. In practice they would receive such refunds at four weekly intervals.

27

Section 1: Personal income tax

1.71 Where an Unemployment Benefit Office paid the benefit, no tax was deducted.

Tax refunds or

underpayments were made when the claimant's benefit claim finished (i.e. on re-entering paid employment) or at the end of the tax year, whichever was the earlier4. When the employer paid the benefit (e.g. during 'subsequent' method of taxation), freezing the claimant's tax position during unemployment and sorting it out after, was adopted so that in no case would claimants be taken below their minimum needs level by having tax deducted currently from benefit. 1.72 The same position held for those laid off during a strike or on short-time working; a striker cannot receive benefit on his or her own account, only for a dependant. Where a striker claimed Income Support for an adult dependant, the benefit was taxed. Again, however, Income Support paid for a child was outside the tax net. There were no PAYE refunds to strikers until the end of the strike. The tax on the Income Support would be collected by an adjustment to subsequent year's code. 1.73 Jobseeker’s Allowance (JSA) replaced Unemployment Benefit and Income Support for unemployed people in October 1996. Taxation of benefits-in-kind Company cars available for private use -

Up to 1993-94 the taxable value of company cars was based on one of 30 different scale charges that were dependent on the price, engine capacity and age of the car together with the number of business miles driven during the year. Between 1994-95 and 1998-99 the taxable value of company cars was based on 35 per cent of the list price (price of car and accessories less any capital contributions made by the taxpayer up to £5,000) of the company car. This value was reduced further to reflect both the age of the car and the amount of business mileage driven.

(N.B. Business mileage does not include

commuting.) Table 1.5 below shows the discounts available at different mileage/ age levels.

Table 1.5: Discounts available at different mileage/ age levels for valuation of company cars Business travel (in miles) Less than 2,500 2,500 to 17,999 over 18,000

-

Cars under 4 years old NIL 1/3 2/3

Cars over 4 years old 1/3 5/9 7/9

Between 1999-2000 and 2001-02 the taxable value of company cars was based on a percentage of the list price of the car, which varies with the number of business miles driven, with a one quarter discount for cars over four years old. Table 1.6 below shows the percentage of the car price charged.

28

Section 1: Personal income tax

Table 1.6: Percentage of the car price charged for valuation of cars Percentage of the list price Business travel (in miles) Cars under 4 years old Cars over 4 years old Less than 2,500 35% 26.25% 2,500 to 17,999 25% 18.75% over 18,000 15% 11.25%

-

Since 2002-03, the taxable value of company cars is based on a percentage of the list price (plus accessories) of the car that varies with the carbon dioxide (CO2) emissions of the vehicle. See paragraph 1.22 for full details of the current system.

Fuel for private use -

Up to 1997-98 the taxable value of free fuel for private use was based on one of six scale charges depending on the engine capacity of the car and the type of fuel used. From 1998-99 to 2002-03 the charges depend only on the engine capacity of the car.

-

2002-03 car fuel scales are shown below in Table 1.7. Table 1.7: Car fuel scale charge, 2002-03 Fuel scale charge (£) Engine sizes (cc) 2002-03 Petrol 0 - 1400 2,240 1401 - 2000 2,850 over 2000 4,200 Diesel 0 - 2000 2,850 over 2000 4,200 Source: HM Revenue and Customs

-

In 2003-04, a new fuel benefit charge was introduced, based on a percentage of £14,400. See paragraph 1.22 for full details.

Vans available for private use - The private use of an employer provided van (including any fuel provided for private use) has incurred a scale charge of £500 from 1993-94 (£350 if the van is over 4 years old). Beneficial loans - Prior to 1994-95, if an employee received a loan, or enjoyed any form of credit by reasons of his employment, the benefit chargeable was the difference between the amount of interest payable using the official rate of interest and the actual interest paid. If the benefit was £200 or less up to 1990-91, or £300 up to 1993-94, or if the loan would have qualified for tax relief (e.g. a house purchase loan up to £30,000 for basic rate taxpayers only from 1991-92), no tax was charged. paragraph 1.22).

29

These rules changed in 1994-95 (see

Section 1: Personal income tax NICs treatment of benefits in kind Until April 2000, NICs were not liable on the majority of benefits in kind. The exceptions to this were

-

company cars and fuel provided for private use, on which employer NICs (class 1a) were charged. As from April 2000, all taxable benefits not liable to class 1 NICs are liable to class 1a NICs, with the exception of nursery provision.

Table 1.8: Definitions for tax/ benefit terminology 1948-49 to 1964-65

1965-66 to

1968-69 to

1973-74 to

1976-77

1967-68

1972-73

1976-77

onwards

earned income relief (or small income

Income and family allowances1 -

Income and family allowances1 -

relief) wife's earned income relief personal allowances - other deductions2

earned income relief (or small

Income and family allowances1 - NIC relief -

Taxable Income

Surtaxable Income

Income and

Income and personal

earned income

family allowances1 -

relief (or small

personal

other deductions2

income relief) -

income relief) -

allowances -

wife's earned

wife's earned

clawback -

income relief -

income relief -

personal

personal

other deductions2

allowances -

allowances -

other deductions2

clawback - other deductions2

1948-49 to

1956-57 to

1961-62 to

1955-56

1960-61

1964-65

Income and

Income and

Income and

Income and family allowances1 -

family

family allowances1 -

family allowance1 -

earned income relief - earnings

personal

NIC relief -

allowances in excess of

single man's allowance3 -

in excess of a single man's allowances3 - other deductions2

a single man's allowance3 -

other deductions2

allowances

allowances -

1965-66 to 1972-73

allowance - personal allowances Surtax abolished April 1973

other deductions2 1948-49 to 1960-61 Earned

Earnings and family

income for

allowances - NIC relief other deductions2

calculating

1961-62 to 1972-73 Earnings and family allowances - other deductions2

Earned income relief

income

abolished

relief

April 1973 1948-49 to 1960-61

Income

Income (including family

calculating

allowances NIC relief) other deductions2

small

1961-62 to 1972-73 Income (including family allowances) - other deductions2

Small income relief abolished

Income

April 1973

relief

1

Family allowance would be surrendered if the amount of tax exceeds the amount of payment.

2

Deductions differ between income tax, surtax, and the definition of income used for calculating earned income and small

relief. The details are very complex but they cover such items as payments to pension and superannuation schemes, interest paid (after 1970-71 restricted to loans used to acquire certain assets including land and buildings and shares), retirement annuities and life assurance relief. 3

Additional personal allowance was only taken into account for 1960-61 onwards and blind persons relief from 1962-63 onwards.

30

Section 1: Personal income tax

C. HISTORICAL TABLES POST 1990 Table 1.9: Tax rates and allowances 1990-91 Standard rate (%) Standard rate band Lower rate Lower rate band Higher rate Personal allowance Basic allowance Married Couple's Allowance Single parent's additional personal allowance Blind person's allowance 7 Widow's Bereavement Allowance8 Child Benefit - financial year average (see Table 1.11) non-taxable 1st child 2nd and subsequent children One parent benefit

1991-92

Child Benefit - financial year average (see Table 1.11) non-taxable 1st child 2nd and subsequent children One parent benefit Child Benefit (lone parent)10

1994-95

1995-96

1996-97

25.00 23,700 20.00 2,000 40.00

25.001 23,700 20.00 2,500 40.00

25.001 23,700 20.00 3,000 40.00

25.001 24,300 20.00 3,200 40.00

24.002 25,500 20.00 3,900 40.00

3,005 1,720 1,720 1,080 1,720

3,295 1,720 1,720 1,080 1,720

3,445 1,720 1,720 1,080 1,720

3,445 1,720 1,720 1,080 1,720

3,445 1,7204 1,7204 1,200 1,7204

3,525 1,7205 1,7205 1,200 1,7205

3,765 1,7905 1,7905 1,250 1,7905

7.25 7.25 5.60

8.759 7.379 5.60

9.65 7.80 5.85

10.00 8.10 6.05

10.20 8.25 6.15

10.40 8.45 6.30

10.80 8.80 6.30

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

23.002 26,100 20.00 4,100 40.00

23.002 27,100 20.00 4,300 40.00

23.003 28,000 10.00 1,500 40.00

22.003 28,400 10.00 1,520 40.00

22.003 29,400 10.00 1,880 40.00

22.003 29,900 10.00 1,920 40.00

22.003 30,500 10.00 1,960 40.00

4,045 1,8305 1,8305 1,280 1,8305

4,195 1,9005 1,9005 1,330 1,9005

4,335 1,9706 1,9706 1,380 1,9706

4,385 1,400 2000 8

4,535 1,450 -8

4,615 1,480 -8

4,615 1,510 -8

11.05 9.00 17.10

11.45 9.30 17.10

14.40 9.60 17.10

15.00 10.00 17.55

15.50 10.35 17.55

15.75 10.55 17.55

16.05 10.75 17.55

2004-05 Standard rate (%) Standard rate band Lower rate Lower rate band Higher rate Personal allowance Basic allowance Personal Allowance (PA) (65 - 74) Personal Allowance (PA) (75+) Married Couples Allowance (MCA) (65 - 74) Married Couples Allowance (MCA) (75+) Blind person's allowance 7

1993-94

25.00 23,700 40.00

1997-98 Standard rate (%) Standard rate band Lower rate Lower rate band Higher rate Personal allowance Basic allowance Married Couple's Allowance Single parent's additional personal allowance Blind person's allowance 7 Widow's Bereavement Allowance8 Child Benefit - financial year average (see Table 1.11) non-taxable 1st child 2nd and subsequent children One parent benefit Child Benefit (lone parent)10

1992-93

25.00 20,700 40.00

2005-06

2006-07

2007-08

2008-09

2009-10

3

22.00 31,400 10.00 2,020 40.00

3

22.00 32,400 10.00 2,090 40.00

3

22.00 33,300 10.00 2,150 40.00

3

22.00 34,600 10.00 2,230 40.00

3

20.00 34,800 -11 -11 40.00

20.003 37,400 -11 -11 40.00

4,745 6,830 6,950 5,725 5,795 1,560

4,895 7,090 7,220 5,905 5,975 1,610

5,035 7,280 7,420 6,065 6,135 1,660

5,225 7,550 7,690 6,285 6,365 1,730

6,035 9,030 9,180 6,535 6,625 1,800

6,475 9,490 9,640 6,865 6,965 1,890

16.50 11.50 17.55

17.00 11.40 17.55

17.45 11.70 17.55

18.10 12.10 -

18.80 12.55 -

20.00 13.20 -

1

The basic rate of tax on dividends was 20 per cent. The basic rate of tax on dividends and savings income was 20 per cent. The basic rate of tax on dividend income is 10 per cent, the higher rate for dividend income is 32.5 per cent. 4 Allowance available at a flat rate of 20 per cent. 5 Allowance available at a flat rate of 15 per cent. 6 Allowance available at a flat rate of 10 per cent. 7 Married couples where both spouses are blind receive double these allowances. 8 Covers the year of husband’s death and following year. Widows whose spouse died in 1999-00 get £2,000 in 2000-01. This allowance was withdrawn for deaths occurring after 5th April 2000. 9 £8.25/£7.25 from April 1991, £9.25/£7.50 from October 1991. 10 Applies only for existing claimants and the reserved rights cases before 6th July 1998 e.g. Income Support Lone Parents. 11 The 10% lower rate of tax applies to savings income only up to £2,320 in 2008-09 2 3

31

Section 1: Personal income tax

Table 1.10a: Child Benefit rates Amount for first child

1

09-Apr-90 08-Apr-91 07-Oct-91 06-Apr-92 12-Apr-93 11-Apr-94 10-Apr-95 08-Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09

7.25 8.25 9.25 9.65 10.00 10.20 10.40 10.80 11.05 11.45 14.40 15.00 15.50 15.75 16.05 16.50 17.00 17.45 18.10 18.80 20.00

£ per week Amount for Single parent family Child Benefit 1 subsequent first child premium (Lone Parent) children (One Parent Benefit) 7.25 5.60 7.25 5.60 7.50 5.60 7.80 5.85 8.10 6.05 8.25 6.15 8.45 6.30 8.80 6.30 9.00 17.10 9.30 17.10 9.60 17.10 10.00 17.55 10.35 17.55 10.55 17.55 10.75 17.55 11.05 17.55 11.40 17.55 11.70 17.55 12.10 12.55 13.20 -

No. of children in family 1 2 3 4 7.25 14.50 21.75 29.00 8.25 15.50 22.75 30.00 9.25 16.75 24.25 31.75 9.65 17.45 25.25 33.05 10.00 18.10 26.20 34.30 10.20 18.45 26.70 34.95 10.40 18.85 27.30 35.75 10.80 19.60 28.40 37.20 11.05 20.05 29.05 38.05 11,45 20.75 30.05 39.35 14.40 24.00 33.60 43.20 15.00 25.00 35.00 45.00 15.50 25.85 36.20 46.55 15.75 26.30 36.85 47.40 16.05 26.80 37.55 48.30 16.50 27.55 38.60 49.65 17.00 28.40 39.80 51.20 17.45 29.15 40.85 52.55 18.10 30.20 42.30 54.40 18.80 31.35 43.90 56.45 20.00 33.20 46.40 59.60

Applies only for existing claimants and the reserved rights cases before 6 July 1998 e.g. Income Support Lone Parents.

1

Table 1.10b: Child Benefit (£ per week) - financial year average rates Amount for first child 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 1 2

7.25 3 8.75 9.65 10.00 10.20 10.40 10.80 11.05 11.45 14.40 15.00 15.50 15.75 16.05 16.50 17.00 17.45 18.10 4 19.10 20.00

£ per week Amount for Single parent family Child Benefit 2 subsequent first child premium (Lone Parent) children (One Parent Benefit) 7.25 5.60 3 7.37 5.60 7.80 5.85 8.10 6.05 8.25 6.15 8.45 6.30 8.80 6.30 9.00 17.10 9.30 17.10 9.60 17.10 10.00 17.55 10.35 17.55 10.55 17.55 10.75 17.55 11.05 17.55 11.40 17.55 11.70 17.55 12.10 4 12.71 13.20 -

No. of children in family 1 2 3 4 7.25 14.50 21.75 29.00 8.75 16.12 23.49 30.86 9.65 17.45 25.25 33.05 10.00 18.10 26.20 34.30 10.20 18.45 26.70 34.95 10.40 18.85 27.30 35.75 10.80 19.60 28.40 37.20 11.05 20.05 29.05 38.05 11.45 20.75 30.05 39.35 14.40 24.00 33.60 43.20 15.00 25.00 35.00 45.00 15.50 25.85 36.20 46.55 15.75 26.30 36.85 47.40 16.05 26.80 37.55 48.30 16.50 27.55 38.60 49.65 17.00 28.40 39.80 51.20 17.45 29.15 40.85 52.55 18.10 30.20 42.30 54.40 19.10 31.81 44.53 57.24 20.00 33.20 46.40 59.60

Calculated by weighting each rate in force in the financial year by the number of weeks it was in force for. Applies only for existing claimants and the reserved rights cases before 6 July 1998 e.g. Income Support Lone Parents.

Abolished 2007-08 £8.25/£7.25 from April 1991, £9.25/£7.50 from October 1991. 4 £18.80/£12.55 from April 2008, £20.00/£13.20 from January 2009. 3

32

Section 1: Personal income tax

Table 1.11: Tax advantages for the elderly Age Allowance

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 3 2000-01 3 2001-02 3 2002-03 3 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 1

Personal Age 65-743 75 and over 3,670 3,820 4,020 4,180 4,200 4,370 4,200 4,370 4,200 4,370 4,630 4,800 4,910 5,090 5,220 5,400 5,410 5,600 5,720 5,980 5,790 6,050 5,990 6,260 6,100 6,370 6,610 6,720 6,830 6,950 7,090 7,220 7,280 7,420 7,550 7,690 9,030 9,180

Income limit for Age Allowance1

Personal plus married couple's2 Age 65-743 75 and over 5,815 6,005 6,375 6,575 6,665 6,875 6,665 6,875 6,865 7,075 6,876 7,076 7,246 7,456 7,609 7,819 7,889 8,109 8,796 9,086 8,976 9,268 9,455 9,756 9,632 9,934 10,209 10,350 12,555 12,745 12,995 13,195 13,345 13,555 13,835 14,055 15,565 15,805

12,300 13,500 14,200 14,200 14,200 14,600 15,200 15,600 16,200 16,800 17,000 17,600 17,900 18,300 18,900 19,500 20,100 20,900 21,800

For those with incomes above this limit the difference between the age allowances and ordinary personal

allowances is reduced by £2 per additional £3 of income (£1 per additional £2 since 1989). Thus at a certain point the difference between the age allowance and the ordinary personal allowance disappears. This is known as the run out point. This means that the marginal tax rate for someone with income in the withdrawal band will fall from nearly 42 per cent in 1988-89 to 36 per cent in 1996-97. The Married Couple’s Allowance was restricted to 20 per cent in 1994-95, 15 per cent from 1995-96, and 10

2

per cent from 1999-00. (In 1995-96 the threshold was calculated as 4630+(15/20 x 2995) = 6876.25). In 1999-2000, 2000-2001 and 2001-2002. The calculation takes account of the changes to the allowances and the 10p starting rate which a person pays tax with an MCA. Budget 1999 abolished MCA for those born on or after 6 April 1935 (i.e. aged 65 or over on 5 April 2000) from April 2000.

33

Section 1: Personal income tax

Table 1.12: Cumulative income tax tables Taxable Income Tax rate Tax Bill for Band £ per annum £ per week for band (%) £ per annum £ per week 1990-91 0 - 20,700 398.07 25 5,175 99.52 Over 20,700 40 1991-92 0 - 23,700 455.77 25 5,925 113.94 Over 23,700 40 1992-93 0 - 2,000 38.46 20 400 7.69 2,000 - 23,700 455.77 25 5,425 104.33 Over 23,700 40 1993-94 0 - 2,500 48.07 20 500 9.62 2,500 - 23,700 455.77 25 5,300 101.92 Over 23,700 40 1994-95 0 - 3,000 57.69 20 600 11.54 3,000 - 23,700 455.77 25 5,175 99.52 Over 23,700 40 1995-96 0 - 3,200 61.54 20 640 12.31 3,200 - 24,300 467.31 25 5,275 101.44 over 24,300 40 1996-97 0 - 3,900 75.00 20 780 15.00 3,900-25,500 490.38 24 5,184 99.69 over 25,500 40 1997-98 0 - 4,100 78.85 20 820 15.77 4,100 - 26,100 501.92 23 5,060 97.31 over 26,100 40 1998-99 0 - 4,300 82.69 20 860 16.54 4,301-27,100 521.15 23 5,244 100.85 over 27,000 40 1999-00 0 - 1,500 28.85 10 150 2.88 1,500-28,000 538.46 23 6,095 117.21 over 28,000 40 2000-01 0 - 1,520 29.23 10 152 2.92 1,520-28,400 546.15 22 5,914 113.72 over 28,400 40 2001-02 0 - 1,880 36.15 10 188 3.62 1,880-29,400 565.38 22 6,054 116.43 over 29,400 40 2002-03 0 - 1,920 36.92 10 192 3.69 1,920-29,900 575.00 22 6,156 118.38 over 29,900 40 2003-04 0 - 1,960 37.69 10 196 3.77 1,960-30,500 586.54 22 6,279 120.75 over 30,500 40 2004-05 0 - 2,020 38.85 10 202 3.88 2,020-31,400 565.00 22 6,464 124.30 over 31,400 40 2005-06 0 - 2,090 40.19 10 209 4.02 2,090-32,400 582.88 22 6,668 128.23 over 32,400 40 2006-07 0 - 2,150 41.34 10 215 4.13 2,150-33,300 640.38 22 6,853 131.79 over 33,300 40 2007-08 0 - 2,230 42.88 10 223 4.29 2,230-34,600 665.38 22 7,121 136.95 over 34,600 40 2008-09 0 - 34,800 669.23 20 6,960 133.85 over 34,800 40

34

Section 1: Personal income tax

D. HISTORICAL TABLES PRE-1990 Table 1.13: Tax Rates and Allowances Standard rate % Reduced rates (apply to each of taxpayer's own income and wife's earnings) lowest rate (%) band width (£) second rate (%) band width (£) third rate (%) band width (£) Earned Income Relief First £2,000 First £2,025 First £4,005 Next £5,940 Maximum (£) Small Income Relief Rate of allowance Applicable on income up to Marginal relief - rate of tax on excess Up to income of Wife's Earned Income Relief Fraction: Maximum (£): National Insurance Contribution Relief 1 Employed man over 18 (£) Personal Allowances Single Married Each Child: Under 11 11 - 15 Over 16 Housekeeper, or dependent relative3 limit of relative's income 3 Family Allowances (£ per week) - taxable as earned income 1st child 2nd child 3rd and subsequent children

1948-50 1950-51 1951-52 1952-53 1953-55 45.00 45.00 47.50 47.50 45.00

1955-57 45.00

1957-59 42.50

1959-60 1960-61 38.75 38.75

15.00 50 30.00 200 -

12.50 50 25.00 200 -

15.00 50 27.50 200 -

15.00 100 27.50 150 37.50 150

12.50 100 25.00 150 35.00 150

11.25 60 23.75 150 33.75 150

11.25 60 23.75 150 33.75 150

8.75 60 21.25 150 31.25 150

8.75 60 21.25 150 31.25 150

1/5 400

1/5 400

1/5 400

2/9 450

2/9 450

2/9 450

2/9 450

2/9 1/9 1,550

2/9 1/9 1,550

-

-

-

2/9 250 40% 350

2/9 250 40% 350

2/9 300 45% 400

2/9 300 45% 400

2/9 300 40% 400

2/9 300 40% 405

4/5 110

4/5 110

4/5 110

7/9 120

7/9 120

7/9 140

7/9 140

7/9 140

7/9 140

6-82

8

8

9

9

110 180 60 50 70

110 180 60 50 70

110 190 70 50 80

120 210 85 50 80

120 210 85 60 85

0.25 0.25

0.25 0.25

0.25 0.25

0.34 0.34

0.40 0.40 5 0.40 0.40-0.45

Notes shown at end of table Continued…

35

11-122

12-132

13

13

140 140 240 240 100 100 125 60 60 4 105 105-135

140 240 100 125 150 60 135

140 240 100 125 150 75 135

0.40 0.50

0.40 0.50

0.40 0.50

Section 1: Personal income tax

Table 1.13: Tax Rates and Allowances - continued 1961-63 Standard rate % 38.75 Reduced rates (apply to each of taxpayer's own income and wife's earnings) lowest rate (%) 8.75 band with (£) 60 second rate (%) 21.25 band width (£) 150 third rate (%) 31.25 band width (£) 150 Earned Income Relief First £4,005 2/9 Next £5,940 1/9 Remainder Maximum (£) 1,550 Small Income Relief Rate of allowance 2/9 300(400)6 Applicable on income up to 40(50)%6 Marginal relief - rate of tax on excess 405(550)6 Up to income of (£) Wife's Earned Income Relief Fraction: 7/9 Maximum (£): 140 1 National Insurance Contribution Relief Employee 18 Self-employed7 - male 23 - female 19 Personal allowances Single 140 Married 240 Single Parent's additional allowance Each Child: Under 11 100 11 - 15 125 Over 16 150 Housekeeper, or dependent relative3 75 3 limit of relative's income 155 Blind Person's Allowance 9 1009 Family Allowance (FAM) - £ per week - taxable as earned income 1st child: 2nd child: 0.40 3rd and subsequent children: 0.50 Clawback £ (Reduction of personal reliefs for each child for whom FAM received) Whole year First half-year Second half-year -

1963-65 38.75

1965-68 41.25

1968-69 41.25

1969-70 41.25

1970-71 41.25

1971-72 38.75

20.00 100 30.00 200 -

20.00 100 30.00 200 -

20.00 100 30.00 200 -

30.00 260 -

2/9 1/9 1,550

2/9 1/9 1,550

2/9 1/9 1,550

2/9 1/9 1,550

2/9 1/9 1,550

2/9 15% 15% -

2/9 15% 15% -

2/9 450 50% 680

2/9 450 50% 705

2/9 450 50% 705

2/9 450 50% 710

2/9 450 55% 750

2/9 450 52.5% 750

2/9 550 52.5% 805

7/9 200

7/9 220

7/9 220

7/9 255

7/9 325

7/9 325

7/9 460

-

1972-73 38.75

-

-

22 27 22

-

-

-

-

-

-

200 320 115 140 165 75 180 100

220 340 115 140 165 75 210 8 100

220 340 115 140 165 75 235 100

255 375 100 115 140 165 75 245 100

325 465 100 115 140 165 75 260 100

325 465 100 155 180 205 75 289 100

460 600 100 155 180 205 75 312 100

0.40 0.50

0.40 0.50

0.83 0.93

0.90 1.00

0.90 1.00

0.90 1.00

0.90 1.00

-

15 21

21 21

42 -

42 -

42 -

-

Notes shown at end of table Continued…

36

Section 1: Personal income tax

Table 1.13: Tax Rates and Allowances - continued 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 Standard rate % 30.00 33.00 35.00 35.00 34.00 33.00 30.00 30.00 Reduced rates (apply to each of first £750 25.00 25.00 taxpayer's own income and wife's earnings) Investment Income Surcharge Standard rate of 15% above: under 65's 2,000 2,000 2,000 2,000 2,000 2,250 65's and over 2,000 2,000 2,000 2,000 2,500 3,000 5,000 5,500 Reduced rate of 10% above: under 65's 1,000 1,000 1,000 1,500 1,700 65's and over 1,500 1,500 1,500 2,000 2,500 Personal allowance Single 595 625 675 735 945 985 1,165 1,375 Married 775 865 955 1,085 1,455 1,535 1,815 2,145 Single parent's additional allowance 180 180 280 350 510 550 650 770 Each Child: Under 11 200 240 240 300 170 100 11 - 15 235 275 275 335 205 135 Over 16 265 305 305 365 235 165 1st Child Additional Relief 26 Housekeeper, or dependent relative3 100 100 100 100 100 100 100 100 maintained by single women 145 145 145 limit of relative's income 3 378 480 637 731 839 950 1090 1284 Blind Person's Allowance 9 130 130 180 180 180 180 180 180 Widow's bereavement allowance10 770 Family Allowance - taxable 1st child (£ per week): 2nd child: 0.90 0.90 1.50 1.50 3rd and subsequent children: 1.00 1.00 1.50 1.50 1st child of single parent 1.50 Clawback £ (Reduction of personal reliefs for each child for whom FAM received) £ per annum 60 52 52 52 Child Benefit - financial year average (see Table 1.15) - non taxable 1st child 1.00 2.57 4.00 4.27 2nd and subsequent children 1.50 2.57 4.00 4.27 One Parent Benefit11 0.50 1.38 2.20 2.68

Notes shown at end of table Continued…

37

Section 1: Personal income tax

Table 1.13: Tax rates and allowances - continued Standard rate % Investment income surcharge Standard rate of 15% above Personal allowance Single Married Single parent's additional allowance Housekeeper, or dependent relative

1981-82 30.00

1982-83 30.00

1983-84 30.00

1984-85 30.00

1985-86 30.00

1986-87 29.00

1987-88 27.00

1988-89 1989-90 25.00 25.00

5,500

6,250

7,100 12

-

-

-

-

-

-

1,375 2,145 770 3 100 maintained by single women 145 limit of relative's income 3 1,458 Blind Person's Allowance 9 360 Widow's bereavement allowance 10 770 Child Benefit - financial year average (see Table 1.15)

1,565 2,445 880 100 145 1,600 360 880

1,785 2,795 1,010 100 145 1,731 360 1,010

2,005 3,155 1,150 100 145 1,803 360 1,150

2,205 3,455 1,250 100 145 1,909 360 1,250

2,335 3,655 1,320 100 145 2,006 360 1,320

2,425 3,795 1,370 100 145 2,054 540 1,370

2,605 4,095 1,490 540 1,490

2,785 4,375 1,590 540 1,590

- non taxable 1st child 4.93 5.47 6.09 6.63 6.90 7.07 7.25 7.25 2nd and subsequent children 4.93 5.47 6.09 6.63 6.90 7.07 7.25 7.25 One Parent Benefit 11 3.11 3.43 3.80 4.12 4.36 4.58 4.70 4.90 1 Up to, and including, 1964-65, this relief was available to those paying NIC's. Until 1960-61, it was deducted from income before

7.25 7.25 5.20

2 3

4 5 6 7

calculation of earned income relief or small income relief; thereafter NIC relief was deducted after deduction of EIR or SIR. £6 in 1948-49; £8 in 1949-50; £11 in 1955-56; £12 in 1956-57 and 1957-58; and £13 in 1958-59. 'Dependent relative' excludes the case of a daughter maintained (as housekeeper) by an invalid taxpayer, for which a smaller allowance (£25 from 1948-49 to 1952-53, £40 from 1953-54 to 1972-73, and £55 since 1973-74) was available, and, after 1967-68 that of a single women taxpayer maintaining a dependent relative (for whom the allowance was £110 to 1972-73, and £145 since). Where the relative's income exceeds the limit, the allowance is reduced by the excess - since 1973-74 the limit has been the amount of the single person's basic retirement pension payable in the tax year. There are also special personal reliefs for those over pension age (see Table 1.17). Life assurance premiums were relieved at a rate of two-fifths of premiums (one-half from 1973-74) (or in full up to £10, and thereafter £10 or two-fifths (one-half) whichever was the greater) until 1978-79. In 1979-80 and 1980-81, 17½ per cent of premiums has been rebated by life assurance companies at source. The rate of relief was reduced to 15 per cent from 1981-82, and to 12½ per cent from 1989-90. Life Assurance Premium Relief (LAPR) was withdrawn from new qualifying life insurance contracts made after midnight on 13 March 1984, but it continues to force in respect of life contracts already in existence unless the policy terms are altered. £105 in 1957-58, £135 in 1958-59. 0.40 in 1955-56, 0.45 in 1956-57 see Table 1.14 for details. The figures in brackets refer to 1962-63. Reliefs for a person not in employment but paying NIC's were £1 lower than the reliefs for the self-employed. Rates for under 18s,

employed, self-employed and non-employed were between £8 and £12 lower. £221 in 1967-68. 9 Introduced in 1962-63. Married couples where both spouses are blind receive double these allowances. 10 This relief, for widows in the year of the husband's death, was introduced in 1980-81, and extended in 1983-84 to cover, additionally, the year after the husband's death. 11 Paid to single person as a premium in respect of first dependent child. Must be claimed with Child Benefit. 12 Investment income surcharge (IIS) abolished from 1984-85. 8

38

Section 1: Personal income tax

Table 1.14: Rates of surtax1

First £ 2,000 Next £ 500 Next £ 500 Next £ 1,000 Next £ 1,000 Next £ 1,000 Next £ 2,000 Next £ 2,000 Next £ 2,000 Next £ 3,000 Next £ 5,000 Above £20,000 1 2

up to £ 2,500 up to £ 3,000 up to £ 4,000 up to £ 5,000 up to £ 6,000 up to £ 8,000 up to £10,000 up to £12,000 up to £15,000 up to £20,000

at at at at at at at at at at

Years 1948-49 to 1971-72 (except 1965-66) Nil 23 10.0% 23 12.5% 3 17.5% 22.5% 27.5% 32.5% 37.5% 42.5% 47.5% 50.0% 4 50.0%

1965-66 and 1972-73 Nil 3 11.00% 3 13.75% 3 19.25% 24.75% 30.25% 35.75% 41.25% 46.75% 52.25% 55.00% 55.00%

For definition of surtaxable income see Table 1.8. For 1969-70 and 1970-71 surtaxable incomes below £2,500 were exempt from surtax but above that

level the whole schedule applied so that tax was paid on all surtaxable income above £2,000. However, marginal relief was available to prevent a large jump in taxable liability at £2,500 whereby incomes between £2,500 and £2,681 were charged at 40 per cent of the excess over £2,500. 3 For 1971-72 and 1972-73 incomes below £3,000 were exempt form surtax. Marginal relief was available for surtaxable incomes in the range £3,000 to £3,499 whereby tax was only charged at 40 per cent (44 per cent in 1972-73) of the excess over £3,000. 4 52.5 per cent 1948-49 to 1950-51.

Table 1.15: Joint income at which wife's earnings election was advantageous 1986-87 1987-88 1988-89 1989-90 A B A B A B A B Combined Wife's Combined Wife's Combined Wife's Combined Wife's Gross earnings Gross earnings Gross earnings Gross earnings Income income income income 26,521 6,986 - 19,535 26,870 6,545 - 20,325 28,484 6,579 - 21,905 30,510 7,025 - 23,485 30,000 6,048 - 23,952 30,000 5,851 - 24,149 30,000 6,579 - 23,451 35,000 7,025 - 27,975 35,000 5,478 - 29,522 35,000 5,404 - 29,596 35,000 6,579 - 28,421 40,000 7,025 - 32,975 40,000 5,309 - 34,691 40,000 5,299 - 34,701 40,000 6,579 - 33,421 45,000 7,025 - 37,975 45,000 5,128 - 39,872 45,000 5,117 - 39,883 45,000 6,579 - 38,421 >=48901 >=4,9162 48,425 48,541 1 2

Provided other income (husband's income plus wife's investment income) is also at least £4,890. Provided other income (husband's income plus wife's investment income) is also at least £4,916.

Note: If combined income (before deduction of reliefs or personal allowance) is the figure in Column A then wife's income must normally be within the range quoted in B for election to be worthwhile. Under Independent Taxation since 1990-91, there is no wife's earnings election as married women will automatically have all their income taxed separately from their husband's income.

39

Section 1: Personal income tax

Table 1.16: Tax Advantages For The Elderly Age Relief1 Rate of Applicable on Allowance income up to 1948-49 1949-50 1950-51 1951-52 1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76

1/5 1/5 1/5 1/5 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9 2/9

500 500 500 500 500 600 600 600 600 700 800 800 800 800 800 900 900 900 900 900 900 1,000 1,000 1,000 (Single) 1,200 (Married) 2/9 1,000 (Single) 1,200 (Married) Relief abolished

Marginal relief Rate of Tax on excess 62.50% 62.50% 62.50% 62.50% 62.50% 62.50% 62.50% 60.00% 60.00% 60.00% 60.00% 55.00% 55.00% 55.00% 55.00% 55.00% 55.00% 55.00% 55.00% 55.00% 55.00% 55.00% 55.00%

Elderly persons with small incomes- exemption 2 Exemption if income not above Marginal relief Tax is limited Single Married on excess to (of excess) up to

250 275 275 275 275 300 325 360 390 390 401 415 425 475

400 440 440 440 440 480 520 575 625 625 643 665 680 740

50 55 55 55 55 75 130 160 180 230 265 255 330 225

50.0% 50.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 45.0% 50.0%

55.00%

504

786

330

47.5%

55.00%

639 700 810

929 1,000 1,170 Exemption abolished

245 340 565

50.0% 50.0% 55.0% Income Limit for Age Allowance3

Age allowance Single 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1

Married

950 1,010 1,250 1,300 1,540 1,820 1,820 2,070 2,360 2,490 2,690 2,850 Under 80 2,960 3,180 Age 65-74 3,400

1,425 1,555 1,975 2,075 2,455 2,895 2,895 3,295 3,755 3,955 4,255 4,505 Over 80 3,070 3,310 75 and Over 3,540

Under 80 4,675 5,035 Age 65-74 5,385

3,000 3,250 3,500 4,000 5,000 5,900 5,900 6,700 7,600 8,100 8,800 9,400 Over 80 4,845 5,205 75 and over 5,565

Age relief was granted instead of earned income relief to persons aged 65 or over at any time in the tax year, on their total

income (earned and unearned) if it did not exceed the amount in the second column above. On total incomes in excess of these, marginal relief was granted in that the maximum tax was calculated as the amount of tax paid on the income shown in column 2 plus tax at the rate shown in the third column of the excess. Incomes are exempt from tax if below the exemption limit (shown in fourth and fifth column above). Incomes which exceed these by not more than the excess (shown in the sixth column) are subject to marginal relief and tax cannot exceed the marginal rate (shown in the seventh column) times the excess. 3 For those with incomes above this limit the difference between the age allowances and ordinary personal allowances is reduced by £2 per additional £3 of income (£1 per additional £2 since 1989). Thus at a certain point the difference between the age allowance and the ordinary personal allowance disappears. This is known as the run out point. This means that the marginal tax rate for someone with income in the withdrawal band will fall from nearly 42 per cent in 1988-89 to 36 per cent in 1996-97. 2

40

9,800 10,600 11,400

Section 1: Personal income tax

Table 1.17: Cumulative income tax tables Taxable Income Tax Rate Tax Bill for Band £ per annum £ per week for band (%) £ per annum £ per week 1973-74 up to 5,000 96.15 30 1,500 28.85 5,000 - 6,000 115.38 40 400 7.69 6,000 - 7,000 134.61 45 450 8.65 7,000 - 8,000 153.85 50 500 9.62 8,000 - 10,000 192.31 55 1,100 21.15 10,000 - 12,000 230.77 60 1,200 23.08 12,000 - 15,000 288.46 65 1,950 37.50 15,000 - 20,000 384.62 70 3,500 67.31 Over 20,000 75 1974-75 Up to 4,500 86.54 33 1,485 28.56 4,500 - 5,000 96.15 38 190 3.65 5,000 - 6,000 115.38 43 430 8.27 6,000 - 7,000 134.61 48 480 9.23 7,000 - 8,000 153.85 53 530 10.19 8,000 - 10,000 192.31 58 1,160 22.31 10,000 - 12,000 230.77 63 1,260 24.23 12,000 - 15,000 288.46 68 2,040 39.23 15,000 - 20,000 384.62 73 3,650 70.19 Over 20,000 83 1975-76 Up to 4,500 86.54 35 1,575 30.29 4,500 - 5,000 96.15 40 200 3.85 5,000 - 6,000 115.38 45 450 8.65 6,000 - 7,000 134.61 50 500 9.62 7,000 - 8,000 153.85 55 550 10.58 8,000 - 10,000 192.31 60 1,200 23.08 10,000 - 12,000 230.77 65 1,300 25.00 12,000 - 15,000 288.46 70 2,100 40.38 15,000 - 20,000 384.62 75 3,750 72.12 Over 20,000 83 1976-77 Up to 5,000 96.15 35 1,750 33.65 5,000 - 5,500 105.77 40 200 3.85 5,500 - 6,500 125.00 45 450 8.65 6,500 - 7,500 144.23 50 500 9.62 7,500 - 8,500 163.46 55 550 10.58 8,500 - 10,000 192.31 60 900 17.31 10,000 - 12,000 230.77 65 1,300 25.00 12,000 - 15,000 288.46 70 2,100 40.38 15,000 - 20,000 384.62 75 3,750 72.12 Over 20,000 83 1977-78 Up to 6,000 115.38 34 2,040 39.23 6,000 - 7,000 134.61 40 400 7.69 7,000 - 8,000 153.85 45 450 8.65 8,000 - 9,000 173.08 50 500 9.62 9,000 - 10,000 192.31 55 550 10.58 10,000 - 12,000 230.77 60 1,200 23.08 12,000 - 14,000 269.23 65 1,300 25.00 14,000 - 16,000 307.69 70 1,400 26.92 16,000 - 21,000 403.85 75 3,750 72.12 Over 21,000 83

Continued…

41

Cumulative tax bill £ per annum £ per week 1,500 28.85 1,900 36.54 2,350 45.19 2,850 54.81 3,950 75.96 5,150 99.04 7,100 136.54 10,600 203.85 1,485 1,675 2,105 2,585 3,115 4,275 5,535 7,575 11,225

28.56 32.21 40.48 49.71 59.90 82.21 106.44 145.67 215.87

1,575 1,775 2,225 2,725 3,275 4,475 5,775 7,875 11,625

30.29 34.13 42.79 52.40 62.98 86.06 111.06 151.44 223.56

1,750 1,950 2,400 2,900 3,450 4,350 5,650 7,750 11,500

33.65 37.50 46.15 55.77 66.35 83.65 108.65 149.04 221.15

2,040 2,440 2,890 3,390 3,940 5,140 6,440 7,840 11,590

39.23 46.92 55.58 65.19 75.77 98.85 123.85 150.77 222.88

Section 1: Personal income tax

Table 1.17: Cumulative income tax tables - continued Taxable Income Tax Rate Tax Bill for Band £ per annum £ per week for band (%) £ per annum £ per week 1978-79 Up to 750 14.42 25 187.5 3.61 750 - 8,000 153.85 33 2,392.5 46.01 8,000 - 9,000 173.08 40 400.0 7.69 9,000 - 10,000 192.31 45 450.0 8.65 10,000 - 11,000 211.54 50 500.0 9.62 11,000 - 12,500 240.38 55 825.0 15.87 12,500 - 14,000 269.23 60 900.0 17.31 14,000 - 16,000 307.69 65 1,300.0 25.00 16,000 - 18,500 355.77 70 1,750.0 33.65 18,500 - 24,000 461.54 75 4,125.0 79.33 Over 24,000 83 1979-80 Up to 750 14.42 25 187.5 3.61 750 - 10,000 192.31 30 2,775.0 53.37 10,000 - 12,000 230.77 40 800.0 15.38 12,000 - 15,000 288.46 45 1,350.0 25.96 15,000 - 20,000 384.62 50 2,500.0 48.08 20,000 - 25,000 480.77 55 2,750.0 52.88 Over 25,000 60 1980-82 Up to 11,250 216.35 30 3,375 64.90 11,250 - 13,250 254.81 40 800 15.38 13,250 - 16,750 322.12 45 1,575 30.29 16,750 - 22,250 427.88 50 2,750 52.88 22,250 - 27,750 533.65 55 3,025 58.17 Over 27,750 60 1982-83 0 - 12,800 246.15 30 3,840 73.85 12,800 - 15,100 290.38 40 920 17.69 15,100 - 19,100 367.31 45 1,800 34.62 19,100 - 25,300 486.54 50 3,100 59.62 25,300 - 31,500 605.77 55 3,410 65.58 Over 31,500 60 1983-84 0 - 14,600 280.77 30 4,380 84.23 14,600 - 17,200 330.77 40 1,040 20.00 17,200 - 21,800 419.23 45 2,070 39.81 21,800 - 28,900 555.77 50 3,550 68.27 28,900 - 36,000 692.31 55 3,905 75.10 Over 36,000 60 1984-85 0 - 15,400 296.15 30 4,620 88.85 15,400 - 18,200 350.00 40 1,120 21.54 18,200 - 23,100 444.23 45 2,205 42.40 23,100 - 30,600 588.46 50 3,750 72.12 30,600 - 38,100 732.69 55 4,125 79.33 Over 38,100 60 1985-86 0-16,200 311.54 30 4,860 93.46 16,200 - 19,200 369.23 40 1,200 23.08 19,200 - 24,400 469.23 45 2,340 45.00 24,400 - 32,300 621.15 50 3,950 75.96 32,300 - 40,200 773.08 55 4,345 83.56 Over 40,200 60

Continued…

42

Cumulative tax bill £ per annum £ per week 187.5 3.61 2,580.0 49.62 2,980.0 57.31 3,430.0 65.96 3,930.0 75.58 4,755.0 91.44 5,655.0 108.75 6,955.0 133.75 8,705.0 167.40 12,830.0 246.73 187.5 2,962.5 3,762.5 5,112.5 7,612.5 10,362.5

3.61 56.97 72.36 98.32 146.39 199.28

3,375 4,175 5,750 8,500 11,525

64.90 80.29 110.58 163.46 221.63

3,840 4,760 6,560 9,660 13,070

73.85 91.54 126.15 185.77 251.35

4,380 5,420 7,490 11,040 14,945

84.23 104.23 144.04 212.31 287.40

4,620 5,740 7,945 11,695 15,820

88.85 110.38 152.79 224.90 304.23

4,860 6,060 8,400 12,350 16,695

93.46 116.54 161.54 237.50 321.06

Section 1: Personal income tax

Table 1.17: Cumulative income tax tables - continued Taxable Income Tax Rate Tax Bill for Band £ per annum £ per week for band (%) £ per annum £ per week 1986-87 0 - 17,200 330.77 29 4,988 95.92 17,200 - 20,200 388.46 40 1,200 23.08 20,200 - 25,400 488.46 45 2,340 45.00 25,400 - 33,300 640.38 50 3,950 75.96 33,300 - 41,200 792.31 55 4,345 83.56 Over 41,200 60 1987-88 0 - 17,900 344.23 27 4,833 92.94 17,900 - 20,400 392.31 40 1,000 19.23 20,400 - 25,400 488.46 45 2,250 43.27 25,400 - 33,300 640.38 50 3,950 35.96 33,300 - 41,200 792.31 55 4,345 83.56 Over 41,200 60 1988-89 0 - 19,300 371.15 25 4,825 92.79 Over 19,300 40 1989-90 0 - 20,700 398.07 25 5,175 99.52 Over 20,700 40

43

Cumulative tax bill £ per annum £ per week 4,988 95.92 6,188 119.00 8,528 164.00 12,478 239.96 16,823 323.52 4,833 5,833 8,083 12,033 16,378

92.94 112.17 155.44 231.40 314.96

4,825

92.79

5,175

99.52

Section 1: Personal income tax

44

Section 2: Child and Working Tax Credits

Section 2: Child and Working Tax Credits

Contents Page A: Current system The tax credit system Working Tax Credit Child Tax Credit

47 49 51

Tables Table 2.1:

47

Tax Credit key figures

B: History Family Income Supplement Family Credit Disability Working Allowance Working Families’ Tax Credit Disabled Person’s Tax Credit Children’s Tax Credit Child and Working Tax Credits

55 56 57 58 59 59 60

C: Historical tables Table 2.2: Table 2.3: Table 2.4: Table 2.5: Table 2.6:

Working and Child Tax Credit, current and historical rates Working Families’ and Disabled Person’s Tax Credits Family Credit Disability Working Allowance Family Income Supplement: prescribed amounts and maximum weekly payments

45

61 62 63 63 64

Section 2: Child and Working Tax Credits

46

Section 2: Child and Working Tax Credits

A: CURRENT SYSTEM Table 2.1: Tax Credit key figures 2004-05 Annual average numbers of benefiting families Tax credit annual expenditure 1

1

2

2005-06

2006-07

2007-08

5,888

Thousands 5,939 5,955 £ Millions

5,981

19,457

19,990

21,812

20,839

Including out of work families with children not receiveing Child Tax Credit but instead receiving the equivalent

amount via child and related allowances in Income Support or income-based Jobseeker's Allowance (IS/JSA). Net cash paid to claimants including the total value of under and over payments. As above, figures include the equivalent child support in IS/JSA.

2

Source: HM Revenue and Customs.

The Tax Credit system 2.1 The Child Tax Credit (CTC) and the Working Tax Credit (WTC) were introduced in April 2003. HM Revenue & Customs (HMRC) administers these two tax credits. Current and historical rates are shown in Table 2.2. 2.2 A family’s award is based on: -

current circumstances: for CTC, the number and ages of dependent children and whether they have a disability; for WTC, whether (and for how many hours) the family is working, the age of the person who is working, whether the person or their partner has a disability and the amount of any eligible childcare costs; and

-

gross taxable income (joint income for a couple) for the tax year, after deducting pension contributions.

2.3 CTC and WTC treat income from savings just as any other income, except that the first £300 is disregarded. This includes income from savings and investments, pensions, property, trusts settlements and estates, foreign income, and any notional income. In calculating income, Child Benefit and other non-taxable benefits are wholly disregarded, as is any maintenance received. 2.4 Tax credit awards are initially made on the basis of current circumstances and the previous tax year’s (PY) income. If an estimated current year (CY) income is reported, the calculation is re-based on the predicted CY income, although the first £25,000 of any increase over PY income is disregarded. If circumstances do not change, and no change is prompted by predicted CY income being reported, the award runs until the end of the tax year. At the end of each tax year the previous year’s award is finalised and the current year’s award is initially determined.

47

Section 2: Child and Working Tax Credits

2.5 Some changes in circumstances and significant changes in childcare costs (see below) must be reported in-year by the claimant, and the award is subsequently adjusted. There are some changes that must be reported within one month. If they are not reported in-year, the changes and incomes are reconciled at the end of the year. If the claimant’s finalised income and circumstances at the end of the year are such that they have been paid too much tax credits, HMRC will recover the overpayment under the Code of Practice 26 “What happens if we have paid you too much tax credit?“. HMRC will repay any underpayment in a lump sum. 2.6 To calculate the maximum award to which a family is entitled, the different elements for which the family is eligible are added up. Families with an income up to the threshold of £6,420 a year receive the maximum amount. Those with an income above the threshold of £6,420 receive less than the maximum amount, with the award being reduced at the rate of 39p for each pound of extra gross income. For families eligible for CTC and with incomes up to £50,000 the minimum award payable is the family element (including where relevant the baby addition). This family element is reduced by £1 for every £15 of income over £50,000. 2.7 The WTC and CTC are tapered away in the following order: -

the basic element of WTC is the first to be tapered away;

-

when this is exhausted, the other elements of WTC are tapered away;

-

the childcare element of WTC is the last WTC element to be tapered away;

-

CTC starts to be tapered away only when all WTC is exhausted. As a consequence, a higher WTC entitlement (e.g. because of childcare costs) pushes entitlement to CTC further up the income scale.

2.8 CTC and the childcare element of WTC are paid to the main carer of the children, nominated by the claimants. The rest of WTC is paid to the adult working for at least 16 hours per week (or the nominated adult in a couple where both adults work). Tax credit payments are usually made direct into the bank account of the claimant (or claimants). Claimants can decide to be paid on a weekly or four-weekly basis. 2.9 Other types of help may be available to which entitlement is provided by WTC and CTC, such as health costs, free school meals and legal expenses. Each system of help has different rules. Details can be found in the HMRC publication ‘WTC 6 - Child Tax Credit and Working Tax Credit – other types of help you may be able to get’. 2.10 Tax credits awards of £26 or less will not be paid (that is, 50p a week for awards lasting the whole year). There is no statutory obligation to uprate tax credits.

48

Section 2: Child and Working Tax Credits

Working Tax Credit 2.11 WTC is a tax credit available to working families on low or modest incomes. It is payable to families responsible for at least one child aged under 16 (under 20 if in full time nonadvanced education or in approved training) in which at least one adult is working at least 16 hours per week. These groups are eligible for WTC from the age of 16. It is also available to workers who have a disability or are aged 50 or over and work at least 16 hours per week, as long as they are in receipt or have been in receipt of certain benefits. WTC is also available for other workers who are not responsible for a child, provided that they are aged 25 or over and they work at least 30 hours a week. There is no upper age limit on WTC eligibility. People receiving Statutory Maternity Pay, Maternity Allowance, Paternity Pay, or Statutory Adoption Pay are counted as being in work for this purpose, provided they were in qualifying remunerative in the period immediately before the period of maternity, paternity or adoption leave. 2.11 WTC includes a number of elements to reflect differing circumstances: -

a basic element paid to all those eligible for WTC;

-

a lone parent or second adult element (for couples);

-

a 30-hour element to provide incentives to increase hours (couples with children can add up their hours usually worked to qualify for the 30-hour element as long as one of them works at least 16 hours a week);

-

a disability element for people with a disability;

-

a severe disability element for people with a severe disability (the person with the severe disability does not have to be the person who is working);

-

a 50+ element for people aged 50 or over who started work after a period on benefits, and;

-

a childcare element for help with childcare costs;

2.12 The first £16.05 of income for those eligible for WTC is disregarded when calculating Housing Benefit and Council Tax Benefit. 2.13 The WTC childcare element provides help with up to 80 per cent of relevant childcare costs up to a limit of £175 per week in costs for families with one child in childcare and up to £300 per week for families with two or more children in childcare. Changes in costs of more than £10 per week must be reported. The system adapts the award to changes in childcare costs by allowing parents to claim on the basis of the weekly average of the year’s childcare costs. So if a claimant pays £100 per week for 48 weeks and £200 for 4 weeks, he can claim 80per cent of (100x48+200x4)/52=£108 per week of childcare costs.

49

Section 2: Child and Working Tax Credits

2.14 The childcare element is available where the family qualifies for WTC and: -

the claimant is a lone parent;

-

the claimants are a couple in which both parents work at least 16 hours per week (including being on maternity or adoption leave – see above);

-

the claimants are a couple in which one partner works at least 16 hours a week and the other partner is incapacitated (that is, in receipt of certain benefits) or is in hospital or in prison;

-

the child in question is of qualifying age (from birth to the September following their 15th birthday, or for a disabled child, their 16th birthday); and

-

the childcare provided meets certain conditions.

2.15 There is a Qualifying Benefit test for the disabled worker elements of WTC. This is satisfied if the person: -

is receiving Disability Living Allowance, Attendance Allowance, Industrial Injuries Disablement Benefit with Constant Attendance Allowance or Mobility Supplement, or War Disablement Pension with Constant Attendance Allowance or Mobility Supplement, or

-

has a vehicle provided under the Invalid Vehicle Scheme; or

-

within the 182 days before the WTC application, received Employment Support Allowance for 28 weeks or more, or Statutory Sick Pay followed by Employment Support Allowance for a combined period of 28 weeks, or Incapacity Benefit (short-term higher rate or long term rate), or Severe Disablement Allowance, or Disability Premium (or Higher pensioner premium) in Income Support, income-based Jobseeker’s Allowance, Housing Benefit or Council Tax Benefit; or

-

on one of the preceding 56 days was engaged in training for work, and for one or more of the 56 days immediately preceding the start of that period of training for work, was receiving Incapacity Benefit at the short-term higher rate or the long-term rate, or Severe Disablement Allowance, or contribution-based Employment and Support Allowance for 28 weeks or more, or Statutory Sick Pay followed by contribution-based Employment and Support Allowance for a combined period of 28 weeks or more.

If the person was entitled for at least one day in the preceding 56 days, to the disability element of WTC on the basis of satisfying one of the last two qualifying benefits tests listed above, they are treated as still meeting the qualifying benefit test.

50

Section 2: Child and Working Tax Credits

2.16 There is a Fast Track route to help people who are finding it hard to stay in work because of a disability. To qualify under Fast Track rules, the person must have: -

received on account of incapacity for work, Statutory Sick Pay, or Occupational Sick Pay, or Incapacity Benefit at the short-term lower rate, or Income Support, for a period of 140 qualifying days or more; or

-

been awarded National Insurance credits for a period of 20 weeks on the grounds of incapacity or limited capability for work, and where the last of those days or weeks fell within the preceding 56 days; and

-

the disability must be likely to last for at least six months or the rest of their life. In addition, their gross earnings must be less than they were before they had the disability, by at least 20per cent or by £15, whichever is the greater.

If the person was entitled for at least one day in the preceding 56 days to the disability element of WTC on the basis of satisfying the Fast Track rule, they are treated as still meeting the Fast Track rule. 2.17 There is also a labour market disadvantage test. The worker must be suffering from at least one of a set of prescribed conditions, indicating a physical or mental disability that puts them at a disadvantage in getting a job. There are various ways in which this test can be satisfied in practice. 2.18 An additional severe disability element of WTC is payable where the claimant, or either claimant in a joint claim, is in receipt of Disability Living Allowance (Highest Rate Care Component) or Attendance Allowance (higher rate). If both members of a couple satisfy these conditions of entitlement, the award will include two severe disability elements. The person with the severe disability does not have to be the person who is working, as long as the other person satisfies the eligibility criteria for WTC. Child Tax Credit 2.19 CTC is for people who are responsible for at least one child or qualifying young person. It is payable regardless of employment status. For CTC purposes a person is a child until the day before their 16th birthday. A qualifying young person is anyone who is aged 16 or over but under 20 and who is in full-time, non-advanced education or approved training, providing they were enrolled/accepted on the course/approved training before their 19th birthday, or anyone who is 16 or 17, who has left full-time education and registered with a qualifying body for work or training and who notifies the Tax Credit Office of the registration within three months of the date they ceased to receive full time non-advanced education or to undertake approved training

51

Section 2: Child and Working Tax Credits

2.20 CTC replaced child allowances in Pension Credit and in new claims for Income Support, and income-based Jobseeker’s Allowance.

CTC is paid in addition to Child Benefit and

comprises various elements depending on the circumstances of the claimant(s), as set out in Table 2.1. 2.21 A disability element can be paid if Disability Living Allowance (DLA) is being received for a child or the child is registered blind or has been taken off the blind register in the 28 weeks before the date of the claim. A severe disability element for a child may be paid if DLA (Higher Rate Care component) is payable for that child. 2.22 Families who receive Income Support or income-based Jobseeker’s Allowance will automatically receive the maximum CTC for each element for which they are eligible. For other families their total tax credits award will begin to be tapered away at incomes over £6,420 if they are entitled to CTC and WTC (see paragraph 2.6), or at incomes over £15,575 if they are eligible for CTC only. 2.23 Changes of circumstances, other than changes relating to the disability elements, which would potentially increase awards can be treated as being made a maximum of three months from the date they are reported. Initial claims can also be treated as being made up to a maximum of three months before. Changes of circumstance potentially reducing awards are treated as being made from when the change occurred. 2.24 The formula for calculating the tax credit award is (subject to the effects of the disregard of income increases up to £25,000): Tax credits annual award =

(maximum WTC + maximum CTC) – 39% of (gross annual household income – income threshold).

The following examples are for the tax year 2009/10.

52

Section 2: Child and Working Tax Credits

Example 2.1: Couple with two children aged under 16, working 36 hours per week, with gross earnings of £12,000 per year WTC Basic credit Couple’s element 30-hour credit

£1,890.70 £1,861.50 £777.45

Maximum WTC

£4,529.65

CTC Family element Per child element

£547.50 £4,474.90

Maximum CTC

£5,022.40

WTC+CTC

=

(£4,529.65+ £5,022.40) - (£12,000 - £6,420) x 39%

=

£9,552.02 - £2,176.20

=

£7,375.85 (£5,022.40 CTC and £2,353.45 WTC)

Example 2.2: Lone parent with one child aged under 16, working 25 hours a week, with gross earnings of £8,000 per year and allowable childcare charges of £40 a week WTC Basic element Lone parent element Childcare element

£1,890.70 £1,861.50 £1,664

Maximum WTC

£5,416.20

CTC Family element Per child element

£547.50 £2,237.45

Maximum CTC

£2,784.95

WTC+CTC

=

(£5,416.20+ £2,784.95) - (£8,000 - £6,420) x 39%

=

£8,201.15 - £616.20

=

£7,584.95 (£2,784.95 CTC and £4,800.00 WTC)

53

Section 2: Child and Working Tax Credits

Example 2.3: Disabled single person, working 30 hours a week, with gross earnings of £10,000 WTC Basic element 30-hour element Disabled person’s element

£1,890.70 £777.45 £2,533.10

Maximum WTC

£5,201.25

WTC

=

£5,201.25 - (£10,000 - £6,420) x 39%

=

£5,201.25 - £1,396.20

=

£3,805.05 WTC

54

Section 2: Child and Working Tax Credits

B. HISTORY Family Income Supplement 2.25

Family Income Supplement (FIS) was introduced on the 3rd August 1971. It was a

weekly, means-tested, non-contributory benefit paid through local post offices. FIS provided assistance to families (including one parent families) with at least one dependent child where the man and/or woman was in full time work. A dependent child for FIS purposes was a child provided for by the couple or single parent who was under 16 or between 16 and 19 but in fulltime education. Full time work was defined as at least 30 hours a week for either the man or woman in the case of a couple (whether married or unmarried), and at least 24 hours a week for a lone parent. 2.26 FIS was payable if the family's gross weekly income fell short of a specified limit (fixed according to the number and, from November 1985, the ages of children in the family (see Table 2.5)). In calculating gross weekly income the following sources of income were excluded: Child Benefit, One Parent Benefit, Housing Benefit, educational maintenance allowance, the first £4 of a War Disablement Pension, any income of the children, payments for fostering children, Attendance Allowance and Mobility allowance. 2.27 The amount of FIS paid was one half of the difference between the family's gross income and the prescribed amount, rounded up to the nearest 10p. The minimum amount payable was 20p per week. There was also a maximum weekly payment. 2.28 Between August 1971 and October 1973, the maximum rate did not depend on the number of children in the family. From October 1973, two maximum rates were implemented, one for families with fewer than three children and one for families with three or more children. From July 1975, the maximum rate for a family increased for each additional child so that there was one maximum rate for each family size. (See Table 2.5.) Prior to November 1985, the amount of FIS payable did not depend on the age of children. However, from November 1985 both prescribed amounts and maximum rates payable depended on the age, as well as the number of children. 2.29 Formula for calculating FIS: 0.50 x (prescribed amount - gross income) -rounded up to nearest 10p -minimum 20p -subject to maximum supplement shown in Table 2.5.

55

Section 2: Child and Working Tax Credits

2.30 A family's gross income was taken as their "normal" gross income at the date of claim. If a person's occupation pays him/her weekly, gross earnings were usually assessed over the five weeks before the claim. For those paid monthly, the period of assessment was usually two months. FIS was then payable for 12 months and changes in circumstances were not taken into account. 2.31 FIS claimants were automatically entitled to all the in-kind benefits discussed in Section 12.

Example 2.4: Married with 2 children (1 aged under 11, 1 aged 11-15) in 1987-88 Gross income Prescribed amount Formula gives

£100.70 + £12.95 0.5 x (£113.65 - £80)

which is less than maximum of £25.85 + £3.15

= =

£ 80.00 £113.65 £ 16.83

=

£ 29.00

so £16.90 was payable

Family Credit 2.32 Family Credit (FC) replaced FIS from 11 April 1988. It was a tax-free, non-contributory, income-related Social Security benefit. 2.33 The differences in regime between FC and WFTC (which replaced it from October 1999) were: -

Under FC, from October 1994, childcare charges could be offset against earnings when

calculating the award. In April 1996, the weekly amount that could be offset was increased from £40 to £60.

This was increased further to £100 from June 1998 for those families

incurring childcare costs for two or more children. -

The 30-hour credit was introduced in July 1995.

-

Under FC, only the first £15 per week of any maintenance received was disregarded.

-

Under FC, the income taper rate was 70 per cent of net income.

-

All recipients of FC were entitled automatically to the other in-kind benefits set out in

Section 12.

56

Section 2: Child and Working Tax Credits

Example 2.5: Couple with two children aged 6 and 12, working 36 hours a week, with net earnings of £150 per week in first half of 1999-00: Adult credit 30-hour credit Child credit age under 11 age 11-15

£49.80 £11.05 £15.15 £20.90

Maximum Family Credit

£96.90

Family Credit

=

£96.90 - (£150 - £80.65) x 70%

=

£96.90 - £48.54

=

£48.36

Disability Working Allowance 2.34 Introduced in April 1992, it was non-contributory, income related and non-taxable. It was payable to disabled people who were aged 16 or over (no upper age limit), resident in United Kingdom at the date of claim, in remunerative work of 16 hours or more a week, with an illness or disability which limited their earning capacity and when making a claim was either: Getting one of these "qualifying benefits": -

Disability Living Allowance;

-

Attendance Allowance;

-

War Disablement Pension which included constant attendance allowance or a mobility supplement;

-

Industrial Injuries Disablement Benefit which included constant attendance allowance; or

-

an invalid three-wheeler from the DSS.

Or, for at least one day in the fifty-six days prior to the claim, getting one of these "qualifying benefits": -

higher rate short-term Incapacity Benefit;

-

long term Incapacity Benefit;

-

Severe Disablement Allowance; or

-

Income Support, Council Tax Benefit or Housing Benefit that included a disability premium or a higher pensioner premium.

2.35 Work could be for an employer or self-employed but it must have been expected to last at least five weeks. The person who was disabled and working had to make the claim. No

57

Section 2: Child and Working Tax Credits

benefit was payable if the claimant or claimant and partner together had capital of more than £16,000. A tariff income was calculated on capital between £3,000 and £16,000. Some Social Security benefits were disregarded in full in calculating entitlement (for example Disability Living Allowance). 2.36 If income was at or below an applicable amount (threshold) the maximum Disability Working Allowance was payable. If income exceeded the threshold the maximum benefit was reduced on a sliding scale (taper). Awards were based on the circumstance on the date of claim, were made for 26 weeks, and were not normally affected by changes in circumstance, even if earnings rose or work ceased. 2.37 Lump sum payments of Disability Working Allowance were available for awards of less than £4 a week, payable at the start of the claim. Disability Working Allowance recipients qualified for automatic remission of NHS charges. Working Families’ Tax Credit 2.38 From October 1999 the Working Families’ Tax Credit (WFTC) and the Disabled Person’s Tax Credit (DPTC) replaced the social security benefits Family Credit and Disability Working Allowance. The Inland Revenue was responsible for paying the new tax credit, while the Department of Social Security had administered Family Credit and Disability Working allowance. WFTC was a tax credit available to working families on low or modest incomes and who were responsible for a child aged under 16 (or under 19 if in higher education at A level or equivalent standard), in which at least one adult was working (as an employee or self employed) at least 16 hours per week (for employees, averaged over the last few pay periods). 2.39 The amount of WFTC payable depended on the family’s net income, the number and ages of the children in the family, the number of hours worked and, in certain circumstances, the amount of childcare charges paid. WFTC was not payable to those families who had over £8,000 in savings or capital. Those with savings between £3,000 and £8,000 had their award reduced by £1 for each £250 (or part thereof) of savings above £3,000. 2.40 WFTC was withdrawn at a rate of 55p for every pound of net income above the £5,060 threshold. 2.41 WFTC was paid at a set rate for 26 weeks, regardless of any change in earnings or other circumstances during the period. At the end of the period, claims had to be renewed and a new award be reassessed. In April 2001 the ability to terminate an award and apply for another on the birth of a child and counting periods of statutory and maternity pay as being in work for WFTC purposes was introduced. From December 2002, terminating awards were automatically extended to April 2003 without the need for a claim for a renewal award.

58

Section 2: Child and Working Tax Credits

2.42 Other types of help were available through WFTC, such as health costs, free school meals and legal expenses. Each system of help had different rules. 2.43 WFTC reached 1,376,000 families in November 2002. Disabled Person’s Tax Credit 2.44 DPTC was a tax credit available to working disabled people on low or modest incomes and who had an illness or disability that put them at a disadvantage in getting a job. 2.45 The other rules and calculations were similar to WFTC, except that the upper limit on savings or capital was £16,000. The tax credit was payable only if the disabled person worked at least 16 hours per week, but the 30-hour tax credit was then available if either the disabled person or a partner worked at least 30 hours per week. The qualifying rules were the same as for the disabled person’s element of WTC described above. 2.46 The Enhanced Disability tax credits for both adults and children for DPTC were introduced in April 2001, as was the rule to count periods on Statutory Maternity Pay and Maternity Allowances as being in work for DPTC purposes. Children’s Tax Credit 2.47 The Children’s Tax Credit was an income tax relief designed to help families who have at least one child under 16 living with them. It was introduced in April 2001 and in 2002-03 it was worth up to £529 or £10.17 a week off the tax liable to be paid. Children’s Tax Credit replaced the Married Couple’s Allowance and was expressed as an additional allowance of £5,290 given at the flat rate of 10 per cent. For higher rate taxpayers the credit of £529 was reduced at the rate of £1 for every £15 of income in the higher rate band. See example below. 2.48 A baby rate of children’s tax credit was introduced from April 2002. This meant that for these families CTC was worth up to £1,049 in the tax year of the child’s birth.

59

Section 2: Child and Working Tax Credits

Example 2.6: How Children’s Tax Credit was calculated in 2002-03 Woman with 2 children under 16 with earned income of £36,000. Husband earns £25,000. Woman receives Children’s Tax Credit, as she is the higher earner. There is only one credit for each family. Income Personal Allowance Taxable Income

£36,000 £4,615 £31,385

Tax liability

(1,920 x 0.1) + (27,980 x 0.22) + (1,485 x 0.4) = £6,941.60

Since the woman is a higher rate taxpayer, the credit is reduced by £1,485 = £99 15 Therefore the credit is worth £529 - £99 = £430 reduction in tax liability. So the new tax liability is £6,511.60

Child and Working Tax Credits 2.49 From April 2003 CTC and WTC replaced WFTC, DPTC, Children’s Tax Credit and Employment Credit 50+ (previously administered by Job Centres). In a phased program from April 2003, they also replaced the child allowances in Income Support, income-based Jobseeker’s Allowance and Minimum Income Guarantee/Pension Credit.

60

Section 2: Child and Working Tax Credits

HISTORICAL TABLES Table 2.2: Working and Child Tax Credit, current and historic rates 2003-04 2004-05 Working Tax Credit Basic element 1,525 1,570 Couple/ lone parent element 1,500 1,545 30-hour element 620 640 Disabled worker element 2,040 2,100 Severe disability element 865 890 50 plus element, 16-29 hours 1,045 1,075 50 plus element, 30+ hours 1,565 1,610 Childcare element Maximum eligible costs for 1 child £135 per week Maximum eligible costs for 2 or more children £200 per week Percentage of eligible costs covered 70% 70% Child Tax Credit Family element Family element, baby addition Child element Disabled child element Severely disabled child element Income thresholds and withdrawal rates First income threshold First withdrawal rate (per cent) Second income threshold Second withdrawal rate (per cent) First threshold for those entitled to Child Tax Credit onl Income disregard

2005-06 1620 1595 660 2165 920 1110 1660

545 545 1,625 2,215 890

545 545 1690 2285 920

5,060 37 50,000 6.67 13,230 2,500

5,060 37 50,000 6.67 13,480 2,500

5,220 37 50,000 6.67 13,910 2,500

61

2007-08

1,665 1,640 680 2,225 945 1,140 1,705

1,730 1,700 705 2,310 980 1,185 1,770

£175 per week £300 per week 70% 80%

545 545 1,445 2,115 865

Table 2.2

2006-07

80%

2008-09

2009-10

1,800 1,770 735 2,405 1,020 1,235 1,840

1,890 1,860 775 2,530 1,075 1,300 1,935

80%

80%

545 545 1,765 2,350 945

545 545 1,845 2,440 980

545 545 2,085 2,540 1,020

545 545 2,235 2,670 1,075

5,220 37 50,000 6.67 14,155 25,000

5,220 37 50,000 6.67 14,495 25,000

6,420 39 50,000 6.67 15,575 25,000

6,420 39 50,000 6.67 16,040 25,000

Section 2: Child and Working Tax Credits

Table 2.3: Working Families' and Disabled Person's Tax Credits1 Basic tax credit WFTC DPTC - lone parent or couple DPTC - single person 30-hour tax credit Child tax credit Under 11 2

11-16 2 16-18 3 Disabled child tax credit Enhanced disability tax credit Lone parent or couple Single person (DPTC) 4

Child Childcare tax credit 5

Maximum eligible costs allowed - 1 child 5 Maximum eligible costs allowed - 2+ children Percentage of allowed childcare costs in credit Savings Amount disregarded £1 per week income assumed per additional: Upper limit (WFTC) Upper limit (DPTC)

1999-00

2000-01

2001-02

2002-03

£ per week £ per week £ per week £ per week

52.30 83.55 54.30 11.05

53.15 84.90 55.15 11.25

59.00 8 91.25 8 61.05 11.45

8

62.50 10 95.30 62.10 11.65

£ per week £ per week £ per week £ per week

19.85 20.90 25.95 21.90

25.60 7 25.60 26.35 22.25

7

26.00 26.00 26.75 30.00

26.45 26.45 27.20 35.50

£ per week £ per week £ per week

-

-

16.00 11.05 41.05

16.25 11.25 46.75

£ per week £ per week

100.00 150.00

100.00 150.00

9

135.00 200.00

70%

70%

135.00 9 200.00 70%

£ £ £ £

3,000 250 8,000 16,000

3,000 250 8,000 16,000

3,000 250 8,000 16,000

3,000 250 8,000 16,000

£ per week £ per week

90.00 70.00

91.45 71.10

92.90 72.25

94.50 73.50

£ per week

55% 0.50

55% 0.50

55% 0.50

55% 0.50

10

70%

6

Reduction of award through income Income threshold - lone parent or couple Income threshold - single person (DPTC) Income taper rate Minimum award 1

The rates apply to awards starting from the first Tuesday after 5 April in each year, unless otherwise stated.

2

These rates apply to awards starting from the September following the child's relevant birthday.

3

Payable in addition to the Child Tax Credit. For WFTC, available only in awards starting from October 2000.

4

Payable instead of the disabled Child Tax Credit.

5

Number of children for whom eligible childcare costs are incurred.

6

Income is net of tax, national insurance contributions and half of pension contributions, and excludes Child Benefit, Housing Benefit, Council Tax Benefit, maintenance and investment income. The award is reduced by the excess of income over the threshold, multipled by the income taper rate.

7

For awards starting from 6 June 2000. £21.25 for awards starting during April and May 2000.

8

For awards starting from 5 June 2001. £5.00 lower for awards starting during April and May 2001.

9

For awards starting from 5 June 2001. The 2000-01 level for awards starting during April and May 2001.

10

For awards starting from 4 June 2002. £2.50 lower for awards starting during April and May 2002.

Table 2.3

62

Section 2: Child and Working Tax Credits

Table 2.4 Table 2.4: Family Credit £ per Adult 30-hour week credit credit 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00

1

32.10 33.60 36.35 38.30 41.00 42.50 44.30 45.10 46.45 47.65 48.80 49.80

1

10.00 10.30 10.55 10.80 11.05

Child Credit for child aged Under 11-15 16-17 11 6.05 11.40 14.70 7.30 12.90 16.35 8.25 14.15 17.80 9.70 16.10 20.05 10.40 17.25 21.45 10.75 17.85 22.20 11.20 18.55 23.05 11.40 18.90 23.45 11.75 19.45 24.15 2 2 19.95 24.80 12.05 3 12.35 20.45 25.40 15.15 20.90 25.95

18

Applicable amount

Taper (%)

51.45 54.80 57.60 62.25 66.60 69.00 71.70 73.00 75.20 77.15 79.00 80.65

70 70 70 70 70 70 70 70 70 70 70 70

21.35 23.30 25.10 27.95 29.90 31.00 32.20 32.80 33.80 2 34.70

From 4 July 1995. From 7 October 1997, the trigger points for the increases at age 11 and 16 is the first Tuesday in September following the relevant birthday; and the credit for dependants aged 16 and 17 will continue up until the child's 19th birthday or to the end of non-advanced education, whichever occurs first. These changes do not apply where a child has reached their 11th, 16th or 18th birthday before 7 October 1997. 3 Increased to £14.85 from November 1998. 2

Table 2.5 Table 2.5: Disability Working Allowance £ per week 1996-97 1997-98 1998-99 Adult Allowance - single 48.25 49.55 50.75 - couple/lone parents 75.60 77.55 79.40 1 12.35 Child - under 11 11.75 12.05 - 11 to 15 19.45 19.95 20.45 - 16 to 17 24.15 24.80 25.40 - 18 33.80 34.70 Disabled Child's Allowance 20.40 20.95 21.45 30-hour credit 10.30 10.55 10.8 Applicable amount (threshold) - single people 56.40 57.85 59.25 - couple/lone parents 75.20 77.15 79.00 Taper 70% 70% 70% Tariff income £1 for every complete £250 or part of £250 between £3,000 and £16,000.

1

Increased to £14.85 from November 1998.

63

1999-00 51.80 81.05 15.15 20.90 25.95 21.90 11.05 60.50 80.65 70%

Section 2: Child and Working Tax Credits

Table 2.6 Table 2.6: Family Income Supplement: Prescribed Amounts And Maximum Weekly Payments Prescribed amount Maximum rate payable £ per Family for each Family for each week with 1 additional with 1 additional child child add child child add 03/08/1971 18.00 2.00 4.00 04/04/1972 20.00 2.00 5.00 1 2.50 5.00 03/04/1973 21.00 2 02/10/1973 21.50 2.50 5.00 3 23/07/1974 25.00 3.00 5.50 22/07/1975 31.50 3.50 7.00 0.50 20/07/1976 39.00 4.50 8.50 0.50 4 05/04/77 39.00 3.50 8.50 0.50 19/07/1977 41.50 3.50 8.50 0.50 15/11/1977 43.80 4.00 9.50 1.00 14/11/1978 46.00 4.00 10.50 1.00 13/11/1979 56.00 4.50 13.50 1.00 25/11/1980 67.00 7.00 17.00 1.50 24/11/1981 74.00 8.00 18.50 1.50 23/11/1982 82.50 9.00 21.00 2.00 22/11/1983 85.50 9.50 22.00 2.00 20/11/1984 90.00 10.00 23.00 2.00 Under 11-15 16 and Under 11-1516 and Under 11-1516 and Under 11-1516 and 11 over 11 over 11 over 11 over 25/11/1985 97.50 98.50 99.50 11.50 12.50 13.50 25.00 25.50 26.00 2.50 3.00 3.50 28/07/1986 98.60 99.60 100.60 11.65 12.65 13.65 25.30 25.80 26.30 2.55 3.05 3.55 06/04/1987 100.70 101.75 102.80 11.90 12.95 14.00 25.85 26.40 26.90 2.60 3.15 3.65 1

Up to 4 children, £2.00 thereafter.

2

Extra £1.00 for families with three or more children.

3

Extra £1.50 for families with three or more children.

4

Child Benefit, introduced in April 1977, was disregarded for the purpose of the FIS scheme; the addition to the prescribed

amount for each child after the first was reduced to offset partially the amount of Child Benefit disregarded. Prior to April 1977, Family Allowance had not been disregarded in calculating FIS.

64

Section 2: Child and Working Tax Credits

65

Section 2: Child and Working Tax Credits

66

Section 3: Financial support for children and young people

Section 3: Financial support for children and young people

Contents Page A: Current system Child Benefit Child Trust Fund Education Maintenance Allowance Statutory Maternity Pay Statutory Paternity Pay Statutory Adoption Pay Statutory Paternity Pay (adoption) Maternity Allowance Sure Start Maternity Grant Health in Pregnancy Grant

69 69 70 71 72 72 73 74 74 74

Tables Table 3.1: Child Benefit expenditure Table 3.2: Child Trust Fund Endowments

69 70

B: History Family allowance and Child Benefit Statutory Maternity Pay Statutory Paternity Pay Statutory Adoption Pay Maternity Allowance Maternity Grant Social Fund

76 77 77 78 78 79 79

C: Historical tables post-1990 Table 3.3: Child Benefit rates Table 3.4: Child Benefit – financial year average rates Table 3.5: Rates of Maternity Benefits Table 3.6: Key figures for Statutory Maternity Pay Table 3.7: Key figures for Maternity Allowance

80 80 81 82 82

D: Historical tables pre-1990 Table 3.8: Family allowances and Child Benefit Table 3.9: Family allowances and Child Benefit – financial year average rates Table 3.10: Maternity Grant rates

67

83 84 84

Section 3: Financial support for children and young people

68

Section 3: Financial support for children and young people

A: CURRENT SYSTEM Child Benefit Table 3.1: Child Benefit expenditure 2005-06

Outturns 2006-07

2007-08

Estimate 2008-09

Plans 2009-10

10,650

11,265

11,770

£ Millions Child Benefit expenditure

9,769

10,146

3.1 Families with children receive Child Benefit to help with the costs of bringing up children. Child Benefit is administered by HMRC. It is non-taxable, not income-tested and is payable in respect of each child under 16, for 16-18 year olds in full-time non-advanced education or on unwaged Governmentarranged training programmes, and for 19 year olds completing an eligible course of non-advanced education or training which they started before their 19th birthday. In 2009-10 it is worth £20.00 a week for the first (eldest eligible) child and £13.20 for each other child. 3.2 Support is also available from Tax Credits, which are composed of Working Tax Credit and Child Tax Credit. Tax Credits are explained in more detail in Section 2. Child Trust Fund 3.3 Children born on or after 1 September 2002 are eligible for a Child Trust Fund (CTF) account if child benefit has been awarded for them, they live in the UK, and are not subject to immigration restrictions. No eligible child will miss out on a CTF account. If parents do not open a CTF account for their child within one year, HMRC will automatically open an account for the child. 3.4 A CTF voucher for £250 is sent to parents automatically, and a further payment from the Government will be made at age seven. Children from low income families, and looked after children, receive an additional payment of £250 both with the initial Government endowment and with payments at age seven. “Low income” is defined as having a household income or below the first Child Tax Credit threshold (£16,040 for 2009-10). Children, parents, family and friends can contribute to a child’s account up to an annual limit of £1,200, with no tax to pay on any interest or gains in the account. This will help the child build a savings habit, contribute to their financial education and help them build up a stock of assets to reinvest or use when they reach 18 years of age, giving them added security and opportunity in adulthood. At the age of 16, children take control of accounts, allowing them to invest the money as they wish. The money is locked in until child reaches age 18. Money in the CTF will not affect any family benefits during these 18 years. There are no restrictions on the use of the money at age 18 - young people are best placed to decide on use.

69

Section 3: Financial support for children and young people

3.5 CTF accounts became available from 6 April 2005. Children born between September 2002 and April 2005 received a slightly higher amount from the Government to make up for them having to wait to open their accounts. Table 3.2: Child Trust Fund Endowments £ Initial Endowment Child born 1 September 2002 to 5 April 2003 6 April 2003 to 5 April 2004 6 April 2004 to day preceding appointed day( in April 2005) Child born after the appointed day in April 2005 Supplementary Endowment Child Benefit first paid 1 September 2002 to 5 April 2003 6 April 2003 to 5 April 2004 6 April 2004 to the appointed day in April 2005 After the appointed day in April 2005 Looked After Children (Children in the care of a Local Authority) will receive one payment Child born 1 September 2002 to 5 April 2003 6 April 2003 to 5 April 2004 6 April 2004 and the day preceding the appointed day Child born after the appointed day in April 2005

277 268 256 250 266 258 250 250

554 536 512 500

3.6 Looked after children also receive an additional payment of £100 per year for every whole year they spend in care after 1 April 2007, in order that their CTF provides a more substantial asset for them on entering adult life. 3.7 At Budget 2009 the Government announced that it will contribute £100 a year to the CTF accounts of disabled children, with severely disabled children receiving £200 a year. Payments will start in April 2010 for children with a CTF account who receive Disability Living Allowance at any point in tax year 2009/10. This recognises the fact that disabled children are likely to have greater financial needs at age 18. 3.8 The Government is currently consulting on whether a further payment will be made at secondary school age. Education Maintenance Allowance

3.9 Education Maintenance Allowance (EMA) is an income-assessed allowance to support young people aged 16-19 in post-16 education. It consists of weekly payments of up to £30.

In addition, bonus

payments may be payable. 3.10 To receive EMA the learner must enroll on a course that meets the EMA definition of valid provision. This will be up to and including level 3 for a period of 10 weeks or more with a minimum of 12 guided learning hours a week delivered by a recognised provider whose provision is inspected by a public

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Section 3: Financial support for children and young people

body that assures quality. In addition, their household income in the financial year prior to the academic year that EMA is paid must be less than £30,810 and they must meet EMA residency rules.

3.11 The weekly payment that a student will receive from September 2008 is based on household income for the financial year 2007-08 as set out below

Household income Up to £20,817 More than £20,817 but less than or equal to £25,521 More than £25,521 but less than or equal to £30,810 More than £30,810

Weekly amount to be paid £30 £20 £10 Not eligible for EMA

3.12 To receive EMA a young person must agree and sign a learning contract with their provider, which sets out what is expected of them in terms of, attendance, behaviour, coursework and progress. The school, college or training provider will stop a payment if the student fails to keep to the terms of their EMA Contract.

3.13 EMA will not affect other family benefits. It is designed to incentivise young people from low-income families to participate in learning post 16. It is paid direct into the learner’s bank account. EMA is paid in addition to other support provided by the Government, such as Child Benefit, Child Tax Credit and Working Tax Credit. Any money earned by the young person from a part-time job does not affect EMA. For further information visit the EMA website at www.direct.gov.uk/ema or http://ema.lsc.gov.uk/fag/validproviders for information about EMA valid provision trials.

Statutory Maternity Pay 3.14 Statutory Maternity Pay (SMP) is payable to women who have been employed continuously by the same employer for at least 26 weeks, including (and ending with) the 15th week before the expected week of childbirth (the qualifying week) and whose average gross weekly earnings in the last eight weeks of that period have been at least equal to the lower earnings limit for NICs. Women can choose when to start receiving SMP, from the 11th week before the week the baby is due, to the day following the birth. 3.15 SMP is payable for up to a maximum of 39 weeks. All women who qualify will get the first six weeks at a higher rate (90 per cent of their average weekly earnings with no upper limit). The remaining 33 weeks at the standard rate of SMP or the 90 per cent will continue if this is less than the standard rate. SMP is taxable and subject to NICs. Employers are reimbursed 92 per cent of the SMP paid out. Small employers (those whose gross annual NICs are £45,000 per annum or less from 6 April 2004) can claim

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Section 3: Financial support for children and young people

100 per cent of their SMP (plus 4.5 per cent compensation) via their tax, NI and other payments due to HM Revenue and Customs. 3.16 The standard rate of SMP is £123.06 per week from April 2009. Statutory Sick Pay, Jobseekers Allowance, and generally speaking Employment and Support Allowance (ESA) cannot be paid during the Maternity Pay period. Otherwise state benefits affect, or are affected by, SMP in the same way as Statutory Sick Pay (see Section 13). Statutory Paternity Pay 3.17 Statutory Paternity Pay (SPP) can start at any time from the birth of the child but must be completed 56 days after the birth (or, if the baby is born early, within 56 days from the beginning of the week in which the baby was expected). The employee can choose to be paid SPP for one or two consecutive weeks. 3.18 To qualify for SPP in respect of a newborn child the employee must: -

have, or expect to have, responsibility for the child’s upbringing;

-

be the biological father of the child or the mother’s husband or partner;

-

have been continuously employed for at least 26 weeks continuing into the 15th week before the baby is due, the Qualifying Week (QW);

-

remain in continuous employment with the employer from the end of the QW up to the date of birth of the child;

-

intend at the start of the Paternity Pay Period to care for the child and/or support the mother;

-

have average weekly earnings at or above the LEL that applies at the end of the QW; and

-

give the employer notice of when he expects the liability to pay SPP to begin at least 28 days beforehand. Where this is not reasonably practicable it must be given as soon as is practicable.

3.19 The rules on continuous employment and calculation of average weekly earnings mirror those for SMP. Unlike SMP, entitlement to SPP cannot be established until the baby has been born. The weekly rate is currently the lesser of £123.06 and 90 per cent of the employees’ average weekly earnings. Statutory Adoption Pay

3.20 Statutory Adoption Pay (SAP) is available to individuals who adopt and to one member of a couple, where the couple adopts jointly (the couple choose which partner). 3.21 To qualify for SAP, an employee must:

72

Section 3: Financial support for children and young people

-

have 26 weeks’ continuous service with their employer by the week in which they are notified of having been matched with a child for adoption; and

-

have average earnings in the last eight weeks of that period at least equal to the LEL.

3.22 Employers pay SAP for up to 39 weeks. The weekly rate is £123.06 per week in 2009-10 or 90 per cent of average weekly earnings if this is less than £123.06 per week. Adopters can choose to start receiving SAP up to 14 days before the child’s expected date of placement but it cannot begin later than the date of placement. SAP is taxable and subject to NICs. Employers are reimbursed 92 per cent of the SAP paid out. Small employers (those whose gross annual NICs are £45,000 per annum or less from 6 April 2004) can claim 100 per cent of their SMP (plus 4.5 per cent compensation) via their tax, NI and other payments due to HM Revenue and Customs. 3.23 SAP is only payable where an adopter is newly matched with a child for adoption by an adoption agency. It will not apply where there is an existing relationship between the child and the adopter so a step-parent adopting their partner’s children would not qualify. Adopters who have average weekly earnings below the LEL do not qualify for SAP, but may be able to receive help equivalent to Maternity Allowance through their local authority.

Statutory Paternity Pay (adoption) 3.24 The partner of an individual who adopts, or the other member of a couple who adopt jointly, may be entitled to SPP (adoption). For SPP (adoption) to be available the employee must: -

have, or expect to have, responsibility for the child’s upbringing;

-

be an adopter or the adopter’s spouse or partner;

-

have average weekly earnings at or above the LEL that applies at the end of the week in which the adopter is notified of having been matched with a child for adoption;

-

have worked continuously for their employer for 26 weeks ending with the week in which the adopter is notified of being matched with a child; and

-

remain in continuous employment with the employer up to the child’s date of placement for adoption.

3.25 SPP (adoption) is paid by employers for either one or two consecutive weeks as chosen by the employee. The weekly rate is the lesser of £123.06 in 2009-10 and 90 per cent of average weekly earnings.

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Section 3: Financial support for children and young people

Maternity Allowance 3.26 Women who are not entitled to SMP may qualify for Maternity Allowance (MA) from the Department for Work and Pensions, provided they have been employed and/or self-employed for at least 26 weeks of their test period (66 weeks ending with the week before the baby is due) and had average weekly earnings of at least £30 over any 13 weeks within the test period. MA is payable for up to 39 weeks. 3.27 MA is paid at a standard rate of £123.06 per week from April 2009 or 90 per cent of a woman’s average weekly earnings if this calculation results in a rate that is less than the standard rate. Women who are self-employed will be treated as having earnings in order to receive a rate of MA. Women who have paid Class 2 NICs will be treated as having earnings sufficient to result in the standard rate of MA. Women who hold a Small Earnings Exception certificate will be treated as having earnings of £30 a week. Other State benefits affect, or are affected by MA in the same way as Employment and Support Allowance (see Section 9).

Sure Start Maternity Grant 3.30 The Sure Start Maternity Grant is payable for each child that is expected, born, adopted, the subject of a parental order (following a surrogate birth) or, in certain circumstances, the subject of a residence order. In order to qualify for a grant claimants are required to submit a certificate, signed by an approved health professional, confirming that advice has been received on the health and welfare needs of the new baby (and on maternal health where a claim is made during pregnancy). A claim can be made any time from the 29th week of pregnancy until the child is three months old or until three months after the date of the adoption, parental order or residence order. In the case of adoptions and residence orders claims must be made before the baby is twelve months old. 3.31 The award is currently £500, and is paid to people awarded Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Pension Credit, Working Tax Credit where the disability or severe disability element is included in the award or Child Tax Credit payable at a rate higher than the family element. Savings are not taken into account.

Health in Pregnancy Grant 3.32 The Health in Pregnancy Grant is a tax-free payment of £190 to help women meet the additional costs they face in the run up to birth. In order to qualify for the Grant, women will need to be 25 weeks

74

Section 3: Financial support for children and young people

pregnant, have been given health advice from a midwife or doctor to help them and their unborn baby stay healthy during pregnancy, and be present, 'ordinarily resident' and have a ‘right to reside’ in the UK. 3.33 Claim forms are available to women from midwife or doctor who will usually provide the claim form at the next ante-natal appointment after their 25th week of pregnancy. The Grant is payable in addition to all other benefits and tax credits.

75

Section 3: Financial support for children and young people

B: HISTORY

Family allowance and Child Benefit 3.34 Throughout the post-war period the extra responsibility of having children has been recognised by the tax and benefit system, though the method has changed over time.

Immediately after the war

additional tax allowances were available for each child. In addition, as these were only of advantage to those who paid tax, a family allowance was payable to all families in respect of the second and subsequent children who were below school age or below 19 and in full time education. 3.35 The size of the tax allowances, which varied according to the age of the children from April 1957 onwards, and the value of the family allowance are shown below in Tables 3.5 and 3.6. (Note that in 1977-78 an additional personal allowance was payable in respect of the first child.) Family allowance ('FAM') was paid by means of a book of weekly orders, which were cashed at the post office and were taxed as earned income through the husband's earnings. This meant that taxpayers benefited less from the family allowance than those whose income was below the tax threshold. Similar objectives also prompted the introduction in April 1968 of a system of clawback. The family's annual tax allowance was reduced in respect of every child for whom FAM was received. The size of clawback is shown in Table 1.12 in Section 1, and an example is shown below. Example 3.1: Unified system with family allowances 1976-77: Married couple plus 2 children under 11 earning £75 pw and collecting FAM of £1.50 pw Income = £76.50pw = £3,978pa Tax bill = £0.35 (3,978 - 1,085 - 600 + 52) = £820.76pa = £15.78pw (takes account of married man's allowance, child tax allowances and clawback) Net Income = £60.72pw

3.36 This system of personal tax allowances in respect of children was of benefit only to taxpayers, although family allowances favouring non-taxpayers continued until April 1977. No special treatment for single parent families was given in respect of family allowance until the financial year 1976-77 when a temporary benefit called 'Child Interim Benefit' was introduced pending the implementation in April 1977 of Child Benefit and Child Benefit increase known as One Parent Benefit. It was identical to FAM except that one-parent families could claim it in respect of their first child. Child tax allowances were then gradually phased out – they were fully abolished in April 1979, while Child Benefit immediately replaced family allowance in April 1977.

76

Section 3: Financial support for children and young people

3.37

Child Benefit is not taxable and is payable in respect of each child up to age 16, for 16-18 year

olds in full-time, non-advanced education or on unwaged Government-arranged training programmes, and for 19 year olds completing an eligible course of non-advanced education or training, which they started before their 19th birthday. Since 6 April 1992, Child Benefit has been uprated by the September RPI each April, except in April 1999, April 2000, and January 2009, when the eldest or first child rate was increased by more than the RPI. Historical Child Benefit rates are shown in Tables 3.3 and 3.4 for years since 1990 and Tables 3.8 and 3.9 for earlier years. 3.38

Since 1997 some lone parents have received a higher rate of Child Benefit for their only or eldest

child known as Child Benefit (Lone Parent). This was formerly a separate payment called One Parent Benefit, which was introduced in April 1977. This additional money for lone parents was abolished from 6 July 1998 but has continued in payment to certain lone parents in specified circumstances, at the rate of £17.55, which has been frozen since April 2000. From 9 April 2007 this higher rate ceased to exist. All families now receive the same amount each week for the first or eldest child. Statutory Maternity Pay 3.39 Historic rates are shown in Table 3.5. Annual estimated numbers receiving SMP and annual expenditure on SMP are shown in Table 3.6. 3.40 For women expecting babies on or after 6 April 2003, the duration of SMP was increased from 18 to 26 weeks. SMP was extended again to 39 weeks for women expecting babies on or after 1 April 2007. The first 6 weeks continue to be paid at 90 per cent of earnings with no upper limit. The remaining 33 weeks are paid at the lesser of the flat rate or 90 per cent of earnings. Statutory Paternity Pay 3.41 SPP was introduced for parents whose babies were born, or expected to be born, on or after 6 April 2003. A baby expected to be born on or after 6 April 2003 could have been born prematurely as early as the end of November 2002. SPP would have been paid to eligible parents even where the child was born prematurely. Parents whose babies were due before 6 April 2003 but were born after 6 April 2003 were also entitled to paternity leave and pay. SPP can start at any time from the birth of the child until 56 days after the birth. It is paid for one or two weeks.

77

Section 3: Financial support for children and young people

Statutory Adoption Pay 3.42 Statutory Adoption Pay (SAP) became available to employees where a child was placed with them for adoption on or after 6 April 2003. SAP is payable when a child is adopted from within the UK or from overseas. It is paid for up to 39 weeks. Maternity Allowance 3.43 Prior to March 1977 a woman must have had at least 26 flat rate class 1 and/or class 2 contributions or credits in the relevant contribution year. 3.44 From March 1977 she must have paid or been credited with an earnings factor of 50 times the LEL in the relevant tax year. 3.45 A half rate or three-quarter rate benefit was payable as with UB. Reduced rates were abolished on 5 October 1986. 3.46 From April 1987 Statutory Maternity Pay replaced MA for most employees. To qualify for MA a woman must have paid at least 26 flat rate Class 1 and/or Class 2 contributions in the 52 week period ending in the 15th week before the baby is due. For women expecting babies on or after 16 October 1994, this period was extended to 66 weeks ending with the week before the baby is due. 3.47 A woman expecting her baby on or after 20 August 2000 no longer needs to have paid contributions to qualify for MA. Instead, she must satisfy two conditions, namely, she must have been employed or self-employed for at least 26 weeks within her test period (66 weeks ending with the week before the week her baby is due) and her average weekly earnings over a 13 week period within the test period must have been at least £30. 3.48 MA was extended to 26 weeks for women expecting babies on or after 6 April 2003 (it was previously payable for 18 weeks) and women could chose any 13 weeks in their test period over which to average their earnings. MA was extended again to 39 weeks for women expecting babies on or after 1 April 2007. 3.49 Historical rates of maternity benefits are shown in Table 3.5. Estimated numbers receiving MA at a particular time, and annual expenditure on MA, are shown in Table 3.7.

78

Section 3: Financial support for children and young people

Maternity Grant 3.50 Before July 1982, the Maternity Grant was a national insurance benefit paid as a lump sum and based on the contributions of the mother or her husband. (See Table 3.10.) 3.51 A Maternity Grant was paid for each child born. If the child was stillborn, the grant was paid if the pregnancy lasted for at least 28 weeks. 3.52 From July 1982, the Maternity Grant was non-contributory and paid to all mothers who satisfied a test of presence in Great Britain. 3.53 The Maternity Grant was abolished from 6 April 1987 and replaced by a 'maternity payment’ from the Social Fund.

Social Fund 3.54 The Social Fund provides support to a number of groups through a combination of grants and loans; it succeeded Supplementary Benefit single payments and the old universal Maternity and Death Grants. 3.55 Regulations introduced from April 1987 provide entitlement for help with the immediate needs of a new born or adopted baby given various conditions. 3.56 The Maternity Payment replaced The Maternity Grant on 6 April 1987. On 27 March 2000, the Maternity Payment (£100) was replaced by a Sure Start Maternity Grant of £200. This was increased to £300 from 3 December 2000 and to £500 from 16 June 2002. Originally, any savings over £500 (£1000 for those aged 60 or over) were taken into account on a pound for pound basis. On 8 October 2001 this capital rule was abolished. From April 1997, in the case of surrogacy, married couples with a parental order were eligible to claim a Maternity Payment.

79

Section 3: Financial support for children and young people

C: Historical tables post-1990 Table 3.3: Child Benefit rates

09-Apr-90 08-Apr-91 07-Oct-91 06-Apr-92 12-Apr-93 11-Apr-94 10-Apr-95 08-Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Jan-09 1

Amount for Amount for Single parent family first child subsequent first child premium children (One Parent Benefit) 7.25 7.25 5.60 8.25 7.25 5.60 9.25 7.50 5.60 9.65 7.80 5.85 10.00 8.10 6.05 10.20 8.25 6.15 10.40 8.45 6.30 10.80 8.80 6.30 11.05 9.00 11.45 9.30 14.40 9.60 15.00 10.00 15.50 10.35 15.75 10.55 16.05 10.75 16.50 11.05 17.00 11.40 17.45 11.70 18.10 12.10 18.80 12.55 20.00 13.20 -

£ per week Child Benefit 1 (Lone Parent)

No. of children in family 2 3 7.25 14.50 21.75 8.25 15.50 22.75 9.25 16.75 24.25 9.65 17.45 25.25 10.00 18.10 26.20 10.20 18.45 26.70 10.40 18.85 27.30 10.80 19.60 28.40 11.05 20.05 29.05 11,45 20.75 30.05 14.40 24.00 33.60 15.00 25.00 35.00 15.50 25.85 36.20 15.75 26.30 36.85 16.05 26.80 37.55 16.50 27.55 38.60 17.00 28.40 39.80 17.45 29.15 40.85 18.10 30.20 42.30 18.80 31.35 43.90 20.00 33.20 46.40

1 17.10 17.10 17.10 17.55 17.55 17.55 17.55 17.55 17.55 17.55

-

4 29.00 30.00 31.75 33.05 34.30 34.95 35.75 37.20 38.05 39.35 43.20 45.00 46.55 47.40 48.30 49.65 51.20 52.55 54.40 56.45 59.60

Applied only for existing claimants and the reserved rights cases before 6 July 1998 e.g. Income Support Lone Parents. in April 2007 the

transitionally protected rate of CB for lone parents was extinguished when the standard rate of CB payable for the first eldest child increased to £18.10 a week

1

Table 3.4: Child Benefit - financial year average rates

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

£ per week Amount for Amount for Single parent family first child subsequent first child premium children (One Parent Benefit) 7.25 7.25 5.60 3 3 7.37 8.75 5.60 9.65 7.80 5.85 10.00 8.10 6.05 10.20 8.25 6.15 10.40 8.45 6.30 10.80 8.80 6.30 11.05 9.00 11.45 9.30 14.40 9.60 15.00 10.00 15.50 10.35 15.75 10.55 16.05 10.75 16.50 11.05 17.00 11.40 17.45 11.70 18.10 12.10 4 4 19.10 12.71 20.00 13.20 -

Child Benefit 2 (Lone Parent)

No. of children in family 2 3 7.25 14.50 21.75 8.75 16.12 23.49 9.65 17.45 25.25 10.00 18.10 26.20 10.20 18.45 26.70 10.40 18.85 27.30 10.80 19.60 28.40 11.05 20.05 29.05 11.45 20.75 30.05 14.40 24.00 33.60 15.00 25.00 35.00 15.50 25.85 36.20 15.75 26.30 36.85 16.05 26.80 37.55 16.50 27.55 38.60 17.00 28.40 39.80 17.45 29.15 40.85 18.10 30.20 42.30 19.10 31.81 44.53 20.00 33.20 46.40

1 17.10 17.10 17.10 17.55 17.55 17.55 17.55 17.55 17.55 17.55 -

1

Calculated by weighting each rate in force in the financial year by the number of weeks it was in force for.

2

Applied only for existing claimants and the reserved rights cases before 6 July 1998 e.g. Income Support Lone Parents. in April 2007 the

transitionally protected rate of CB for lone parents was extinguished when the standard rate of CB payable for the first eldest child increased to £18.10 a week £8.25/£7.25 from April 1991, £9.25/£7.50 from October 1991. 4 £18.80/£12.55 from April 2008, £20.00/£13.20 from January 2009. 3

80

4 29.00 30.86 33.05 34.30 34.95 35.75 37.20 38.05 39.35 43.20 45.00 46.55 47.40 48.30 49.65 51.20 52.55 54.40 57.24 59.60

Section 3: Financial support for children and young people

Table 3.5: Rates of Maternity Benefits Maternity Allowance Personal Benefit Increase for dependants Adults Each Standard 3/4 1/2 Standard 3/4 1/2 Child

£ per week

Nov 1981 Nov 1982 Nov 1983 Nov 1984 Nov 1985 July 1986

Apr 1987 Apr 1988 Apr 1989 Apr 1990 Apr 1991 Apr 1992 Apr 1993 Apr 1994 Oct 1994 Apr 1995 Apr 1996 Apr 1997 Apr 1998 Apr 1999 Apr 2000 Apr 2001 Apr 2002 Apr 2003 Apr 2004 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09

Higher 2 Rate

22.50 25.00 25.95 27.25 29.15 29.45 Lower 3 Rate

52.50 52.50 54.55 55.70 57.70 59.55 60.20

30.05 31.30 33.20 35.70 40.60 42.25 43.75 44.55 44.55 45.55 47.35 48.35 50.10 51.70 52.25

4

16.88 18.75 19.46 20.44 21.86 22.09 New Standard 5 Rate

11.25 12.50 12.98 13.63 14.58 14.73 6 Threshold

60.20 8 62.20 8 75.00 9 100.00 102.80 106.00 108.85 112.75 117.18 123.06

13.90 15.45 16.00 16.80 18.00 18.20

10.43 11.59 12.00 12.60 13.50 13.65

6.95 7.73 8.00 8.40 9.00 9.10

Statutory Maternity Pay (SMP) 7,10 Lower Rate

0.80 0.30 0.15 1 -

18.60 19.40 20.55 22.10 24.50 25.50 26.40 26.90 26.90 27.50 28.55 29.15 30.20 31.15 31.50 32.55 33.10 33.65 34.60 35.65 36.60 37.90 39.40 41.35

30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00

1

Child dependency addition was abolished from 26 November 1984.

2

The woman must be an employee in the 15th week before the baby is expected (the qualifying week).

3

From 16 October 1994, the lower rate applies for women who are not employees in the qualifying week.

4

Before April 1987 there was also a one-off Maternity Grant of £25. Since April 1987 the grant is based on needs

and is made from the Social Fund. 5 New Standard Rate introduced from April 2000. 6

MA Earnings Threshold introduced from April 2000.

7

Up until April 2003 the higher rate of 90 per cent of average earnings was paid for the first 6 weeks. Lower rate

was paid for up to 12 weeks. 8 Women whose average weekly earnings are over £30 but less than the LEL which applies at the beginning of their test period receive MA of 90% of their average earnings. From April 2003 the standard rate MA is no longer linked to the LEL. Women whose average earnings are equal to

9

or above £30 will receive standard rate MA or 90 per cent of their average weekly earnings if this is less than standard rate MA from April 2003.

81

47.20 49.20 52.10 52.50 52.50 52.50 52.50 52.50 52.50 52.50 54.55 55.70 57.70 59.55 60.20 62.20 75.00 100.00 102.80 106.00 108.85 112.75 117.18 123.06

Section 3: Financial support for children and young people

Table 3.6: Key figures for Statutory Maternity Pay Outturn Estimate 2003-04 2004-05 2005-06 2006-07 2007-08 Thousands Average number of beneficiaries over the financial year (note 1)

284

290

303

1,035

1,291

1,184

315

328

1,287

1,496

Plans 2008-09 332

Plans 2009-10 332

£Millions Annual expenditure

1,751

1,824

1) Number of claims gives the number of claims made for SMP in a financial year. It denotes the number of SMP claims that start in the year, and not a point in time caseload.

Table 3.7: Key figures for Maternity Allowance

Estimate Outturn 2003-04 2004-05 2005-06 2006-07 2007-08 Thousands

Plans

Plans

2008-09

2009-10

Average number of beneficiaries over the financial year 22

26

29

128

150

164

27

41

49

51

175

247

324

352

£Millions

Annual expenditure

82

Section 3: Financial support for children and young people

D: Historical tables pre-1990

Table 3.8: Family allowances and Child Benefit1

06-Aug-46 02-Sep-52 02-Oct-56 24-Oct-67 09-Apr-68 08-Oct-68 08-Apr-75 06-Apr-76 05-Apr-77 03-Apr-78 13-Nov-78 02-Apr-79 12-Nov-79 24-Nov-80 23-Nov-81 22-Nov-82 21-Nov-83 26-Nov-84 25-Nov-85 28-Jul-86 06-Apr-87 11-Apr-88 10-Apr-89 1

Amount for first 2 eligible child 0.25 0.40 0.40 0.40 0.75 0.90 1.50 1.50 1.00 2.30 3.00 4.00 4.00 4.75 5.25 5.85 6.50 6.85 7.00 7.10 7.25 7.25 7.25

£ per week Amount for Single parent family subsequent first child premium Children (One Parent Benefit) 0.25 0.40 0.50 3 0.50 0.85 1.00 1.50 1.50 1.50 1.50 0.50 2.30 1.00 3.00 2.00 4.00 2.00 4.00 2.50 4.75 3.00 5.25 3.30 5.85 3.65 6.50 4.05 6.85 4.25 7.00 4.55 7.10 4.60 7.25 4.70 7.25 4.90 7.25 5.20

1 1.00 2.30 3.00 4.00 4.00 4.75 5.25 5.85 6.50 6.85 7.00 7.10 7.25 7.25 7.25

No. of children in family 2 3 0.25 0.50 0.40 0.80 0.40 0.90 0.40 0.90 0.75 1.60 0.90 1.90 1.50 3.00 1.50 3.00 2.50 4.00 4.60 6.90 6.00 9.00 8.00 12.00 8.00 12.00 9.50 14.25 10.50 15.75 11.70 17.55 13.00 19.50 13.70 20.55 14.00 21.00 14.20 21.30 14.50 21.75 14.50 21.75 14.50 21.75

Family allowance was abolished at the end of March 1977 when child benefit was introduced. Family allowance was

taxable as earnings of the husband and subject to clawback. Child Benefit is not taxable. 2 Family allowance was payable to the second and subsequent children.

83

4 0.75 1.20 1.40 1.65 2.45 2.90 4.50 4.50 5.50 9.20 12.00 16.00 16.00 19.00 21.00 23.40 26.00 27.40 28.00 28.40 29.00 29.00 29.00

Section 3: Financial support for children and young people

Table 3.9: Family allowances and Child Benefit - financial year average rates1

48-49 to 51-52 52-53 53-54 to 55-56 56-57 57-58 to 66-67 67-68 68-69 69-70 to 74-75 75-76 76-77 77-78 78-79 79-80 80-81 81-82 82-83 83-84 84-85 85-86 86-87 87-88 88-89 89-90 1

Amount for first 2 eligible child 0.25 0.34 0.40 0.40 0.40 0.40 0.83 0.90 1.50 1.50 1.00 2.57 4.00 4.27 4.93 5.47 6.09 6.63 6.90 7.07 7.25 7.25 7.25

Amount for Single parent family subsequent first child premium Children (One Parent Benefit) 0.25 0.34 0.40 0.45 0.50 0.50 0.93 1.00 1.50 1.50 1.50 0.50 2.57 1.38 4.00 2.20 4.27 2.68 4.93 3.11 5.47 3.43 6.09 3.80 6.63 4.12 6.90 4.36 7.07 4.58 7.25 4.70 7.25 4.90 7.25 5.20

1 1.00 2.57 4.00 4.27 4.93 5.47 6.09 6.63 6.90 7.07 7.25 7.25 7.25

No. of children in family 2 3 0.25 0.50 0.34 0.68 0.40 0.80 0.40 0.85 0.40 0.90 0.40 0.90 0.83 1.75 0.90 1.90 1.50 3.00 1.50 3.00 2.50 4.00 5.14 7.71 8.00 12.00 8.55 12.82 9.87 14.80 10.94 16.41 12.18 18.27 13.26 19.89 13.81 20.71 14.14 21.21 14.50 21.75 14.50 21.75 14.50 21.75

Family allowance was abolished at the end of March 1977 when child benefit was introduced. Family allowance was

taxable as earnings of the husband and subject to clawback. Child benefit is not taxable. 2 Family allowance was payable to the second and subsequent children.

Table 3.10: Maternity Grant rates £ per week 05/07/1948 4.00 26/10/1953 9.00 16/05/1955 10.00 03/02/1958 12.50 03/04/1961 14.00 11/03/1963 16.00 25/01/1965 22.00 03/11/1969 25.00

84

4 0.75 1.02 1.20 1.30 1.40 1.51 2.68 2.90 4.50 4.50 5.50 10.28 16.00 17.10 19.74 21.88 24.36 26.52 27.62 28.28 29.00 29.00 29.00

Section 4: Indirect tax

Section 4: Indirect tax Contents Page A: Current system Introduction VAT Legal Framework Zero-rated supplies Reduced rate supplies Exempt supplies Registration and deregistration Optional small business schemes Treatment of purchases of goods from abroad Treatment of sales of goods to purchasers from abroad Treatment of purchases of services from abroad Treatment of Supplies of Services To Non UK Customers Specific duties Alcoholic drinks Tobacco goods Hydrocarbon oils Vehicle excise duty Vehicle excise duty on cars Vehicle excise duty on heavy goods vehicles Vehicle excise duty on motorcycles Other taxes Betting and gaming duties Insurance premium tax Air passenger duty Landfill tax Climate change levy Aggregates levy The regulators Excise duties VAT regulator Tobacco products regulator Tables Table 4.1: Some key figures

87 88 89 89 89 90 90 90 92 92 92 93 93 94 94 95 95 95 96 96 97 97 98 99 99 99 87

B: History VAT Extension of VAT standard rate The higher rate of VAT The reduced rate of VAT Specific duties Alcoholic drinks Tobacco goods Hydrocarbon oils Car Tax Vehicle excise duty Vehicle excise duty on cars Vehicle excise duty on heavy goods vehicles Vehicle excise duty on motorcycles Other taxes Betting and gaming taxes Insurance premium tax Air passenger duty Landfill tax Other indirect taxes

100 101 102 103 104 104 106 106 107 107 107 108 108 108 109 85

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Use of regulators

109

C: Historical tables post 1990 Table 4.2: Rates of VAT and registration limits Table 4.3a: Categories of zero-rated goods and services Table 4.3b: Categories of reduced rate goods and services Table 4.4: Categories of exempt goods and services Table 4.5ai: Rates of specific duties on alcoholic drinks (Beer) Table 4.5aii: Rates of specific duties on alcoholic drinks Table 4.5b: Rates of specific duties on tobacco Table 4.5ci: Rates of specific duties on fuel Table 4.5cii: Rates of specific duties on fuel Table 4.6ai: Rates of vehicle excise duty on cars since 1990 Table 4.6aii: Rates of vehicle excise duty on cars registered after March 2001 Table 4.6b: Rates of vehicle excise duty on motorcycles Table 4.6b: Rates of vehicle excise duty on heavy goods vehicles Table 4.7i: Incidence of duty (Beer and Spirits) Table 4.7ii: Incidence of duty (Wine and Cider) Table 4.7iii: Incidence of duty (Tobacco and Cigars) Table 4.7iv: Incidence of duty (Fuel) Table 4.8: Air Passenger Duty rates

112 113 113 114 115 116 117 118 119 120 120 121 121 122 124 125 127 128

D: Historical Tables pre 1990 Table 4.9: Rates of VAT since introduction and registration limits Table 4.10: Goods subject to the higher rate May 1975 to June 1979 Table 4.11a: Rates of specific duties on alcoholic drinks Table 4.11b: Rates of specific duties on tobacco Table 4.11c: Rates of specific duties on fuel Table 4.12: Rates of vehicle excise duty for cars Table 4.13i: Incidence of duty (alcohol) Table 4.13ii: Incidence of duty (fuel)

129 129 130 132 133 133 134 135

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A CURRENT SYSTEM Table 4.1: Some key figures Outturn 2007-08 Indirect tax receipts Value added tax Fuel duties Tobacco duties Spirits duties Wine duties Beer and cider duties Betting and gaming duties Air passenger duty Insurance premium tax Landfill tax Climate change levy Aggregates levy Customs duties and levies Total indirect tax Vehicle excise duties

80.6 24.9 8.1 2.4 2.6 3.3 1.5 2.0 2.3 0.9 0.7 0.3 2.5 132.1 5.4

Estimate Projection 2008-09 2009-10 £Billions 78.4 63.7 24.6 26.6 8.2 8.3 2.4 2.6 2.6 2.7 3.4 3.4 1.5 1.5 1.9 1.8 2.3 2.4 1.0 1.0 0.7 0.7 0.3 0.3 2.7 2.7 130.0 117.7 5.6 5.6

Introduction 4.1 Indirect taxes cover HM Revenue & Customs duties on specific commodities and vehicle excise duty (VED), as well as more general sales taxes. Changes can be made to duty rates and VAT by Order, without the need for primary legislation. These ‘regulator’ powers are discussed in paragraphs 4.39 to 4.44. VAT 4.2 Value added tax (VAT) is a broadly based ad valorem tax charged on the supply of a broad range of goods and services. VAT is governed by a framework of EU legislation, that is transposed into domestic law. The tax is designed to fall on the final consumption of goods and services supplied to the home market. VAT is payable in addition to any customs duty or other tax on the goods. It is levied on the final (VAT-exclusive) cost or price of the goods supplied, and so is levied on any customs duty or other tax the goods may bear. The vast majority of businesses account for their VAT by submitting four quarterly returns in one year. 4.3 VAT is charged at a standard rate on most goods and services. The standard rate was temporarily reduced from 17½ per cent to 15 per cent between 1 December 2009 and 31st December 2009 by use of the VAT regulator (see paragraph 4.52). 4.4 The VAT liability that accrues at each stage of production and distribution is calculated as the tax value of the supply multiplied by the applicable VAT tax rate. The tax value represents the price that has first 87

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been decided between supplier and purchaser for the supply before any VAT is added. The tax value for the VAT calculation is inclusive of other taxes and duties. A taxable body charges VAT on supplies it makes (output tax), pays tax to suppliers on the materials and services it buys (input tax) and accounts to HM Revenue & Customs for the difference between output tax and input tax in each accounting period. This usually involves a net payment to HM Revenue & Customs because output tax exceeds input tax; but where output tax is less than input tax, the taxable body claims a repayment. If the customer is an end consumer, this end consumer will effectively be paying all the VAT.

Example 4.1

The UK supply chain for Widgets*

Event

Manufacturer’s Input Tax £0

Manufacturer’s Output Tax £3.00

Manufacturer’s Net VAT Payable £3.00

Wholesaler’s Input Tax £3.00

Wholesaler’s Output Tax £4.50

Wholesaler’s Net VAT Payable £1.50

Manufacturer sells widget to Wholesaler for £20 + £3.00 VAT. Event Wholesaler sells widget to Retailer for £30 + £4.50 VAT. Event

Retailer’s Input Tax £4.50 Retailer sells widget to UK customer for £60 + £9.00 VAT.

Retailer’s Output Retailer’s Net VAT Tax Payable £9.00 £4.50

* VAT rate at 15% in this example.

Net Amount of VAT Received By HMRC £9.00

Legal Framework 4.5 VAT in the UK is a part of a European tax governed by European law, so there are constraints on how it is actually applied in the UK and other member states. The minimum standard rate of VAT in member states is 15 per cent. The zero-rate is not featured in the EU law as it was not intended that any reduced VAT rate throughout Europe would be below 5 per cent. However, zero-rating remains in some member countries, including the UK, as a legacy of pre-EU legislation. These member states have been granted a derogation to continue existing zero-rating but cannot add new goods or services.

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Zero-rated supplies 4.6 Certain goods and services are zero-rated, meaning they are legally taxable, but the rate of tax is zero. Output tax is not chargeable on such supplies but VAT that the business has paid on its inputs is reclaimable. Businesses whose main output are zero-rated supplies, and whose input tax in consequence regularly exceeds their output tax may opt for a one-month tax period in order to obtain earlier repayment. Categories of zero-rated goods and services are shown in Table 4.3a. For the recent history of removal of zero-rating for various cases, see paragraph 4.61. Reduced rate supplies 4.7 European VAT law allows Member States to apply either one or two reduced rates of not less than 5 per cent to a prescribed list of goods and services. These same agreements also allow Member States to apply a reduced rate to supplies which they had previously zero-rated (e.g. in the UK, domestic fuel and power). Categories of goods and services to which the UK applies a reduced rate are shown in Table 4.3b. For the complete history of introducing reduced rate goods and services, see paragraph 4.63. Exempt supplies 4.8 Other goods and services are exempt from VAT. Persons making supplies of exempt goods or services do not charge their customers tax on these supplies but, unlike zero-rated supplies, are not normally entitled to reclaim any tax on inputs. Some element of irrecoverable VAT may, therefore, enter into the price of exempt supplies. The main exemptions are shown in Table 4.4. 4.9 The approximate proportions of consumers' (household) expenditure that fall into the different VAT categories (data for the year 2008) are as follows: Approximate proportion of consumers' expenditure: Subject to VAT at standard rate (17.5%) Subject to VAT at reduced rate (5%) Subject to VAT at zero rate Exempt or out of scope (Percentages have been rounded individually)

52 per cent 4 per cent 12 per cent 32 per cent

4.10 A person who makes both taxable (including zero-rated) and exempt supplies is termed ‘partially exempt’; generally he must attribute his input tax between taxable and exempt outputs according to the inputs in each and deduct only that part of the input tax which relates to the taxable outputs. procedure is subject to de minimis limits.

89

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Registration and deregistration 4.11 A trader whose taxable supplies exceed or are likely to exceed a set limit (£68,000) is liable to be registered with HM Revenue & Customs, although a trader whose taxable supplies are zero-rated can request exemption from registration.

There is also provision for traders whose turnover is below the

registration limit to register voluntarily. If a registered trader's turnover falls below a second set limit (£66,000), then the trader has the option of deregistering. Exemption or deregistration saves a trader from having to render returns and keep proper records for VAT purposes, but means that input tax paid on purchases of goods and services is not reclaimable. Optional small business schemes 4.12 From 1 July 1988 an optional annual accounting scheme was introduced for businesses with a tax exclusive turnover of under £250k. The scheme allows businesses to make instalments during the year, calculating their VAT liability at the end of the year together with a balancing payment. The scheme was extended to businesses with a tax exclusive turnover of under £300k from 9 April 1991, to under £600k from 1 April 2001, to under £660k from 1 April 2004 and to under £1.35m from 1 April 2006. 4.13 From 1 October 1987 an optional cash accounting scheme was introduced for businesses with a tax exclusive turnover not exceeding £250k.

The scheme allows businesses to account for VAT when

payments are made and received rather than when invoices are issued, improving cash flow and providing automatic bad debt relief. The scheme was extended to businesses with a tax exclusive turnover not exceeding £300k from 1 October 1990, not exceeding £350k from 1 April 1993, not exceeding £600k for 1 April 2001, not exceeding £660k from 1 April 2004, and not exceeding £1.35m from 1 April 2007. 4.14 From 25 April 2002 an optional flat rate scheme was introduced for businesses with a tax exclusive turnover not exceeding £100,000. The scheme allows these businesses to calculate their net tax by applying a flat rate percentage to their tax inclusive income. From 1 May 2003, the scheme was extended to businesses with a tax exclusive turnover not exceeding £150,000. From January 2004 there was a 1 per cent reduction in the rates used to calculate net tax. The rates were recalculated with effect from 1 December 2008 to take account of the change in the standard rate of VAT. Treatment of Purchases of Goods From Abroad 4.15 VAT is charged on the importation or acquisition of most goods received from outside the UK. When goods are imported into the UK from outside the EU, UK VAT is normally due at the same rate as on a 90

Section 4: Indirect tax

supply of those goods in the UK. VAT on goods imported from outside the EU is paid to HMRC physically when the goods clear customs control. VAT on goods imported from other EU states is collected via a selfcharge on the importers VAT return. Subject to the normal rules for reclaiming VAT paid, the importer of the goods can reclaim input tax if these goods are subsequently used as an input in production or for onward supply.

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Treatment of Sales Of Goods To Purchasers From Abroad 4.16 Concerning exports of goods, if these are sold to a foreign customer outside of the EU, the supply is normally zero-rated for UK tax purposes provided certain conditions are met. (The goods would then be subject to the tax regime applicable in the foreign country). If goods are supplied to a VAT-registered customer in another EU country and the goods are removed from the UK, the supply may be zero-rated (for UK tax purposes) provided certain conditions are met. (The goods will then be subject to the tax regime applicable in the other EU country). Since 1 January 1993, UK traders registered for VAT who make supplies of goods to traders registered for VAT in other EU countries have been required to send lists of their EU sales to HMRC. Treatment of Purchases of Services From Abroad 4.17 The basic rule is that the place of supply for services is the place where the supplier belongs (although there are exceptions to this rule). For services falling under this basic rule that are purchased by a UK person from a supplier belonging outside the UK, there is no UK VAT paid on the supply. The suppliers will be subject to their own country’s tax regime. From 1 January 2010, the basic rule will change for businessto-business supplies and VAT will be chargeable in the country of the business customer. A UK business customer will, from 1 January 2010 pay UK VAT on most services purchased from abroad by self-charging the VAT on his VAT return. The VAT self-charged can then be recovered as input tax subject to the normal rules. Treatment of Supplies of Services To Non UK Customers 4.18 For supplies of services by UK registered taxable persons to overseas customers, the rules are broadly the mirror of those described in the previous section both in respect of the current basic rule and that applying from 1 January 2010. Specific duties 4.19 Specific duties need to be increased each year in line with inflation if the tax burden is to be maintained in real terms. Since 1997, the expected inflation rate for the year to third quarter following the budget has been the basis for revalorisation. In recent Budgets, there has been a move away from automatic increases, such as tobacco escalator, towards year-by-year judgements, with some duties increasing by more or less than revalorisation. Current and historical rates are shown in Table 4.5.

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Alcoholic drinks 4.20 Beer Duty is based on the actual alcohol content of beer when it leaves the brewery or packaging plant. It is charged at a rate per hectolitre per one per cent of alcohol by volume. Beer produced by breweries producing less than 60,000 hectolitres of beer per annum attracts reduced rates of duty. 4.21 Cider and perry. This duty covers cider not exceeding 8.5 per cent volume alcohol. Cider of a greater strength is liable to made-wine duty as apple or pear wine. Cider above 7.5 per cent volume alcohol (but not exceeding 8.5 per cent) is charged at a higher rate of cider duty. Sparkling cider (i.e. in mushroom stoppered bottles) is chargeable at a higher rate of duty (it is aligned with the rate for low strength sparkling wine). 4.22 The taxation of some traditional mixed drinks (such as shandy) is based on the duty on its components. Duty on spirits-based coolers is charged per litre of alcohol at the same rate as spirits. Duty on wine-based coolers is charged at a rate per hectolitre of product in two bands – exceeding 1.2 per cent but not exceeding 4 per cent and exceeding 4 per cent but not exceeding 5.5 per cent. 4.23 Wines exceeding 5.5 per cent are charged at a rate per hectolitre of product in four different duty rates: -

still wine, with a strength not exceeding 15 per cent;

-

sparkling wine, with a strength exceeding 5.5 per cent but not exceeding 8.5 per cent;

-

sparkling wine, with a strength exceeding 8.5 per cent but not exceeding 15 per cent; and

-

fortified wine, with a strength over 15 per cent but not exceeding 22 per cent.

There is a separate rate for wine of an alcoholic strength exceeding 22 per cent, which is charged at the same rate as spirits per litre of alcohol. 4.24 Spirits. Duty is charged according to alcoholic content – the unit of charge is the ‘litre of alcohol’. Budget 2009 increased duty rates by 2 per cent nominal and, as announced at Budget 2008, duty rates will increase by 2 per cent above inflation in future years. Tobacco goods 4.25 The current and historical rates of duty on cigarettes and pipe tobacco are shown in Table 4.5b. Cigars and hand-rolling tobaccos are also taxed, but snuff is exempt. For tobacco products other than cigarettes excise duty is now based entirely on weight; for cigarettes, there is an ad valorem element, calculated as a percentage of the retail price (including VAT) and a fixed charge per 1,000 cigarettes (the specific element). Tobacco duties were increased in the Pre-Budget Report 2008 to ensure the overall 93

Section 4: Indirect tax

taxation of tobacco products remained broadly unchanged following the reduction in the standard rate of VAT. Budget 2009 increased tobacco duties by 2 per cent nominal. Hydrocarbon oils 4.19

Current and historical rates of duty are shown in Table 4.5c. Hydrocarbon oils consist of:

-

light oils: mainly unleaded petrol for road use;

-

heavy oils: mainly unrebated diesel for road use; and

-

rebated oils: mainly rebated heavy oil for use in industrial processes and heating including domestic heating, and in off road vehicles. All heavy oil not for use in road vehicles is relieved from part of the duty by means of a rebate upon delivery. Budget 2008 introduced a rebated rate of duty for biodiesel and bioblend for use other than as a road fuel. Rates payable after rebate are shown in the final column of Table 4.5c

-

biofuels: biodiesel and bioethanol for use as a road fuel are subject to 20 pence per litre duty differential until 2010, when they will be subject to duty at the same rate as road fuel diesel and petrol, as support for biofuels take-up moves entirely to the Renewable Transport Fuels Obligation (RTFO).

4.26 Following 1 December 2008 and 1 April 2009 increases in duty rates, Budget 2009 announced that duty will increase on 1 September 2009 and by 1 penny per litre in real terms on 1 April each year from 2010 to 2013. 4.27 VAT is chargeable on all hydrocarbon oils used as road fuels or lubricants and on non-domestic use. Vehicle excise duty Vehicle excise duty on cars 4.28 Vehicle excise duty (VED) is a duty on mechanically propelled vehicles used or kept on a public road (a vehicle does not have to be licensed if it is kept solely on private premises, although the law does require that the vehicle be declared as statutorily ‘off-the-road’). Annual and six-monthly licences are available, where the six-monthly rate is 55 per cent of the annual licence rate. There are currently two coexisting forms of VED: one for private and light goods vehicles registered before 1 March 2001 and one for private vehicles first registered on or after this date. 4.29 For private and light goods vehicles first registered before 1 March 2001, there are two different VED rates depending on engine size. Vehicles with engines no larger than 1549cc pay £125 for full-year VED and vehicles with larger engines pay £190. 94

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4.30 For cars first registered from 1 March 2001 onwards, there is a graduated system of VED based on CO2 emissions and fuel type. There are now thirteen CO2 bands, and each band has a standard and a discounted duty rate according to whether the vehicle runs on regular petrol and diesel or is capable of running on cleaner fuels (includes petrol-electric hybrids). The VED rates vary from £0 to £405 for a full year. Under the current arrangement, only cars registered on or after 22 March 2006 are liable for the highest VED bands. Light goods vehicles registered from1 March 2001 onwards pay £185 a year. A light goods vehicle incentive rate exists for clean air emissions vans taken-up early, ahead of mandatory implementation of EU clean air emissions vehicle regulations. 4.31 Cars and other broadly non-commercial vehicles built before 1 January 1973 are exempted from VED and there are also exemptions for vehicles for the disabled, emergency vehicles (fire engines, ambulances and police cars) and vehicles with very limited road use. VED on heavy goods vehicles 4.32 There are currently seven broad bands of rates, ranging from £165 to £1850 according to gross weight and the number of axles. These rates have remained unchanged since a major reform of rates in 2001. VED on motorcycles 4.33 There are currently four bands of VED for motorcycles, which range from £15 to £66 per year according to engine size. The £15 rate for the very smallest motorcycles has remained unchanged since 1991. Other taxes Betting and gaming taxes 4.34 General Betting Duty is charged as a percentage of the gross profits made in respect of bets placed with off-course bookmakers. The current rate of duty is 15 per cent. Gross profits are calculated by deducting amounts paid out in winnings from the amount staked on bets (an additional levy is charged on bets, which is not duty but is payable to the Horse Race Levy Board). 4.35 Pool Betting Duty - charged as a percentage of the net amount of receipts from pool betting. The net amount of receipts is calculated as the total amount staked added to the total of expenses and profits not met from stakes less the total amount paid out in related winnings. The current rate is 15 per cent.

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4.36 Gaming Licence Duty - the duty is charged as a percentage of the gross gaming yield based on a banded scale, where the duty rate varies from 15 to 50 per cent. Remote Gaming Duty was introduced on 1 September 2007 and duty is calculated as 15 per cent remote gaming gross profit. 4.37 Amusement Machine Licence duty is paid on the licence required for each machine, which may be taken out for periods of between one and twelve months. 4.38 Bingo duty – the duty is calculated as 22 per cent of gross profits. The gross profit is calculated as the total amount that players pay to participate in bingo less the total value of prizes bingo promoters pay out as winnings. 4.39 Lottery duty - charged at 12 per cent of the value of the consideration given for the taking of a ticket or chance in a lottery. Only the National Lottery currently pays the duty. Insurance premium tax 4.40 This is a tax levied on most general insurance premiums where the insured risk is located in the United Kingdom. All long-term insurance (such as life assurance and pensions) is exempt and there are also exemptions for general insurance of international air and sea transport and trade.

To prevent

premiums being taxed twice, insurance premium tax does not apply to reinsurance. The standard rate is 5 per cent, and the higher rate is 17.5 per cent – the latter is an anti-avoidance measure for a limited range of insurance usually sold with goods and services subject to VAT. Air passenger duty 4.41 Air passenger duty is applied to air passengers travelling from United Kingdom airports. There are exemptions for transit and certain transfer passengers on international flights, children under 2 who are not allocated a separate seat before boarding the aircraft, passengers on small aircraft, crew and cabin staff, passengers not carried for reward (e.g. deportees). To the end of October 2009 for flights to destinations in the European Economic Area, the European Common Aviation Area, countries applying to join the EU, and Switzerland, reduced and standard rates of £10 and £20 apply. To the end of October 2009 for flights to other destinations, reduced and standard rates of £40 and £80 apply. However if a class of travel provides for seating in excess of 40” then the standard (rather than the reduced) rate of APD applies.

From

November 2009 geographical distance bandings take effect, measured on the distance between London and a country’s capital city (except far eastern Russia which falls into a further distance banding). The split between reduced and standard rates will remain, as shown in table 4.8. From November 2010 rates will again be revised upwards as shown in table 4.8. The reduced rate applies to those travelling in the lowest

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class of travel on any flight. There is an exemption for flights from airports in the Scottish Highlands and Islands. Landfill tax 4.42 Landfill tax is a tax on the disposal of waste by way of landfill at landfill sites licensed (or permitted) under environmental legislation. The tax encourages the waste management industry and waste producers to seek more environmentally sustainable waste options such as recycling, incineration and anaerobic digestion. 4.43 There are two rates of landfill tax: the current standard rate of tax is £40 per tonne. This applies to waste that biodegrades e.g. household waste, which produces methane, a potent greenhouse gas. The lower rate of tax, which applies to inactive waste, such as gravel, rock or soil is £2.50 per tonne. Inactive waste is waste that does not decay (and therefore does not give off methane) or has the potential to pollute groundwater or contaminate land. There is a Landfill Communities Fund (LCF), which encourages the improvement of the environment in the vicinity of a landfill site by funding environmental projects aimed to redress some of the environmental damage caused by landfill. Funded through the contributions of landfill site operators, who can receive a tax credit , which is used to offset against their landfill tax returns. 4.44 Budget 2009 announced a continuation of increases to the standard rate of landfill tax by £8 per tonne each year until 2013-14 to ensure that the waste management industry and waste producers embrace alternative technologies and reduce reliance on landfill. Climate change levy 4.45 The aim of the levy is to encourage energy efficiency and to help meet the UK’s legally binding target for reducing greenhouse gas emissions set under EC conditions. The levy applies to electricity, coal, hydrocarbon derivatives, and natural and liquid petroleum gas. The levy does not apply to any sources of energy on which duty is paid (e.g. road fuel etc). The levy is only applied to businesses that pay the standard rate of VAT on fuel; it does not apply to domestic premises, charities or businesses with a small user usage. 4.46 There are exemptions to the tax such as for energy products used in certain recycling processes (e.g. coal that is used as a raw material to make carbon filters) and for electricity generated from combined heat and power plants sold via licensed electricity supplies.

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4.47 Some businesses in energy intensive sectors can also gain relief from the tax through climate change agreements, which give an entitlement to claim up to 80 per cent relief in return for meeting challenging targets for reducing their emissions or improving energy efficiency. 4.48 The rates of duty for 2009-10 are: electricity: £0.00470 per kilowatt hour; gas supplied by a gas utility or any gas supplied in a gaseous state that is of a kind supplied by a gas utility: £0.00164 per Kilowatt hour; any petroleum gas, or other gaseous hydrocarbon, supplied in a liquid state: £0.01050 per kilogram; and any other taxable commodity, £0.01281 per kilogram. Budget 2009 announced that the rates will be frozen for 2010-11 as above. Aggregates levy 4.49 Aggregates levy was introduced to tackle the environmental costs of quarrying and to encourage the use of recycled aggregates and alternative materials. It applies to the vast majority of sand, gravel or (crushed) rock, which is used commercially within the UK.. There are a number of relief’s from the levy mostly for taxable materials put to a non-aggregate use e.g. sand for use in the manufacture of glass. Additionally there are a number of exemptions from the levy; it does not apply to other quarried or mined products such as coal, and shale, or to recycled aggregates such as china clay. This is largely to promote the use of certain materials as an alternative to virgin aggregate. There is also an Aggregates Levy Sustainability Fund, which works alongside the levy to reduce the impact of aggregates production on the environment . The levy is charged at a single flat rate of £2.00 per tonne. 4.50 Budget 2008 announced that the rate of Aggregates Levy increase by 5p from £1.95 per tonne to £2.00 per tonne from 1 April 2009 to maintain the levy’s environmental effectiveness. Budget 2009 announced a freeze to the levy at £2.00 per tonne for 2010-2011 to enable the sector to recover from the economic difficulties faced by the downturn in construction works. The regulators 4.51 There are three regulators, covering VAT, tobacco products, and other excise duties. These provide for changes to be made to indirect tax rates by Order, without need for immediate primary legislation. All three regulators are activated by Treasury Orders introduced as Statutory Instruments subject to Affirmative Resolution within 28 sitting days in the case of duty or tax increases and to the Negative Resolution procedure in the case of reductions. Rate changes made under all three regulators lapse automatically a year after their first application, unless they are continued by a further Order (although 98

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changes in such subsequent Orders must always be applied to the original rate or duty of tax) or have been consolidated by provisions in a subsequent Finance Bill. There are provisions in Finance Bill 2009 to make clear that it is possible to change VAT rates temporarily for up to a year, rather than a year exactly. Excise duties 4.52 There are three groups of excise duty within the scope of the regulator powers: -

alcoholic drinks: spirits, beer, wine, made-wine, cider and perry;

-

duties charged by the Hydrocarbon Oils Duties Act 1979: including hydrocarbon oils, other liquid motor fuel substitutes, and gas for use as road fuel; and

-

certain other excise duties: air passenger duty and most betting and gaming duties.

4.53 Rates of duty or rebate, drawback or allowance may be adjusted by an increase or decrease of up to 10 per cent (of the underlying rate that is set in primary legislation). Different percentage changes can be applied to different types of duty, but one Order cannot provide for both increases and decreases in taxation. VAT regulator 4.54 This allows for a change of up to 25 per cent in the standard VAT rate (i.e. from 17½ per cent to just above 13 per cent or just below 22 per cent). However, all EU member states have agreed to apply a minimum standard VAT rate of 15 per cent. 4.55 The VAT legislation also makes provision for the zero-rating and exempt schedules to be altered (either by adding new items or deleting or amending existing ones) by Order, without need for primary legislation. Again, this is subject to the constraints of EU law regarding the scope of zero-rated and exempt supplies.

Tobacco products regulator 4.56 This allows the rate of duty on tobacco products to be increased or reduced by up to 10 per cent and allows for different proportionate changes for the different products. In the case of cigarettes both specific and ad valorem elements can be varied by up to 10 per cent. (In the case of the latter, this means the rate could be varied from 22 per cent to between 19.8 per cent and 24.2 per cent.)

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B.

HISTORY

VAT 4.57 A general sales tax – ‘purchase tax’ - was first introduced in 1940. This single stage commodity tax was levied on wholesalers but did not apply to service industries. An attempt to redress the balance was made in 1966 when a selective employment tax (SET) was introduced. This operated as an addition to employer's national insurance contributions.

It was refunded to all industries apart from those in the

service and construction sectors. VAT replaced purchase tax and SET in 1973. 4.58 VAT was introduced in the UK on 1 April 1973, with a single positive rate (the standard rate) in addition to the zero rate. The rates of many of the specific customs duties fell when VAT was introduced in April 1973 to compensate for the additional VAT burden on the goods.

Historical VAT rates and

registration limits are shown in Tables 4.2 and 4.8. 4.59 Input tax attributable to ‘exempt’ outputs cannot normally be reclaimed.

Most other input tax is

deductible – current exceptions include VAT on business entertainment and tax on motor cars purchased for business use (other than cars purchased by taxi firms, self-drive hire firms and driving schools since 1 August 1992, cars leased by them since 1 January 1994, or cars purchased on or after 1 August 1995 that are demonstrably to be used wholly for business purposes). VAT is chargeable on goods imported into the UK, by whatever means, whether the importer is registered as a taxable person or not; and on goods removed from bonded warehouses. VAT is also chargeable on certain services received in the UK from overseas by means of a ‘reverse charge’ (the recipient being regarded as having both received and supplied the services in the UK and required to account for VAT accordingly); the value of such imported services counting as taxable turnover for VAT registration purposes.

Since the introduction of the

European Single Market on 1 January 1993, VAT on imports from EC countries is no longer charged at importation, although VAT on other imports still becomes due then. Businesses acquiring goods from EC countries now account for any VAT due on their normal returns to HM Revenue & Customs. 4.60 The new higher rate of VAT was introduced in November 1974; this was abolished in June 1979 and there remained a single positive rate of VAT until the reduced rate for domestic fuel and power was introduced on 1 April 1994. Certain technical changes were made from 1 January 1978 to comply with the EC 6th VAT directive (which laid down a common structure for VAT within the Community). Extension of VAT standard rate 4.61 The following is a brief recent history of the removal of zero-rating (and changes from exemption to standard rating): 100

Section 4: Indirect tax

-

1 May 1980: Standard rate extended to lubricating and certain other previously zero-rated oils;

-

1 May 1984: Standard rate extended to hot take-away food and drink;

-

1 June 1984: Standard rate extended to building alterations and certain goods installed as fixtures in new buildings;

-

1 May 1985: Standard rate extended to advertising in newspapers, journals and periodicals;

-

1 May 1988: Standard rate extended to certain confectionery (cereal bars);

-

1 September 1988: Standard rate extended to spectacles and privately dispensed hearing aids. These were previously exempt;

-

1 April 1989: Standard rate extended to non-residential construction, civil engineering and property development; to supplies of protective boots and helmets to a person other than to an employer for the use of his employees; and to news services other than those supplied directly to the public or for production of zero-rated products such as newspapers;

-

1 April 1989: Landlords given the option to tax rents and sales of non-residential buildings. This allows landlords to recover the VAT they pay, they are not allowed to tax rent from charities' nonbusiness buildings other than offices;

-

1 July 1990: Standard rate extended to non-domestic energy and water/sewerage services to industry;

-

1 August 1990: Standard rate extended to stores used on private voyages and flights;

-

1 April 1995: Standard rate extended to services relating to entertainment or recreational activities and car parking at airports, which include an element of passenger transport;

-

1 January 1996: Standard rate of VAT applied to the whole of a tour operator's margin on holidays and travel within the European Community (previously only applied to standard rated elements);

-

27 June 1996: Heated water excluded from the zero rate schedule 8 Group 2 of the VAT Act 1994; and

-

1 July 1999: Standard rate applied to goods bought by travellers on journeys between member states, as part of the abolition of duty-free shopping on journeys within the EU.

-

1 May 2007: Standard rate extended to certain supplies by health professionals which are not medical care.

The higher rate of VAT 4.62 This applied from November 1974 to petrol and from May 1975 to the groups of goods listed in Table 4.9. The higher rate was also chargeable on most parts and accessories for these goods, on services (repairs, hire etc) connected with these goods, and goods supplied in connection with such services. The higher rate was discontinued when the unified rate of 15 per cent was introduced in June 1979.

101

Section 4: Indirect tax

The reduced rate of VAT 4.63 Until 1994 domestic fuel and power was zero-rated. -

1 April 1994: Domestic fuel and power became liable to VAT at a rate of 8 per cent.

-

1 September 1997: Domestic fuel and power VAT rate reduced to 5 per cent.

-

1 July 1998: The reduced rate of 5

per cent was extended to the installation of energy saving

materials in the homes of pensioners and the less well off when funded by grants. -

1 April 2000: The reduced rate for energy saving materials was extended to cover installation in all homes and to certain other grant funded work.

-

1 January 2001: The reduced rate was extended to include women’s sanitary protection.

-

12 May 2001: The reduced rate was extended to include children’s car seats and some residential conversions and renovations of empty properties.

-

1 June 2002: The reduced rate was extended to include the grant-funded installation of heating equipment.

-

1 June 2004: The existing reduced rate for ESMs extended to include ground source heat pumps.

-

1 April 2005: The reduced rate was extended to include sales of videos and other supplies of information connected with the welfare of elderly or disabled people or children.

-

7 April 2006: The reduced rate was extended to include installation of wood-fuelled boilers and installation of air source heat pumps and micro combined heat and power (micro-CHP) boilers.

-

1 July 2006: The reduced rate was extended to include contraceptive products.

-

1 July 2007: Reduced rate extended to include certain home alterations that support the need of the elderly people. Reduced rate of 5 percent for one year for the counter sales of smoking cessation products.

-

1 January 2008: Renovations or alteration works to a residential property to qualify for a reduced rate 5 percent, if the property is unoccupied for at least 2 years.

-

12 March 2008: Smoking cessation products reduced rate extended after 30 June 2008.

-

1 July 2009: The reduced rates on children’s car seats extend to children’s car seat bases

Table 4.3b shows categories of reduced rate goods and services. Specific duties 4.64 Tables 4.5 and 4.6 show the rates of the most important duties since 1990 and Table 4.7 gives some indication of changes in their real value. Tables 4.10 to 4.12 show the same information for earlier years back to 1969.

102

Section 4: Indirect tax

Alcoholic drinks 4.65 Beer. Until May 1993 the unit of charge was the hectolitre (bulk barrel of 36 gallons prior to 1980) of worts, the liquid produced from the mash before onset of fermentation. The wort content

of

‘beer’

is

effectively a measure of its potential alcohol content. The rate of duty depended on the original specific gravity of the worts with each degree above 1000 (pure water) attracting duty at the rate of £1.163 per degree. ‘Beer’ with an alcoholic strength not exceeding 1.2 per cent (approximately 1016°) is exempt from duty. 4.66 On 1 June 2002 a reduced rate of duty was introduced for beer produced by small breweries.

Under

this scheme breweries producing up to 30,000 hectolitres of beer per annum qualified for a 50 per cent reduction in the standard duty rate on the first 5,00 hl of production. 4.67 From 1 June 2004 an amendment to the scheme was introduced whereby breweries whose annual production was between 30,000 and 60,000 hectolitres also received some duty relief on their first 5,000hl. This worked in the form of a taper, so that between 30,000hl and 60,000hl the value of the relief gradually reduced from 50 per cent to zero. This amended version of the scheme is still in use today. 4.68 Cider and Perry. This duty was introduced in September 1976. It covered cider not exceeding 8.7 per cent volume alcohol until 14 March 1984, when the limit was reduced to 8.5 per cent volume alcohol. Since 1 October 1996 cider above 7.5 per cent (but not exceeding 8.5 per cent) has been charged at a higher rate of cider duty. From 1 January 1997 sparkling cider (i.e. in mushroom stoppered bottles) was chargeable at a higher rate of duty, which was increased to align with the rate for lower strength sparkling wines from 9 March 1999. 4.69 Coolers. The duty bands for low-strength (alcohol strength of between 1.2 and 5.5 per cent) mixed drinks were introduced in October 1988. Since 28th April 2002 duty on spirits-based Coolers has been charged per litre of alcohol at the same rate as spirits. 4.70 Wine. Until January 1976, wine was classified into two strengths for revenue purposes: -

heavy, over 25° proof spirit (27° for Commonwealth wine) - mainly fortified wines; and

-

light, less than 25° (27°) proof spirit - table wines.

4.71 From January 1976 until 1992 excise duty on wine made from fresh grapes was charged at three different rates according to strength: -

‘lower’, not exceeding 15 per cent alcohol by volume - mainly light or table wine;

-

‘middle’, over 15 and not exceeding 18 per cent alcohol by volume - fortified wines e.g.: sherry; and

-

‘higher’, over 18 and not exceeding 22 per cent alcohol by volume, e.g.: port. 103

Section 4: Indirect tax

4.72 There was a surcharge on sparkling wines until March 1984. Since then, a separate duty for sparkling wine has been imposed. Wine with above 22 per cent alcohol content is subject to an additional duty for every 1 per cent by which its strength exceeds 22 per cent. Made-wine duty has been aligned with that of wine from fresh grapes since March 1984. 4.73 Since January 1997, the current four separate duty rates have applied to wine. In addition, wine with alcoholic strength exceeding 22 per cent is charged at the same rate as spirits per litre of alcohol. 4.74 Made-wine. This duty was introduced in January 1976 to cover wines made from anything other than fresh grapes. Charged until March 1984 at different rates for three different strengths (less than

10

per

cent, 10-15 per cent and over 15 per cent volume alcohol content). It is now aligned with wine from fresh grapes. 4.75 Until January 1976, there was a 'British wine' duty, charged on any liquor made from fruit and sugar that had been fermented. It covered mead, and strong ciders and perries of 15° or more proof spirit. As with wine there were two separate duty rates for wine of less than, and more than, 27° proof spirit, respectively. 4.76 Spirits are charged according to alcoholic strength. Until 1 January 1980, the unit of charge was the proof gallon (i.e. one gallon of 100 proof alcohol). The unit of charge is now the 'litre of alcohol'. Tobacco goods 4.77 From September 1978 to March 1981 an extra duty was charged on cigarettes with a tar yield of 20mg or more. 4.78 Before 10 May 1976 excise duty was not charged on tobacco products as such, but customs duty was charged on the original imported tobacco according to origin and moisture content. Customs duty was reduced on the introduction of excise duty in May 1976 but when custom duty was abandoned on 1 January 1978, the excise duties on tobacco products were increased to compensate. Hydrocarbon oils 4.79 From November 1974 to June 1979, petrol and certain light oils and petrol substitutes were chargeable at higher rates. 4.80 Domestic kerosene (paraffin). In March 1984 the duty on domestic kerosene was abolished. 104

Section 4: Indirect tax

4.81 Aviation kerosene (AVTUR). In March 1986 the duty on AVTUR was abolished. . Following the ending of a derogation the UK held under the Energy Products Directive, from late 2008 duty on AVTUR has resumed on supplies used for private pleasure flying, charged at the same rate as for unleaded petrol. 4.82 Gas for use as a road fuel was charged with excise duty at half the light oil rate from July 1972, as was aviation gasoline from March 1982. This applied until November 1994; from then the differential in favour of gas for use as a road fuel was increased.

Until late 2008, when the rate was put onto a

freestanding basis, aviation gasoline was subject to duty at half the rate for light oil. 4.83 In April 1987 a tax (duty and VAT) differential of 1.1p per litre between leaded and unleaded petrol was introduced to encourage a switch to unleaded petrol. In March 1989, the tax differential was increased to 3.1p per litre and increases brought the differential to 6.66p per litre in March 1999. In October 1999 lead replacement petrol (LRP) was introduced to replace leaded petrol. LRP had the same duty as super unleaded petrol (higher octane unleaded petrol) until March 2001 when the duty rate for super unleaded petrol was abolished. Duty on LRP is now charged at either the unleaded petrol rate or the light oil rate depending on the sulphur and aromatics content of the fuel. 4.84 From 15 August 1997 a new duty rate for ultra low sulphur diesel was introduced, which was 1 penny less than the rate for conventional diesel. The duty differentials were raised to 3 pence in March 1999 and 6 pence in March 2001. In October 2000 a separate rate of duty was introduced for ultra low sulphur petrol (ULSP), which was a penny less than the rate for standard unleaded petrol. 4.85 In July 2002, a separate rate of duty was introduced for bio-diesel, which was 20 pence per litre less than the rate for ultra-low sulphur diesel and ultra-low sulphur petrol. This rate will be maintained until 2010-11, when it will cease in favour of a regulatory mechanism in support of biofuels – the Renewable Transport Fuel Obligation (RTFO). 4.86 From 1 October 2003 new duty rates for sulphur-free diesel and sulphur-free petrol were introduced, set at the same rate for ULSP and ULSD. 4.87 In January 2005, a separate rate of duty was introduced for bioethanol, which was 20 pence per litre less than the rate for ultra-low sulphur diesel and ultra-low sulphur petrol. This rate will be maintained until 2010-11, when it will cease in favour of a regulatory mechanism in support of biofuels – the Renewable Transport Fuel Obligation (RTFO). 4.88 In April 2008, duty rates were simplified. The three duty rates for heavy oil (ULSD, SFD and heavy oil which is not ULSD/SFD) were reduced to one rate: heavy oil; and the four duty rates for light oil (ULSP, 105

Section 4: Indirect tax

SFP, unleaded petrol and other light oils) were reduced to two rates: light oil and light oil other than unleaded petrol. 4.89 Heating oils for domestic use were zero-rated for VAT until April 1994. Car Tax 4.90 This was introduced in April 1973 when VAT replaced purchase tax on cars to make good the difference between the rate of purchase tax and lower VAT rate. The scope was extended to motorcycles in April 1981 and to motor caravans in May 1985. From 1 April 1989, cars leased to the disabled were relieved of car tax. Until 11 March 1992 car tax was charged at 10 per cent of the wholesale value of the vehicle (with the exception of motor caravans where it was 10 per cent of 3/5ths of the wholesale value). On 11 March 1992 car tax fell to 5 per cent and it was abolished from 12 November 1992. 4.91 Note that wholesale value was defined for Car Tax purposes as 5/6ths of the wholesaler's list price exclusive of VAT and Car Tax (i.e. the tax-exclusive recommended retail price). This allowed for the retailer's mark-up, which was assumed to be 1/6th. So when Car Tax was 5 per cent, it was effectively levied on cars and motorcycles at a rate of 4 1/6 per cent of the tax-exclusive list price. Vehicle excise duty Vehicle excise duty on cars 4.92 Since 1937 the proceeds of this duty have not been hypothecated to road construction and maintenance; they are paid to the Consolidated Fund. Six-monthly licences replaced four-monthly licences on 1 October 1980. 4.93 Until January 1948 the rate of duty varied according to the horsepower of the car. Up until 1999 all modern cars paid the same rate irrespective of size or other factors, but in June of that year the first stage of a policy to levy VED according to environmental criteria was introduced, whereby cars with engine sizes of 1100cc or less became entitled to a reduction of £55 in VED. The qualifying figure was raised to 1200cc in March 2001 and to 1549cc in July 2001, backdated through rebates to November 2000. 4.94 Graduated VED based on CO2 emissions and fuel type was introduced for cars first registered on or after 1 March 2001.

106

Section 4: Indirect tax

Vehicle excise duty on heavy goods vehicles 4.95 VED on heavy goods vehicles was changed in October 1982 from being levied on an unladen weight basis to a gross weight basis. In October 1990, a further amendment to the heavy goods tax threshold was made from 1,525kg unladen to 3,500kg gross. For the heavier categories of vehicles, it was also inversely related to numbers of axles. 4.96 In December 2001, radical reforms to VED for heavy goods vehicles were implemented. Over 100 different tax rates were replaced with a system of seven broad bands of rates, ranging from £160 to £1850. Vehicle excise duty on motorcycles 4.97 Budget 2002 reformed the VED system for motorcycles, replacing the previous three-banded system with four bands to more closely reflect the current motorcycle fleet. Other taxes Betting and gaming taxes 4.98 Since October 2001, General Betting Duty has been charged as a percentage of the gross profits made in respect of bets placed with off-course bookmakers.

Previously the duty was charged as a

percentage of the amounts staked. 4.99 Pool betting duty was introduced on 1 April 2002. Pool betting duty was previously charged as a percentage of the amount staked on bets. 4.100 Amusement machine licence duty (AMLD) replaced Gaming Machine Licence Duty with effect from 1 November 1995, extending the scope of the duty to cover pinball machines and video machines, including quiz machines. From 1st August 2006, new machine categories and duty rates will apply to any licence from this period. The changes to the descriptions of gaming machines (including Fixed Odds Betting Terminals) and the rates of AMLD will affect any licensable machine for play in the UK. 4.101 Remote Gaming Duty was introduced on 1 September 2007 and duty is calculated as 15 per cent remote gaming gross profit. Remote gaming refers to playing a game of chance for a prize by use of remote communication - for example, the internet, telephone or television. 4.102 From 27 October 2003, the basis on which Bingo Duty is charged was changed. Duty is calculated as a percentage of the gross profits made in respect of players paying to participate in bingo minus the total 107

Section 4: Indirect tax

value of prizes bingo promoters pay out in winnings. Previously the duty was charged as a percentage of money staked by players plus 1/9 of added prize money. Insurance premium tax 4.103 Insurance premium tax was introduced on 1 October 1994 at a rate of 2.5 per cent of the premium (gross of brokers' commission). With effect from 1 April 1997 this rose to 4 per cent on most general insurance and a higher rate of 17.5 per cent was introduced as an anti-avoidance measure for a limited range of insurance usually sold with goods and services subject to VAT. The standard rate increased to 5 per cent from 1 July 1999. Air passenger duty 4.104 This was introduced on 1 November 1994.

Some exemptions apply

- to children under 2,

passengers on small aircraft, crew and cabin staff, passengers not carried for reward (e.g. deportees) and certain transfer passengers on international flights.

Initially the charge was £5 for those flying to

destinations in the European Economic Area (EEA) (including flights within the United Kingdom) and £10 for those flying elsewhere, but from 1 November 1997 these rates increased to £10 and £20 respectively. From 1 April 2001 new reduced and standard rates of £5 and £10 applied for flights to EEA destinations and of £20 and £40 for flights to non-EEA destinations. These rates were doubled to their present levels from 1 February 2007. The reduced rate applies to those travelling in the lowest class of travel on any flight. In addition to the removal of a previous exemption for passengers on the return leg of a flight within the United Kingdom, April 2001 also saw the introduction of an exemption for flight from airports in the Scottish Highlands and Islands. Duty rates will change from November 2009 as geographical bandings come into effect, and will rise again from November 2010. Landfill tax 4.105 Landfill tax was introduced on 1 October 1996 and applies to the disposal of waste in landfill sites. The lower rate of tax was introduced at £2 per tonne. The standard rate of tax from 1 October 1996 was £7 per tonne and increased to £10 per tonne from 1st April 1999. The standard rate of tax was then raised by an additional £1 per tonne each year for the next five years. In Budget 2004 the Government announced that the standard rate of landfill tax would increase by £3 per tonne to £18per tonne in 2005-06, and by at least £3 per tonne in the years thereafter, on the way to a medium to long term rate of £35 per tonne. However, in Budget 2007, the Government announced that the standard rate would increase by £8 per tonne each year from the 1 April 2008 until at last 2010-11 in order to encourage greater diversion of waste from landfill and more sustainable waste management options. The lower rate applying to inactive waste will also increase from £2 to £2.50 per tonne from 1 April 2008. 108

Section 4: Indirect tax

Other indirect taxes 4.106 Climate change levy came into effect in April 2001 and is designed to encourage the non-domestic sector to become more energy-efficient and so reduce carbon emissions. Products subject to the levy are electricity at 0.43pence per KWh, gas at 0.15 pp KWh, LPG at 0.96 pp kg (equivalent to 0.07 pp KWh) and solid fuels at 1.17 pp kg (or 0.15 ppKWh). In Budget 2006, the Government announced at as from 1 April 2007, the levy rate would be increased in line with current inflation and will continue to do so as announced in Budget 2007. Current levy rates are at 0.456 pp KWh, gas at 0.159 pp KWh, LPG at 1.018 pp kg and solid fuels at 1.242 pp kg. 4.107 The aggregates levy came into effect on 1 April 2002 and was introduced to reduce the amount of primary aggregate being extracted and to encourage use of alternatives. It applies to virgin sand, gravel and crushed rock which is subject to commercial exploitation in the UK – including that dredged from the seabed within UK territorial waters and was charged at £1.60 per tonne when the levy was introduced. This rate had been frozen until the Government announced in Budget 2007, that as from 1 April 2008 the rate will increase to £1.95 per tonne to take account of inflation since the introduction of the levy. Subsequently, Budget 2008 announced a further increase to the levy rate to £2.00 per tonne from 1 April 2009 to maintain the levy’s environmental effectiveness. 4.108 Duty on matches and mechanical lighters was abolished from 1 January 1993. Use of regulators 4.109 The economic regulator was introduced in 1961. Originally, it was a fairly blunt instrument that could apply only to the whole range of Customs and Excise revenue duties and purchase taxes. In 1964, the duties were split into groups and it became possible to apply the regulator more selectively. The original legislation provided that the Economic Regulator could be used only for ‘… regulating the balance between demand and resources …’ (hence it was known as the Economic Regulator) but this condition was removed by the Finance Act 1980 as this was consistent with the VAT and tobacco regulators that were permanent, and not subject to any constraint about the need to balance demand and resources. 4.110 When VAT was introduced in 1973, provision was made for a separate VAT regulator. When the duty on tobacco leaf and imported products was replaced by a tobacco product (excise) duty in 1976, tobacco was removed from the economic regulator and a special tobacco products regulator was introduced.

109

Section 4: Indirect tax

4.111 Tax regulator powers have been used to increase taxation on four occasions. On each of these occasions, the duty rates on the products affected were surcharged by the maximum 10 per cent: July 1961. A 10 per cent surcharge was imposed on all former Customs and Excise revenue duties and on purchase tax. It remained in force until the 1962 Budget broadly consolidated the surcharge into the rates. July 1966. A 10 per cent surcharge was imposed on alcoholic drinks, hydrocarbon oil and purchase tax, until it was consolidated into the rates in the 1967 Budget. November 1968. A 10 per cent surcharge was imposed on alcoholic drinks, tobacco, hydrocarbon oil and purchase tax, until the 1969 Budget when rates of duty were increased by amounts approximately equal to or higher than the surcharge. December 1976.

A 10 per cent surcharge was imposed on alcoholic drinks and on the former

Customs and Excise duties on tobacco (other than the tobacco products duty which was separately surcharged by 10 per cent). The surcharges were maintained until the 1977 Budget when they were consolidated in the rates of those duties. The VAT regulator was used in July 1974 to reduce the standard rate of VAT from 10 per cent to 8 per cent, as part of an attack on inflation and was designed to reduce prices, with acceptance of a consequential loss of revenue. The economic regulator has not been applied to the minor excise duties since they became a separate group. 4.112 September 2004 & December 2004. The regulator powers were used to freeze temporarily the effective duty rate increases on hydrocarbon oils and other fuels, which were legislated for in the Finance Act 2004. This action was in response to volatility in the international oils markets in the summer of 2004. A slight increase in effective rates of duty for rebated oils was made using the same powers in December 2004, but the rates still remained lower than would have been the case had the Finance Act 2004 increases been allowed to take full effect. The changes were consolidated in Finance Act 2005. 4.113 September 2005 & December 2005. The regulator powers were used to freeze temporarily the effective duty rate increases on hydrocarbon oils and other fuels legislated for in the Finance Act 2005, owing to continuing volatility in the international oils markets. The effective rates of duty for rebated oils were increased in December 2005 using the same powers, but the rates still remained lower than would have been the case had the Finance Act 2005 increases been allowed to take full effect.

110

Section 4: Indirect tax

4.114 September 2006 & December 2006. The regulator powers were used to freeze temporarily the effective duty rate increases on hydrocarbon oils and other fuels legislated for in the Finance Act 2006, owing to continuing volatility in the international oils markets. The same powers were used again in December 2006 to increase the effective rates back to the levels legislated for in the Finance Act 2006. 4.115 In 1979 the regulator powers were amended so as to make them permanent - previously they had required statutory annual renewal.

111

Section 4: Indirect tax

C. HISTORICAL TABLES POST 1990 Table 4.2: Rates of VAT and registration limits 1

Fiscal year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2009-10 1

Date of change 21.03.90

3

20.03.91 11.03.92 17.03.93 01.12.93 30.11.94 29.11.95 27.11.96 01.09.97 01.04.98 01.04.99 01.04.00 01.04.01 25.04.02 10.04.03 01.04.04 01.04.05 01.04.06 01.04.07 01.04.08 8 01.12.08 01.05.09

Rates (%) Standard Reduced 15 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 17½ 15 15

8 8 8 8 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Limits annual taxable turnover 2 Deregistration Registration £25,400 £35,000 £36,600 £37,600 £45,000 £46,000 £47,000 £48,000 £49,000 £50,000 £51,000 £52,000 £54,000 £55,000 £56,000 £58,000 £60,000 £61,000 £64,000 £67,000 £67,000 £68,000

Once turnover reaches or is expected to reach registration limit, registration is compulsory; if it falls below

deregistration limit, deregistration is optional. 2 The figures given are for "future turnover". 3 Prior to this date, the limit for registration was based on either past or anticipated taxable turnover. With effect from this date, the limit is confined in most cases to taxable turnover within the past twelve months or less. From 1 June 1990. 5 From 1 May 1991 6 From 1 May 1992. 7 From 1 May 1993. 8 At PBR 2008 the standard rate of VAT is reduced to 15% for a 13 month period from 1 December 2008 to 31 December 2009 when the rate will revert to 17.5%. 4

112

4

£24,400 5 £33,600 6 £35,100 7 £36,000 £43,000 £44,000 £45,000 £46,000 £47,000 £48,000 £49,000 £50,000 £52,000 £53,000 £54,000 £56,000 £58,000 £59,000 £62,000 £65,000 £65,000 £66,000

Section 4: Indirect tax

Table 4.3a: Categories of zero-rated goods and services Group Description 1 Food Group 1 Group 2 Sewerage services and water Group 3 Books etc. Group 4 Talking books for the blind and handicapped and wireless sets for the blind. Group 5 Construction of buildings etc Group 6 Protected buildings Group 7 International services Group 8 Transport Group 9 Caravans and houseboats Group 10 Gold Group 11 Bank notes Group 12 Drugs, medicines and aids for the handicapped, etc Group 13 Imports, exports etc Group 14 See footnote 2 3 Group 15 Charities, etc 4 Group 16 Clothing and footwear Supplies of goods are also zero rated if the goods are exported to outside the Member States or shipped as stores on a voyage or flight to a destination outside the United Kingdom. See paragraph 3.50 for previous zero-rated groups. 1

Generally covers food and drink except: when supplied by caterers; when supplied on premises; certain categories of food

(such as confectionary); alcoholic and soft drinks; and pet food. 2 Group 14 Tax free shops omitted by SI 1999/1642 art 2 wef 1.7.99 (see paragraph 4.51). 3

Historical changes to the charity group:

- since 1.4.86 includes certain supplies of medical equipment made to charities and to equipment for the handicapped; - from 1.4.97 extended to drugs and chemicals, certain medical equipment and welfare vehicles; - from 1.4.89 extended to sterilizing equipment used by medical research charities and certain types of advertisements placed by charities; - from 1.4.00 extended to all charity advertisements, bathrooms for disabled people in charity buildings and sales of donated goods not previously covered; and - from 1.4.01 extended to cover additional adapted vehicles for disabled people, (carrying up to 12 people). Clothing and footwear generally covers clothing and footwear for children up to the age of 13, plus certain protective

4

clothing for adults, namely protective boots and helmets for industrial use and motor-cycle helmets. From 1.4.01 extended to cover all adult clothing and footwear.

Table 4.3b: Categories of reduced rate goods and services Description Group 1 Supplies of domestic fuel and power Group 1 2 Installation of energy-saving materials Group 2 Group 3 Grant-funded installation or connection of heating equipment, security goods and gas supplies Group 4 Women’s sanitary products Group 5 Children’s car seats Group 6 Residential conversions Group 7 Residential renovations and alterations Group 8 Contraceptive products Group 9 Welfare advice or information Group 10 Installation of mobility aids for the elderly Group 11 Smoking cessation products See paragraph 4.63 for a complete history of decisions on reduced rates

113

Section 4: Indirect tax

Table 4.4: Categories of exempt goods and services1 Group Group 1 Group 2 Group 3 Group 4 Group 5 Group 6 Group 7 Group 8 Group 9 Group 10 Group 11 Group 12 Group 13 Group 14

Description Land Insurance Postal Services Betting, gaming and lotteries Finance Education Health and Welfare Burial and cremation 2 Subscriptions to trade unions,professional bodies and other public interest bodies Sport, sports competitions and physical education Works of art, etc 3 Fund-raising events by charities and other qualifying bodies 4 Cultural services etc 5 Supplies of goods where inut tax cannot be recovered

Group 15

Investment in gold

6

1

As in Value Added Tax Act 1994. Schedule 9.

2

From 1.12.99 extended to bodies that have objects which are in the public domain and are of a political, religious,

patriotic, philosophical, philanthropic or civic nature. 3 Extended from 1.4.00 to cover additional events. 4

From 1.6.96 exemption introduced on admission charges to certain cultural places and events.

5

Inserted by SI 1999/2833 art 2 wef 1.3.2000. Inserted by SI 1999/3116 art 2 wef 1.1.2000.

6

114

Section 4: Indirect tax

Table 4.5ai: Rates of specific duties on alcholic drinks 1

Beer

Breweries producing 5000 Hls or less Year

Date of change

Each deg over o 1030

per 1% of alcohol by volume

1990-91 1991-92 1992-93

19.03.91 10.03.92 01.01.93 16.03.93 01.06.93 01.01.95 01.01.96 01.10.96 01.01.98 01.01.99 01.04.00 07.03.01 28.04.02 01.06.02 14.04.03 21.03.04 01.06.04 20.03.05 26.03.06 26.03.07 17.03.08 01.12.08 23.04.09

1.060 1.108 1.108 1.163 -

10.45 10.82 10.82 10.82 11.14 11.50 11.89 11.89 11.89 11.89 12.22 12.59 12.59 12.92 13.26 13.72 14.96 16.15 16.47

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2007-08 2008-09 1

per 1% of alcohol by volume

Breweries producing 5000 to 30000 Hl per 1% of alcohol by volume

£ per hectolitre (Hl) 5.95 Between 5.95 - 10.90 6.12 Between 6.12 - 11.21 6.30 Between 6.30 - 11.54 6.30 Between 6.30 - 11.54 6.46 Between 6.46 - 11.85 6.63 Between 6.63 - 12.16 6.86 Between 6.86 - 12.57 7.48 Between 7.48 - 13.71 8.08 Between 8.08 - 14.80 8.24 Between 8.24 - 16.15

Breweries producing 30000 to 60000 H per 1% of alcohol by volume

Between 11.54 - 12.59 Between 11.85 - 12.92 Between 12.16 - 13.26 Between 12.57 - 13.71 Between 13.71 - 14.96 Between 14.80 - 16.15 Between 16.15 - 16.47

Budget 2002 introduced Beer Duty relief for small breweries. Reduced rates are set at 50% of the standard rate

for annual production up to 5,000 hectolitres rising, on a tapered basis, to the full standard rate at 30,000 hectolitres and above. From 01.06.04, reduced duty rates will be introduced for beer produced by independent breweries producing between 30,000 and 60,000 hectolitres per year. These reduced rates will taper the reduced rate presently paid at a production level of 30,000 hectolitres per year to the full standard rate on exceeding 60,000 hectolitres.

115

Section 4: Indirect tax

Table 4.5aii: Rates of specific duties on alcoholic drinks

Spirits

Spirits-based coolers

Cider and perry1

Wine

Coolers Made-wine (higher rate)

Year

Date of

Up to 7.5% to

change

7.5%

8.5%

Over 1.2% Over 4.0%

Wine from fresh grapes alcohol by volume

up to 4.0% up to 5.5%

light fortified under 15% 15-18%

£ per litre of alcohol

£ per litre of alcohol

£ per hectolitre (Hl)

1990-91

19.03.91

18.96

-

20.40

20.40

239.80

120.54

207.89

1991-92

10.03.92

19.81

-

21.32

21.32

250.59

125.96

217.25

wine and made wine Still

1992-93

Sparkling

up to

15% to

5.5%

8.5%

15%

22%

to 8.5%

to 15% 208.00

01.01.93

19.81

-

21.32

21.32

-

-

125.96

203.93

-

16.03.93

19.81

-

22.39

22.39

-

-

132.26

220.43

-

218.40

1993-94

01.06.93

19.81

-

22.39

22.39

-

-

132.26

220.43

-

218.40

01.01.94

19.81

-

22.82

22.82

-

-

134.77

207.33

-

222.55

1994-95

01.01.95

20.60

-

23.78

23.78

23.41

42.14

140.44

200.64

-

200.64

28.11.95

19.78

-

23.78

23.78

23.41

42.14

140.44

200.64

-

200.64

1995-96

01.01.96

19.78

-

23.78

23.78

23.41

42.14

140.44

187.24

-

200.64

1996-97

01.10.96

19.78

-

23.78

35.67

23.41

42.14

140.44

187.24

-

200.64

26.11.96

18.99

-

23.78

35.67

23.41

42.14

140.44

187.24

-

200.64

01.01.97

18.99

-

23.78

35.67

43.28

59.51

140.44

187.24

195.63

200.64

01.01.98

19.56

-

24.49

36.74

44.58

61.30

144.65

192.86

201.50

206.66

17.03.98

19.56

-

24.49

36.74

44.58

61.30

144.65

192.86

161.20

206.66

1998-99

01.01.99

19.56

-

25.27

37.92

46.01

63.26

149.28

199.03

161.20

213.27

1999-00

01.04.00

19.56

-

26.13

39.21

47.58

65.42

154.37

205.82

166.70

220.54

2000-01

07.03.01

19.56

-

26.13

39.21

205.82

166.70

220.54

28.04.02

19.56

19.56 2

25.61

38.43

65.42 65.42 2

154.37

2001-02

47.58 47.58 2

154.37

205.82

166.70

220.54

2002-03

14.04.03

19.56

19.56

25.61

38.43

48.91

67.25

158.69

211.58

166.70

220.54

2003-04

21.03.04

19.56

19.56

25.61

38.43

50.38

69.27

163.47

217.95

166.70

220.54

2004-05

20.03.05

19.56

19.56

25.61

38.43

51.69

71.07

167.72

223.62

166.70

220.54

2005-06

26.03.06

19.56

19.56

25.61

38.43

53.06

72.95

172.17

229.55

166.70

220.54

2006-07

26.03.07

19.56

19.56

26.48

39.73

54.85

75.42

177.99

237.31

172.33

227.99

2007-08

17.03.08

21.35

21.35

28.90

43.37

59.87

82.32

194.28

259.02

188.10

248.85

2007-08

01.12.08

22.20

22.20

31.21

46.83

64.65

88.90

209.82

279.74

203.14

268.75

2008-09

23.04.09

22.64

22.64

31.83

47.77

65.94

90.68

214.02

285.33

207.20

274.13

1997-98

1

A new rate of duty was introduced on 1.1.97 for ‘sparkling' cider and perry. The rate from 1.1.97 was £36.45 per

hectolitre, which was increased to 37.54 from 1.1.98 and £45.05 per hectolitre from 17.3.98 and £161.20 from 09.03.99. With effect from 27.04.02 spirits based coolers are subject to duty at the same rate as Spirits. Coolers based on other

2

products remain subject to duty at the coolers rates.

116

Section 4: Indirect tax

Table 4.5b: Rates of specific duties on tobacco

Date of change

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2007-08 2008-09

19.03.91 10.03.92 16.03.93 30.11.93 29.11.94 01.01.95 28.11.95 26.11.96 01.12.97 01.12.98 09.03.99 21.03.00 07.03.01 17.04.02 09.04.03 17.03.04 16.03.05 22.03.06 22.03.07 12.03.08 24.11.08 22.04.09

Tobacco products Cigarettes Ad valorem Specific Cigars Hand-rolled tobacco tobacco rate duty % £ per £ per Kg £ per Kg thousand 21 40.15 21 44.32 67.89 71.63 20 48.75 72.30 76.29 20 52.33 77.58 81.86 20 55.58 82.56 85.94 20 57.64 85.61 85.94 20 62.52 91.52 85.94 21 65.97 98.02 87.74 21 72.06 105.86 87.74 22 77.09 114.79 87.74 22 82.59 122.06 87.74 22 90.43 132.33 95.12 22 92.25 134.69 96.81 22 94.24 137.26 98.66 22 96.88 141.10 101.42 22 99.80 145.35 104.47 22 102.39 149.12 107.18 22 105.10 153.07 110.02 22 108.74 158.24 113.74 22 112.07 163.22 117.32 24 112.07 169.74 122.01 24 114.31 173.13 124.45

117

Pipetobacco £ per Kg 28.69 29.98 31.93 34.26 36.30 37.64 40.24 43.10 46.55 50.47 53.66 58.17 59.21 60.34 62.03 63.90 65.56 67.30 69.57 71.76 74.63 76.12

Section 4: Indirect tax

Table 4.5ci: Rates of specific duties on fuel, pence per litre Date of Petrol 1 1,6 Unleaded Leaded Super Ultra low change 1 Unleaded / Sulphur 3,6 Petrol Lead 2 replacement 1990-91 19.03.91 25.85 22.41 1991-92 10.03.92 27.79 23.42 1992-93 16.03.93 30.58 25.76 1993-94 30.11.93 33.14 28.32 1994-95 29.11.94 35.26 30.44 01.01.95 36.14 31.32 1995-96 28.11.95 39.12 34.30 1996-97 15.05.96 39.12 34.30 37.62 26.11.96 41.68 36.86 40.18 1997-98 02.07.97 45.10 40.28 43.60 17.03.98 49.26 43.99 48.76 1998-99 09.03.99 52.88 47.21 52.33 1999-00 21.03.00 54.68 48.82 50.89 2000-01 01.10.00 54.68 48.82 50.89 47.82 07.03.01 54.68 46.82 45.82 2001-02 15.06.01 54.68 48.82 45.82 2002-03 17.04.02 54.68 48.82 45.82 2003-04 09.04.03 54.68 48.82 45.82 01.10.03 56.20 50.19 47.10 2004-05 03.12.04 56.20 50.19 47.10 2005-06 06.12.05 56.20 50.19 47.10 2006-07 07.12.06 57.68 51.52 48.35 2007-08 01.10.07 60.07 53.65 50.35 2008-09 01.04.08 60.07 50.35 50.35 01.12.08 62.07 52.35 52.35 2009-10 01.04.09 62.07 54.19 54.19 01.05.09 63.91 54.19 54.19 7 01.10.09 65.91 56.19 1

Sulphur Bio 5 Free Ethanol 4,6 Petrol

47.10 47.10 47.10 48.35 50.35 50.35 52.35 54.19 54.19 -

27.10 27.10 27.10 28.35 30.35 30.35 32.35 34.19 34.19 36.19

In March 1987 a duty differential was introduced in favour of unleaded petrol. From 29 November

1994 the duty rate for unleaded petrol was aligned with that for derv. In May 1996 a new higher rate was introduced for super unleaded petrol. Lead replacement petrol was introduced from 1 October 1999 and carries the same rate of duty

2

as super unleaded petrol. In March 2001 the rate for super unleaded petrol was abolished and the rate appropriate to unleaded or ultra low sulphur petrol charged dependent upon the sulphur and aromatics content. In October 2000 a new rate was introduced for ultra low sulphur petrol (ULSP).

3 4

Sulprhur free petrol was introduced from October 2003

5

Budget 2004 confirmed a duty incentive of 20 pence per litre for bioethanol to be introduced from 1 January 2005.

6

From 1 April 2008, ultra low sulphur petrol and sulphur free petrol became liable to duty at the same rate as unleaded.

118

Section 4: Indirect tax

Table 4.5cii: Rates of specific duties on fuel, pence per litre Date of change

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

19.03.91 10.03.92 16.03.93 30.11.93 29.11.94 01.01.95 28.11.95 15.05.96 26.11.96 02.07.97 15.08.97 17.03.98 09.03.99 21.03.00 01.10.00 15.06.01 17.04.02 09.04.03 01.10.03 03.12.04 06.12.05 07.12.06 01.10.07 01.04.08 01.12.08 01.04.09 01.05.09 6 01.10.09

1,5

Derv

21.87 22.85 25.14 27.70 30.44 31.32 34.30 34.30 36.86 40.28 40.28 44.99 50.21 51.82 51.82 51.82 51.82 51.82 53.27 53.27 53.27 54.68 56.94 50.35 52.35 54.19 54.19 56.19

Unrebated Heavy Oil Ultra low Sulphur Sulphur Free 2,5 3,5 Diesel Diesel

39.28 42.99 47.21 48.82 48.82 45.82 45.82 45.82 47.10 47.10 47.10 48.35 50.35 50.35 52.35 54.19 54.19 -

47.10 47.10 47.10 48.35 50.35 50.35 52.35 54.19 54.19 -

Bio Diesel/ 4 Blended

25.82 25.82 27.10 27.10 27.10 28.35 30.35 30.35 32.35 34.19 34.19 36.19

1

Diesel oil for road vehicles.

2

In August 1997 a new rate for ultra low sulphur diesel (ULSD) was introduced.

Rebated Heavy Oil Fuel Gas Oil Oil

0.91 0.95 1.05 1.16 1.66 1.66 1.81 1.81 1.94 2.00 2.00 2.18 2.65 2.74 2.74 2.74 2.74 3.82 3.82 4.82 6.04 7.29 9.29 9.29 9.66 10.00 10.00 10.37

1.29 1.35 1.49 1.64 2.14 2.14 2.33 2.33 2.50 2.58 2.58 2.82 3.03 3.13 3.13 3.13 3.13 4.22 4.22 5.22 6.44 7.69 9.69 9.69 10.07 10.42 10.42 10.80

relative to the rates for ultra-low sulphur fuels. 3 Sulphur free diesel was introduced in October 2003 4

Biodiesel duty took effect on 26 July 2002. This will apply to pure biodiesel and the proportions of biodiesel

blended or mixed with heavy oils. 5 From 1 April 2008, ultra low sulphur diesel and sulphur free diesel became liable to duty at the same rate as di

119

Section 4: Indirect tax

Table 4.6ai: Rates of VED on cars since 1990 Date of Change

1990-91 1991-92 1992-93 1993-94

Annual licence fee £ 1 Reduced Standard 100 100 110 125 130 135 135 140 145 150 155

11-Mar-92 17-Mar-93 01-Dec-93 29-Nov-94

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00

29-Nov-95 27-Nov-96 16-Nov-97 11-Mar-99 01-Jun-99

100 2000-01 155 100 2 2001-02 01-Mar-01 160 105 2002-03 01-May-02 160 105 165 105 2003-04 01-May-03 165 110 2004-05 01-May-04 2005-06 01-Apr-05 170 110 2006-07 23-Mar-06 175 110 2007-08 22-Mar-07 180 115 2008-09 13-Mar-08 185 120 2009-10 01-May-09 190 125 1 From June 1999 cars with an engine size of 1100cc or less qualified for a reduced rate. From March 2001 the qualifying engine size was increased to 1200cc. The qualifying engine size was further increased to 1549cc in July 2001 (backdated

2 From 2001-02 onwards rates apply to pre-March 2001 registered cars only Table 4.6aii: Rates of VED on cars registered after 1st March 2001 Date of change Annual licence fee £ by emissions bracket (grams of CO2 per km) 1 226+ below 100 101-120 121-150 151-165 166-185 186+ 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

01-Mar-01 01-May-02 01-May-03 01-May-04 01-Apr-05 23-Mar-06 22-Mar-07 13-Mar-08

100 70 65 65 65 0 0 0 below 100

2009-10

2

01-May-09

0

100 70 75 75 75 40 35 35

100 100 105 105 105 100 115 120

120 120 125 125 125 125 140 145

140 140 145 145 150 150 165 170

01-May-09

210 300 400

101-110 111-120 121-130 131-140 141-150 151-165 35 35 120 120 125 150 1

2009-10

155 155 160 160 165 190 205 210

166-175 176-185 186-200 201-225 226-255 175 175 215 215 405

255+

1

405

1 Cars that emit over 225g/km of CO2 registered prior to 23 March 2006 are exempt 2 from CO based VED 2 New graduated system introduced

120

Section 4: Indirect tax

Table 4.6b: Rates of VED for motorcycles 2003-04

Date of change 01-May-03

2004-05

01-May-04

2005-06

01-Apr-05

2006-07

23-Mar-06

2007-08

22-Mar-07

2008-09

13-Mar-08

2009-10

01-May-09

Engine size Not over 150cc 151cc-400cc 401cc-600cc All other motorcycles Not over 150cc 151cc-400cc 401cc-600cc All other motorcycles Not over 150cc 151cc - 400cc 401cc - 600cc All other motorcycles Not over 150cc 151cc - 400cc 401cc - 600cc All other motorcycles Not over 150cc 151cc - 400cc 401cc - 600cc All other motorcycles Not over 150cc 151cc - 400cc 401cc - 600cc All other motorcycles Not over 150cc 151cc - 400cc 401cc - 600cc All other motorcycles

Annual fee £ 15 30 45 60 15 30 45 60 15 30 45 60 15 31 46 62 15 32 47 64 15 33 48 66 15 33 48 66

Table 4.6c: Rates of VED for heavy goods vehicles Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Date of change 01-May-04 01-Apr-05 23-Mar-06 22-Mar-07 13-Mar-08 01-May-09

Annual fee, £ Standard Reduced according to HGV band reduced pollution band according to HGV band reduced pollution band according to HGV band reduced pollution band according to HGV band reduced pollution band according to HGV band reduced pollution band according to HGV band reduced pollution band

121

Section 4: Indirect tax

Table 4.7i: Incidence of duty, pence 1

Year

Price

2

Spirits: 70cl bottle of whiskey at 40% alcohol 1990 919.0 1991 1064.0 3 1992 1096.0 1993 1124.0 1994 1112.0 1995 1118.0 1996 1114.0 1997 1125.0 1998 1149.0 1999 1181.0 2000 1172.0 2001 1178.0 2002 1182.0 2003 1165.0 2004 1192.0 2005 1156.0 2006 1169.0 2007 1152.0 2008 1210.0 2009 1320.0 Beer: pint of bitter (in pub) 1990 108.0 1991 123.0 1992 132.0 1993 139.0 1994 143.0 1995 149.0 1996 154.0 1997 159.0 1998 166.0 1999 174.0 2000 179.0 2001 184.0 2002 189.0 2003 193.0 2004 198.0 2005 205.0 2006 213.0 2007 222.0 2008 229.0 2009 241.0

Duty

Duty + VAT

Duty + VAT as % of price

Duty + VAT Jan 09 prices

485.8 530.9 554.7 554.7 554.7 576.8 553.8 531.7 547.7 547.7 547.7 547.7 547.7 547.7 547.7 547.7 547.7 547.7 547.7 597.8

605.7 689.3 717.9 722.1 720.3 743.3 719.8 699.3 718.8 723.6 722.2 723.1 723.7 721.2 725.2 719.9 721.8 719.3 727.9 770.0

65.9 64.8 65.5 64.2 64.8 66.5 64.6 62.2 62.6 61.3 61.6 61.4 61.2 61.9 60.8 62.3 61.7 62.4 60.2 58.3

1064.9 1112.4 1112.3 1100.1 1071.0 1069.7 1006.8 951.5 946.8 930.4 910.8 888.0 877.4 849.3 832.2 800.6 784.1 749.6 728.9 770.0

20.4 22.3 23.3 24.5 23.2 24.0 24.0 24.0 24.7 25.5 25.5 26.4 26.4 27.1 27.1 27.9 27.9 28.6 30.4 35.8

34.5 40.6 43.0 45.2 44.5 46.2 46.9 47.7 49.4 51.4 52.1 53.8 54.2 55.8 56.6 58.4 59.6 61.7 64.5 67.2

31.9 33.0 32.5 32.5 31.1 31.0 30.5 30.0 29.8 29.5 29.1 29.2 28.7 28.9 28.6 28.5 28.0 27.8 28.2 27.9

60.6 65.5 66.6 68.8 66.1 66.4 65.6 64.9 65.1 66.1 65.8 66.0 65.7 65.7 64.9 65.0 64.7 64.3 64.6 67.2

Footnotes after table 4.7iv

122

Section 4: Indirect tax

Table 4.7i: Incidence of duty, pence - continued 1

Year

Beer: pint of lager 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Footnotes after table 4.7iv.

Price

2

121.0 137.0 146.0 154.0 158.0 165.0 170.0 175.0 183.0 191.0 197.0 203.0 206.0 211.0 217.0 224.0 232.0 241.0 250.0 264.0

Duty

Duty + VAT

21.5 23.5 24.6 25.8 24.3 25.2 25.2 25.2 26.0 26.8 26.8 27.7 27.7 28.5 28.5 29.3 29.3 30.1 31.9 37.6

123

37.3 43.9 46.3 48.7 47.9 49.8 50.5 51.3 53.2 55.2 56.1 57.9 58.4 59.9 60.8 62.7 63.9 66.0 69.2 72.1

Duty + VAT as % of price 30.8 32.0 31.7 31.6 30.3 30.2 29.7 29.3 29.1 28.9 28.5 28.5 28.3 28.4 28.0 28.0 27.5 27.4 27.7 27.3

Duty + VAT Jan 09 prices 65.5 70.8 71.7 74.2 71.2 71.6 70.7 69.8 70.1 71.0 70.8 71.1 70.8 70.5 69.8 69.7 69.4 68.8 69.3 72.1

Section 4: Indirect tax

Table 4.7ii: Incidence of duty, pence 1

Year

Table wine: 75cl bottle 1990 1991 4 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Cider: per litre 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Price

2

Duty

Duty + VAT

Duty + VAT as % of price

Duty + VAT Jan 09 prices

247.0 274.0 283.0 290.0 290.0 291.0 300.0 307.0 305.0 314.0 315.0 320.0 321.0 323.0 328.0 335.0 339.0 345.0 348.0 364.0

82.7 90.4 94.5 99.3 101.1 105.3 105.3 105.3 108.5 112.0 112.0 115.8 115.8 115.8 119.0 122.6 122.6 129.1 133.5 157.4

114.9 131.2 136.6 142.5 144.3 148.7 150.0 151.1 153.9 158.7 158.9 163.4 163.6 163.9 167.9 172.5 173.1 180.5 185.3 204.8

46.5 47.9 48.3 49.1 49.7 51.1 50.0 49.2 50.5 50.5 50.4 51.1 51.0 50.7 51.2 51.5 51.1 52.3 53.2 56.3

202.1 211.7 211.7 217.0 214.5 213.9 209.8 205.5 202.7 204.1 200.4 200.7 198.3 193.0 192.6 191.9 188.0 188.1 185.6 204.8

130.0 145.0 146.0 154.0 163.0 160.0 160.0 163.0 170.0 171.0 173.0 179.0 173.0 179.0 180.0 177.0 177.0 178.0 178.0 178.0

18.7 20.4 21.3 22.4 22.8 23.8 23.8 23.8 24.5 25.3 25.3 26.1 26.1 25.6 25.6 25.6 26.6 26.6 26.5 31.2

35.6 42.0 43.1 45.3 47.1 47.6 47.6 48.1 49.8 50.7 51.0 52.8 51.9 52.3 52.4 52.0 53.0 53.1 53.0 54.4

27.4 29.0 29.5 29.4 28.9 29.8 29.8 29.5 29.3 29.7 29.5 29.5 30.0 29.2 29.1 29.4 29.9 29.8 29.8 30.6

62.6 67.8 66.7 69.1 70.0 68.5 66.6 65.4 65.6 65.2 64.4 64.8 62.9 61.6 60.1 57.8 57.6 55.3 53.1 54.4

Footnotes after table 4.7iv.

124

Section 4: Indirect tax

Table 4.7iii: Incidence of duty, pence 1

Year

Price

2

Duty

Duty + VAT

Tobacco: packet of 20 king size cigarettes 1990 175.0 106.6 129.4 1991 202.0 122.7 152.8 1992 221.0 126.7 159.6 1993 237.0 138.4 173.7 1994 252.0 155.1 192.6 1995 270.0 169.3 209.5 1996 289.0 182.8 225.9 1997 308.0 196.6 242.5 1998 336.0 214.7 264.7 1999 364.0 234.3 288.5 2000 388.0 250.5 308.3 2001 422.0 273.7 336.6 2002 439.0 281.1 346.5 2003 451.0 287.7 354.9 2004 465.0 303.9 373.1 2005 482.0 305.6 377.4 2006 505.0 315.9 391.1 2007 523.0 325.3 403.2 2008 544.0 337.0 418.0 2009 585.0 369.0 445.3 Cigars - a typical brand in the mid-price category (pack of small cigars) 1992 170.0 58.0 83.3 1993 180.0 61.8 88.6 1994 191.0 66.3 94.7 1995 202.0 73.2 103.3 1996 212.0 78.2 109.8 1997 216.0 70.1 103.3 1998 238.0 75.7 111.1 1999 252.0 82.1 119.6 2000 265.0 87.3 126.7 2001 283.0 88.7 130.8 2002 297.0 90.2 134.5 2003 305.0 92.0 137.4 2004 315.0 94.5 141.5 2005 324.0 97.4 145.6 2006 339.0 99.9 150.4 2007 342.0 102.6 153.5 2008 349.0 106.0 158.0 2009 368.0 116.0 164.0 Footnotes in the next page.

125

Duty + VAT as % of price

Duty + VAT Jan 09 prices

74.0 75.6 72.2 73.3 76.4 77.6 78.2 78.7 78.8 79.3 79.5 79.8 78.9 78.7 80.2 78.3 77.4 77.1 76.8 76.1

227.6 246.5 247.3 264.7 286.4 301.5 316.0 330.0 348.7 370.9 388.8 413.3 420.0 417.9 428.2 419.8 424.9 420.2 418.6 445.3

49.0 49.2 49.6 51.1 51.8 47.8 46.7 47.5 47.8 46.2 45.3 45.0 44.9 45.0 44.4 44.9 45.3 44.6

129.1 135.0 140.9 148.6 153.6 140.6 146.4 153.8 159.8 160.6 163.0 161.8 162.3 162.0 163.4 160.0 158.2 164.0

Section 4: Indirect tax

Table 4.7iii: Incidence of duty, pence - continued 1

Year

Price

2

Duty

Duty + VAT

Hand Rolling Tobacco - a typical brand in the mid-price category (25g) 1992 310.0 179.1 225.3 1993 331.0 190.7 240.0 1994 353.0 204.7 257.3 1995 368.0 214.9 269.7 1996 372.0 214.9 270.3 1997 376.0 219.4 275.4 1998 389.0 219.4 277.3 1999 395.0 219.4 278.2 2000 400.0 219.4 278.9 2001 433.0 237.8 302.3 2002 449.0 242.0 308.9 2003 460.0 246.7 315.2 2004 476.0 253.6 324.4 2005 490.0 261.2 334.2 2006 513.0 268.0 344.4 2007 523.0 275.1 352.9 2008 555.0 284.4 367.0 2009 594.0 311.1 388.6 Pipe - a typical brand in the mid-price category (25g) 1992 184.0 74.9 102.3 1993 197.0 79.8 109.1 1994 211.0 85.7 117.1 1995 226.0 94.1 127.8 1996 243.0 100.6 136.8 1997 264.0 107.8 136.8 1998 274.0 116.4 157.2 1999 291.0 126.2 169.5 2000 306.0 134.2 179.7 2001 330.0 145.4 194.6 2002 345.0 148.0 199.4 2003 355.0 150.9 203.7 2004 365.0 155.1 209.4 2005 375.0 159.8 215.6 2006 391.0 163.9 222.1 2007 396.0 168.3 227.2 2008 419.0 179.4 241.8 2009 450.0 190.3 249.0 Footnotes in the next page.

126

Duty + VAT as % of price

Duty + VAT Jan 09 prices

72.7 72.5 72.9 73.3 72.6 73.2 71.3 70.4 69.7 69.8 68.8 68.5 68.2 68.2 67.1 67.5 66.1 65.4

349.0 365.7 382.5 388.1 378.0 374.7 365.3 357.7 351.8 371.2 374.5 371.2 372.2 371.7 374.1 367.8 367.5 388.6

55.6 55.4 55.5 56.5 56.3 51.8 57.4 58.3 58.7 59.0 57.8 57.4 57.4 57.5 56.8 57.4 57.7 55.3

158.5 166.3 174.2 183.9 191.3 186.2 207.0 218.0 226.7 238.9 241.8 239.9 240.3 239.8 241.3 236.8 242.1 249.0

Section 4: Indirect tax

Table 4.7iv: Incidence of duty, pence Year

1

Price

2

Petrol (4 star): per litre 1990 40.9 1991 45.1 1992 46.9 1993 51.3 1994 55.5 1995 59.1 1996 62.0 1997 65.5 1998 69.0 1999 69.6 Lead replacement petrol: per litre5 2000 80.8 2001 82.2 2002 75.9 2003 78.2 2004: no more clearances on lead Petrol (unleaded): per litre 1991 43.3 1992 43.4 1993 47.1 1994 50.8 1995 53.4 1996 55.9 1997 61.1 1998 63.1 1999 62.9 2000 75.4 2001 76.9 2002 69.9 2003 75.0 2004 76.2 2005 79.0 2006 88.8 2007 86.9 2008 103.7 2009 86.3

Duty Duty + VAT Duty + VAT Duty + VAT as % of price Jan 09 prices 20.4 22.5 25.9 27.8 33.1 36.1 39.1 41.7 45.1 49.3

25.8 28.4 32.8 35.4 41.4 44.9 48.3 51.4 55.4 59.6

63.0 62.9 70.0 69.1 74.6 76.0 78.0 78.6 80.2 85.7

45.3 45.8 50.9 54.0 61.6 64.7 67.6 70.0 73.0 76.7

52.3 50.9 48.8 48.8

64.4 63.1 60.1 60.4

79.6 76.8 79.2 77.3

81.2 77.5 72.9 71.2

19.5 22.4 23.4 28.3 31.3 34.3 36.9 40.3 44.0 47.2 48.8 48.8 48.8 50.2 50.2 50.2 51.5 53.7 52.4

25.1 28.9 30.4 35.9 39.3 42.6 46.0 49.7 53.4 58.4 60.3 59.2 60.0 61.5 62.0 63.4 64.5 69.1 65.2

58.0 66.5 64.6 70.6 73.5 76.2 75.2 78.7 84.9 77.5 78.4 84.7 80.0 80.8 78.4 71.4 74.2 66.6 75.5

40.6 44.7 46.4 53.4 56.5 59.6 62.5 65.4 68.6 73.7 74.0 71.8 70.6 70.6 68.9 68.9 67.2 69.2 65.2

Footnotes in the next page.

127

Section 4: Indirect tax

Table 4.7iv: Incidence of duty, pence - continued 1 2 Price Year Duty Duty + VAT Duty + VAT 65.2076596 as % of price 0 Derv: per litre6 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

39.2 43.3 43.2 47.1 51.7 54.1 57.4 62.0 63.3 64.0 77.8 81.6 74.7 76.4 77.9 84.2 93.1 91.4 108.7 98.7

19.0 21.9 22.9 25.1 27.7 31.3 34.3 36.9 40.3 45.0 47.2 48.8 45.8 45.8 47.1 47.1 47.1 48.4 50.4 52.4

24.1 27.5 29.3 32.1 35.4 39.4 42.9 46.1 49.7 54.5 58.8 61.0 56.9 57.2 58.7 59.6 61.0 62.0 66.5 67.1

61.5 63.6 67.9 68.2 68.5 72.7 74.6 74.4 78.5 85.3 75.6 74.7 76.2 74.9 75.3 70.9 65.5 67.8 61.2 67.9

42.4 44.5 45.4 48.9 52.6 56.6 59.9 62.8 65.5 70.1 74.1 74.9 69.0 67.3 67.4 66.3 66.2 64.6 66.6 67.1

Notes to Table 4.7 1. Prices shown reflect Budget tax changes; for years to 1993 they generally relate to April/ May and from 1994 onwards they relate to January. 2. Retail price, including VAT and excise duties. 3. 70cl became the prescribed size for typical bottle of spirits from 1 January 1992. Prices prior to 1992 have been derived by scaling down the price of a 75cl bottle. 4. 75cl became the prescribed size for a bottle of table wine from 1 January 1992. Prices prior to 1992 have been derived by scaling down the price of a 1 litre bottle. 5. Lead Replacement Petrol (LRP) was introduced in October 1999 to replace leaded petrol, which is now virtually unavailable. 6. From January 2000 the price shown is for Ultra Low Sulphur Diesel (ULSD) which accounts for virtually all diesel sold. Table 4.8: Air Passenger Duty rates from Nov 2009 Rates effective from 1 Nov 2009 and 1 Nov 2010 In the lowest class of travel 2009-10 2010-11 Band A (0-2,000) £11 £12 Band B (2,001-4,000) £45 £60 Band C (4,001-6,000) £50 £75 Band D (over 6,000) £55 £85

128

In other than the lowest class of travel 2009-10 2010-11 £22 £24 £90 £120 £100 £150 £110 £170

Section 4: Indirect tax

D. HISTORICAL TABLES PRE 1990 Table 4.9: Rates of VAT since introduction and registration limits

Fiscal year 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1

Date of change 01.04.73 29.07.74 12.04.76 01.10.77 12.04.78 18.06.79 27.03.80 11.03.81 10.03.82 16.03.83 14.03.84 20.03.85 19.03.86 18.03.87 16.03.88 15.03.89

Standard 10 8 8 8 8 8 15 15 15 15 15 15 15 15 15 15 15

Rates (%) Higher 25 12½ 12½ 12½ -

Reduced -

Limits1 annual taxable turnover 2 Registration Deregistration £5,000 £4,000 £5,000 £4,000 £5,000 £4,000 £5,000 £4,000 £7,500 £6,000 £10,000 £6,000 £10,000 £8,500 £13,500 £12,000 £15,000 £14,000 £17,000 £16,000 £18,000 £17,000 £18,700 £17,700 £19,500 £18,500 £20,500 £19,500 £21,300 £20,300 £22,100 £21,100 £23,600 £22,600

Once turnover reaches or is expected to reach registration limit, registration is compulsory; if it falls below

deregistration limit, deregistration is optional. 2 The figures given are for "future turnover". Between 1 June 1980 and 15 May 1987 it was also possible to claim deregistration on the grounds that turnover for the last two years had not exceeded the registration limit for these years.

Table 4.10: Goods subject to the higher rate May 1975 to June 1979 Description Group Group 1 Most domestic electrical appliances Group 2 Radios, televisions, and hi-fi equipment Group 3 Pleasure boats and light aircraft Group 4 Towing caravans Group 5 Photographic equipment Group 6 Furs Group 7 Jewellery, and goldsmiths' and silversmiths' wares Group 8 Petrol (from November 1974)

129

Section 4: Indirect tax

Table 4.11a: Rates of specific duties on alcoholic drinks Beer

Spirits Year

Date of

Up to o 1030

change

Cider and 1 Perry

Made-

Wine from 3 fresh grapes

wine

Each

(higher 2 rate)

Extra Degree

alcohol by volume light

fortified

under 15%

15-18%

£ per proof

£ per bulk barrel

£ per gallon

gallon 4

0.4400

-

1.7375

1.7375

2.8375

18.85

10.375

0.4400

-

1.7375

1.7375

2.8375

-

18.85

10.375

0.4400

-

1.7375

1.7375

2.8375

5 01.04.73

18.85

10.375

0.4400

-

1.7375

1.7375

2.8375

1969-70

16.04.69

18.85

1970-71

15.02.71

1971-72 1972-73 1973-74

10.375

01.07.73

15.45

6.900

0.2900

-

1.000

0.950

2.1000

01.01.74

15.45

6.900

0.2900

-

1.000

0.825

1.8583

27.03.74

17.01

9.360

0.3120

-

1.545

1.370

2.4033

1974-75

01.01.75

17.01

9.360

0.3120

-

1.545

1.345

2.3450

1975-76

16.04.75

22.09

13.680

0.4560

-

2.875

2.675

3.6750

01.01.76

22.09

13.680

0.4560

-

2.830

2.652

2.9350

07.04.76 6 01.01.77

24.63

15.840

0.5280

0.220

3.160

2.955

3.4100

27.09

17.424

0.5808

0.242

3.475

3.250

3.7500

30.03.77

27.09

17.424

0.5808

0.242

3.475

3.250

3.7500

1977-78

-

27.09

17.424

0.5808

0.242

3.475

3.250

3.7500

1978-79

-

27.09

17.424

0.5808

0.242

3.475

3.250

3.7500

1979-80

-

27.09 Per litre

17.424

0.5808

0.242

3.475

3.250

3.7500

1979-80

-

10.44

10.65

0.355

5.32

76.43

71.49

82.48

26.03.80

11.87

13.05

0.435

6.05

87.04

81.42

93.93

1976-77

of alcohol

£ per hectolitre

1980-81

10.03.81

13.6

18.00

0.600

7.20

113.90

95.20

122.90

1981-82

10.03.82

14.47

20.40

0.680

8.16

127.80

106.80

137.90

1982-83

16.03.83

15.19

21.60

0.720

9.69

135.20

113.00

145.90

1983-84

14.04.84

15.48

24.00

0.800

14.28

183.30

90.50

157.50

1984-85

20.03.85

15.77

25.80

0.860

15.80

194.90

98.00

169.00

1985-86

19.03.86

15.77

25.80

0.860

15.80

194.90

98.00

169.00

1986-87

18.03.87

15.77

25.80

0.860

15.80

194.90

98.00

169.00

1987-88

15.03.88

15.77

27.00

0.900

17.33

203.70

102.40

176.60

1988-89 7 1989-90

20.03.90

15.77 17.35

27.00 -

0.900 0.970

17.33 18.66

203.70 219.40

102.40 110.28

176.00 190.20

Footnotes on next page.

130

Section 4: Indirect tax

Footnotes to Table 4.11a: 1

The duty on cider and perry of less than 8.7 per cent (8.5 per cent form 14 March 1984) alcohol by volume was introduced with effect from 6 September 1976. Cider and perry of greater strength are liable to made-wine duty as made-wine. 2

Prior to 1 January 1976, the figures are for the higher rate of British Wine duty (see text: 'made-wine') levied on still wine of more than 27 proof spirit. The duty on still wine of less than 27 was 25p lower per gallon. An extra 30p per gallon was levied on sparkling wines over and above the appropriate still wine rate. From 1 January 1976 to 13 March 1984 the made-wine duty rate shown is for ‘made-wine’ of 18-22 per cent of alcohol by volume; the duty on light madewines (10-15 per cent alcohol) was 9.1 per cent lower. Since 14 March 1984, made-wine duty rates have been aligned with duty rates for wine.

3 Prior to 1 January 1976, the figures relate to imported wines whether of fresh grapes or not. There were separate rates for light and heavy, different strengths within light and heavy, still and sparkling wines and for the part of the world from which the wine was imported (two Commonwealth categories, EEC and other countries), and, prior to 1 January 1974, whether or not the wine was in bottle when imported. The rates shown here are for: Light wine: still, of a strength not exceeding 26.2 per cent proof spirit, imported in bottle from the European Community; Fortified wine: prior to 1 January 1974, duty on still wine of more than 25 proof (27 proof in the case of Commonwealth wine) imported in bottle from outside the EEC; 1 January 1974 to 31 December 1975, duty on port, sherry, Setubal muscatel, and Tokay, imported from outside the EEC. The full range of rates can be found in Annual Abstract of Statistics, 1981 edition, Table 16.21, pp 397 et seq.

From 1 January 1976 the rates shown are for light still wines (table wines) of less than 15 per cent volume alcohol content, and for fortified still wines up to 18 per cent volume alcohol content. There was a surcharge for sparkling wines until March 1984 and subsequently a separate duty rate. 4

A bulk barrel is 36 gallons. The rate shown is for home-produced and Commonwealth beer prior to 1 January 1976. There was a higher rate on beer from the EEC before that date. 5

Duty rates fell on 1 April 1973 to offset the imposition of VAT on alcoholic drinks.

6

The increase in (most) duties on 1 January 1977 reflects a 10 per cent regulator surcharge which was imposed on all items from that date. The surcharge was consolidated into duty rates in the 1977 Budget.

7

Abolition of minimum beer duty took effect from 1 October 1988, ‘beer’ with an alcoholic strength not exceeding 1.2 per cent remains exempt from duty.

131

Section 4: Indirect tax

Table 4.11b: Rates of specific duties on tobacco

Date of change

1969-70 to 1975-76 1976-77 1977-78 1978-79 1979-80

1980-81 1981-82 3

07.04.76 30.03.77 01.01.78 12.06.79 13.08.79

Tobacco products Cigarettes Ad val Specific

Pipetobacco 1 £ per lb

rate %

duty £ per thousand

Customs duty charged on imports of tobacco in these years 1.55 20 1.705 22 7.30 30 7.30 30 7.30 30 7.30 21 £ per Kg %

01.01.80 26.03.80 10.03.81

16.09 17.40 21.92

2

1.41 9.00 9.00 9.00 11.77 £per thousand

21 21 21

11.77 13.42 18.04

02.07.81 22.96 21 19.03 24.95 21 20.68 10.03.82 1982-83 16.03.83 24.95 21 21.67 1983-84 14.03.84 24.95 21 24.97 1984-85 22.03.85 24.95 21 26.95 1985-86 19.03.86 24.95 21 30.61 1986-87 18.03.87 24.95 21 30.61 1987-88 15.03.88 24.95 21 31.74 1988-89 14.03.89 24.95 21 31.74 1989-90 29.03.90 24.95 21 34.91 1 More precisely, tobacco other than hand-rolling. 2 See text ('Tobacco goods'). The pre-1976 rates of customs duty on tobacco imports varied according to moisture content of the tobacco and its origin. Commonwealth tobacco was taxed at a lower rate than tobacco from elsewhere; and tobacco with more than 10 per cent moisture content was also less heavily taxed. Duties were levied on a weight basis irrespective of whether the tobacco was leaf or manufactured products: thus manufactured cigars and cigarettes were taxed by weight rather than - as now for cigarettes - on a per cigarette basis. The transition from customs to excise duties was completed on 1 January 1978; for 1976 and 1977 calendar years, the rates shown in the table relate to the excise duties only - but it has to be remembered that the customs duty co-existed in those years. The full range of customs duty rates on tobacco imports may be found in Annual Abstract of Statistics, 1981 edition, table 16.21, pp 397 et seq. 3 A 10p duty (+VAT) differential between petrol and derv was established by Parliament in the debate on the 1981 Finance Bill to favour industry. In order to make good the resultant loss of revenue, duty on tobacco and cigarettes and certain betting duties were raised further at the same date.

132

Section 4: Indirect tax

Table 4.11c: Rates of specific duties on fuel Petrol Date of 1 Leaded Unleaded change

1969-70 to 1975-76 09.04.76 1976-77 29.03.77 08.08.77

0.225 0.300 0.350 0.300

01.01.78

6.60 6.60 8.10 10.00 13.82 13.82 15.54 16.30 17.16 17.94 19.38 19.38 20.44 20.44 22.48

1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90

1 2

12.06.79 26.03.80 10.03.81 02.07.81 09.03.82 15.03.83 13.03.84 19.03.85 18.03.86 17.03.87 15.03.88 14.03.89 20.03.90

Unrebated Heavy Oil 2 Derv

£ per gallon 0.225 0.300 0.350 0.350 pence per litre 7.70 7.70 9.20 10.00 13.82 11.91 13.25 13.82 14.48 15.15 16.39 18.42 16.39 18.42 17.29 17.72 17.29 19.49 19.02

In March 1987 a duty differential was introduced in favour of unleaded petrol. Diesel oil for road vehicles.

Table 4.12: Rates of VED for cars Date of change 1968-69 to 1974-75 1975-76 1976-77 1977-78 1978-79 to 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90

Annual licence fee £

19-Mar-68 16-Apr-75

25 40 40 50 50 60 70 80 85 90 100 100 100 100 100

30-Mar-77 27-Mar-80 11-Mar-81 10-Mar-82 16-Mar-83 14-Mar-84 20-Mar-85

133

Rebated Heavy Oil Fuel Gas Oil Oil 0.010 0.010 0.025 0.025

0.010 0.010 0.025 0.025

0.55 0.55 0.66 0.77 0.77 0.77 0.77 0.77 0.77 0.77 0.77 0.77 0.77 0.77 0.83

0.55 0.55 0.66 0.77 0.77 0.77 0.77 0.77 0.77 0.77 1.10 1.10 1.10 1.10 1.18

Section 4: Indirect tax

Table 4.13i: Incidence of duty, pence Year 1

Price 2

Duty

Spirits: 70cl bottle of whiskey at 40% alcohol 1964 203 1965 217 1966 216 1967 224 1968 231 1969 245 1970 244 1971 250 1972 249 1973 241 1974 3 254 1975 323 1976 365 1977 402 1978 411 1979 4 457 1980 501 1981 587 1982 656 1983 695 1984 717 1985 734 1986 751 1987 766 1988 794 1989 Beer: pint of bitter (in pub) 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 3 1975 1976 1977 1978 1979 4 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 Table wine: 75cl bottle 1979 4 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989

Duty + VAT

Duty + VAT as % of price

Duty + VAT Jan 08 prices

139 157 157 173 185 203 203 203 203 167

139 157 157 173 185 203 203 203 203 189

68.5 72.4 72.7 77.2 80.1 82.9 83.2 81.2 81.5 78.4

2062 2223 2139 2300 2350 2445 2299 2100 1961 1672

185 238 265 292 292 292 332 381 405 425 433 442 442 442 442

208 262 292 322 322 352 397 397 397 397 397 397 397 397 397

81.9 81.1 80.0 80.1 78.3 77.0 79.2 67.6 60.5 57.1 55.4 54.1 52.9 51.8 50.0

1586 1608 1538 1464 1352 1303 1246 1114 1026 980 934 881 851 818 779

832

442

397

47.7

723

8.8 9.2 9.6 9.6 10.0 10.8 11.7 12.0 13.0 14.0

3.5 3.9 4.3 4.3 4.7 4.7 4.7 4.7 4.7 3.1

3.5 3.9 4.3 4.3 4.7 4.7 4.7 4.7 4.7 4.4

39.8 42.4 44.8 44.8 47.0 43.5 40.2 39.2 36.2 31.4

52 55 59 57 60 57 53 49 45 39

17.0 21.0 26.0 30.0 32.5

4.0 5.9 6.8 7.5 7.5

5.5 7.5 8.7 9.7 9.9

32.4 35.7 33.5 32.3 30.5

42 46 46 44 42

36.0 44.0 51.0 57.0 61.0 72.0 78.0 82.0 85.0 91.0 97.0

7.5 9.1 12.6 14.3 15.1 16.8 18.1 18.1 18.1 18.9 18.9

12.2 14.8 19.3 21.7 23.1 26.2 28.3 28.8 29.2 30.8 31.6

33.9 33.6 37.8 38.1 37.9 36.4 36.3 35.1 34.4 33.8 32.6

45 46 54 56 57 62 63 62 60 60 58

161 169 189 207 214 204 205 210 217 221 227

54 61 71 80 85 68 74 74 74 77 77

75 83 96 107 113 95 101 101 102 106 107

46.6 49.1 50.8 51.7 52.8 46.6 49.3 48.1 47.0 48.0 47.1

278 261 269 276 279 224 224 217 210 208 195

Footnotes in the next page.

134

Section 4: Indirect tax

Table 4.13ii: Incidence of duty, pence Year 1

Price 2

Duty

Tobacco: packet of 20 king size cigarettes 1964 20.5 1967 23.0 1970 26.0 1974 3 31.5 1977 55.0 1978 55.0 1979 4 66.0 1980 73.0 1981 91.0 1982 102.0 1983 109.0 1984 123.0 1985 133.0 1986 148.0 1987 152.0 1988 155.0 1989 161.0 Petrol (4 star): per litre 1964 April 1967 April 1970 April 1974 3 April 1977 April 1978 April 1979 4 July 1980 April 1981 April 1982 April 1983 April 1984 April 1985 April 1986 April 1987 April 1988 April 1989 April Derv: per litre 1964 April 1967April 1970April 1974 3 April 1977 April 1978 April 1979 4April 1980 April 1981 April 1982 April 1983 April 1984 April 1985 April 1986 April 1987April 1988 April 1989 April

Duty + VAT

Duty + VAT as % of price

Duty + VAT Jan 08 prices

13.8 15.8 18.3

13.8 15.8 18.3

67.3 68.7 70.4

205 210 207

19.5 34.5 34.5 37.4 42.1 55.2 62.8 66.2 75.7 81.8 92.3 93.1 96.1 97.3

22.4 38.6 38.6 46.0 51.6 67.1 76.1 80.4 91.8 99.2 111.6 112.9 116.3 118.3

71.1 70.2 70.2 69.7 70.7 73.7 74.6 73.8 74.6 74.6 75.4 74.3 75.0 73.5

171 176 162 170 162 188 197 199 216 220 239 233 228 215

5.2 6.0 7.2

3.0 3.9 5.0

3.0 3.9 5.0

57.7 65.0 69.4

45 52 57

12.1 18.5 16.5

5.0 7.7 6.6

5.0 7.7 6.6

41.3 41.6 40.0

38 35 28

26.2 29.0 33.7 35.6 39.4 40.3 44.8 37.2 38.1 37.5 41.1 0.0

8.1 10.0 13.8 15.5 16.3 17.2 17.9 19.4 19.4 20.4 20.4

8.1 10.0 13.8 15.5 16.3 17.2 17.9 19.4 19.4 20.4 20.4

30.9 34.5 40.9 43.5 41.4 42.7 40.0 52.2 50.9 54.4 #DIV/0! 49.6

30 31 39 40 40 40 40 42 40 40 37

5.0 5.9 7.0

3.0 3.9 5.0

3.0 3.9 5.0

60.0 66.1 71.4

45 52 57

12.0 18.4 18.5 27.2 29.6 35.3 35.7 37.5 37.9 43.2 37.3 34.8 34.4 36.1

5.0 7.7 7.7 9.2 10.0 13.8 13.3 13.8 14.5 15.2 16.4 16.4 17.3 17.3

6.0 9.7 9.8 12.2 13.9 18.4 17.9 18.7 19.4 20.8 21.3 20.9 21.8 22.0

50.0 52.7 53.0 44.9 47.0 52.1 50.1 49.9 51.2 48.1 57.1 60.1 63.4 60.9

46 44 41 45 44 52 46 46 46 46 46 43 43 40

1

Prices shown reflect Budget tax changes; they generally relate to April/May. Retail price including VAT and excise duties. 3 The rate of VAT used for 1974 in these tables is 10 per cent. This was later reduced for all goods subject to excise duties to 8 per cent on 29 July 1974. The rate was subsequently increased, for petrol only to 25 per cent on 18 November 1974. 4 Owing to the date of the Budget (12 June 1979) the July RPI has been used. The VAT rate increased to 15 per cent on 18 June 1979 2

135

Section 4: Indirect tax

136

Section 5: National insurance contributions

Section 5: National insurance contributions Contents Page A: Current system Introduction The current regime Class 1 Contributions by the self-employed (Class 2 and 4) Voluntary payment of Class 2 contributions Voluntary payment of Class 3 contributions

139 140 140 142 142 143

Tables Table 5.1: Table 5.2: Table 5.3:

139 140 143

Some key figures Class 1 NICs for non-contracted out only in 2009-010 Class 2,3 and 4 rates and limits in 2009-010

B: History 1911 to 1948 July 1948 to April 1961 April 1961 to April 1975 April 1975 to October 1985 October 1985 to October 1989 October 1989 to April 1999 Class 1 Contributions by the self-employed (Class 2 and 4) Voluntary payment of Class 2 contributions Voluntary payment of Class 3 contributions Personal pensions Changes from April 1999 Changes from April 2000 Changes from April 2001 Changes from April 2002 Changes from April 2003 Changes from April 2004 Changes from April 2005 Changes from April 2006 Changes from April 2007 Changes from April 2008 Changes from April 2009 Announced future changes

144 144 145 146 147 148 148 150 150 150 150 151 151 151 152 152 152 152 152 153 153 153 153

C: Historical tables post 1990 Table 5.4: Table 5.5:

Class 1 national insurance contributions Class 2,3, and 4 contributions

154 158

D: Historical tables pre 1990 Table 5.6: Table 5.7: Table 5.8: Table 5.9: Table 5.10:

Class 1 national insurance contributions July 1948 - April 1975 Class 1 contributions 6 April 1975 to October 1985 Class 1 contributions October 1985 to April 1990 Reduced rate contributions for married women Class 2, 3 and 4 contributions

137

159 161 162 163 163

Section 5: National insurance contributions

138

Section 5: National insurance contributions

A. THE CURRENT SYSTEM Table 5.1: Some key figures UK National Insurance Contributions (NIC) receipts

2005-06

2006-07

3

2007-08

3

2008-09

3

£billions 1

Employees 2 Employers Self-employed Total

33.1 48.8 2.7 84.5

34.6 51.4 2.8 88.9

37.1 55.0 2.9 95.0

38.9 55.4 2.9 97.2

1. Employees contributions include Class 3. 2. Employers contributions include Class 1A. 3. All the figures are provisional, net of all contracting out rebates, and gross of SSP, SMP and NIC holidays.

Source: HM Revenue & Customs

Introduction 5.1 There are four classes of contribution: Class 1:

Earnings-related contributions paid by both employees and employers.

Class 1A:

Contributions paid by employers only on the value of most benefits in kind, e.g. company cars

Class 1B:

Contributions paid by employers only on the value of items included in a PAYE Settlement Agreement

Class 2:

Flat rate contributions paid by the self-employed whose earnings are above the small earnings exception, or who do not claim an exception.

Class 3:

Flat rate voluntary contributions for those not required to pay Class 1 or Class 2 contributions, which can be paid by those whose contribution record would otherwise be deficient, including those living overseas.

Class 4:

Profit-related contributions paid by the self-employed in addition to Class 2 contributions.

5.2 Most Class 1 contributions are based on weekly/monthly earnings derived from employment. There are special rules for directors. Class 2 contributions are payable by all those who are self-employed unless an exemption is claimed for low earnings and Class 4 contributions are based on annual taxable profits National Insurance contributions (NICs) finance payment of the National Insurance Fund benefits listed below: Short-term benefits -

Jobseeker’s Allowance (contribution-based) Incapacity Benefit short-term (due to be replaced by Employment Support Allowance from October 2008) Maternity Allowance

139

Section 5: National insurance contributions Long-term benefits -

Retirement Pension Incapacity Benefit long-term Widow's Payment, Widow's Pension and Widowed Mother's Allowance Child's special allowance (not payable in respect of new claims from 6.8.87)

Benefits not subject to contribution conditions, but paid for out of NI Fund -

Guardian's Allowance; Christmas bonus (where the qualifying benefit is paid for out of the NI Fund.

5.3 Benefits in the first two groups above are only payable to claimants who satisfy the relevant contribution conditions (see Section 6). The current regime Class 1 5.4 An employee aged 16 or over but below retirement age (currently 65 for men, 60 for women) who satisfies certain prescribed conditions as to residence or presence in Great Britain must pay primary Class 1 contributions if their earnings in any particular pay period exceed the primary threshold. The employer must also pay secondary contributions on those earnings irrespective of the age of the employee. Table 5.2: Class 1 National Insurance Contributions for not contracted out only in 2009-10 Weekly Earnings £

Employee's Contributions (%)

Below 95 (LEL) 95 to 110 (PT/ST) 110 to 844 (UEL) Above 844

(No NICs payable) 0 11 1

Employers contributions (%) (No NICs payable) (No NICs payable) 12.8 12.8

5.5 No contributions are payable between the Lower Earnings Limit (LEL) and the Primary Threshold (PT), but employees with earnings between these thresholds are treated as having paid contributions enabling those earnings to count towards NI benefits. 5.6 Employees pay Class 1 contributions equal to 11 per cent of earnings above the PT (£110 per week in 200/10) up to the upper earnings limit (UEL, £844 per week), and 1 per cent of all earnings above the UEL. Employers pay Class 1 secondary contributions equal to 12.8 per cent of earnings above the secondary threshold (ST, £105 per week). 5.7 Members of an occupational pension scheme that achieves certain specified standards may ‘contractout’ from the state second pension (previously the state earnings-related pension scheme, SERPS), which is normally payable in addition to the basic State Pension.

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Section 5: National insurance contributions

NIC Class 1 Chart, 2009-10 Employees NIC1 Primary

Employers NIC1 Secondary

110 95

PT

UEL

0%

ST 0%

LEL

110 95

CONTRACTED OUT

0% CONTRACTED OUT

0% CONTRACTED IN

12.8%

CONTRACTED IN

11%

UEL

3.7% REBATE

844 UEL

1.6% REBATE

1%

5.8 All contracted-out employees and their employers pay contributions from the PT and ST respectively, but receive a contracted-out rebate, which is calculated on the amount of earnings between the lower earnings limit (LEL) and the upper accruals point (UAP). For employees the rebate is 1.6 per cent of earnings. For employers it is 3.7 per cent [This rate is not reflected in the example below] for contractedout salary-related schemes, and for contracted-out money purchase schemes and appropriate personal pensions the employers’ rebate depends on the age of the employee. This rebate means that contractedout employees and their employers pay a lower rate of contribution between the LEL and the UAP, in recognition of the fact that they lose their entitlement to the earnings-related element of the State pension as a result of being contracted-out. 5.9 Class 1A contributions are paid by employers and certain third parties only and cover most taxable benefits such as the value of company cars and fuel, accommodation benefits and loan benefits (see Section 1 for further details). Class 1A contributions are paid in the year following the year in which the taxable benefit is provided, so they have no impact on the National Insurance Fund until the following year.

141

Section 5: National insurance contributions However, the National Accounts basis used for the Budget for National Insurance costings aims to recognise when liability accrues irrespective of when the money is actually received. Example 5.1:The contracted out rebate calculation, 2009-10 Assume an employee contracted out with a wage of £900 a week (primary class 1 contributions): NIC before the rebate = (844-110)*11% Rebate = (844-95)*1.6% NIC = £80.74 - £11.98

= = =

£80.74 pw £11.98 pw £68.76 pw

below UEL

NIC

= (900-844)*1%

=

£0.56 pw

above UEL

Total NIC

= £68.76 + £0.56

=

£69.32 pw

For the employer (secondary class 1 contributions): NIC before the rebate = (844-110)*12.8% Rebate = (844-95)*3.7% NIC = £93.95 - £27.71

= = =

£93.95 pw £27.71 pw £66.24 pw

below UEL

NIC

= (900-844)*12.8%

=

£7.17 pw

above UEL

Total NIC

= £66.24 + £7.17

=

£73.41 pw

5.10

Class 1B contributions are also paid only by employers and cover PAYE Settlement Agreements

(PSA) under which an employer agrees to meet the income tax liability arising on a restricted range of benefits. Class 1B is payable on the value of the items included in the PSA that would otherwise attract a Class 1 or Class 1A liability and the value of the income tax met by the employer. The reduced rate Class 1 contribution for certain married women is equal to 4.85 per cent of earnings between the PT and the UEL. An additional 1 per cent is payable for earnings above the UEL. Contributions by the self-employed (Class 2 and 4) 5.11

Class 2 contributions are a flat-rate weekly liability payable by all self-employed people over 16

unless earnings are expected to be low (below £5,075 for 2009-10) and they have applied for the small earnings exception. Class 4 contributions are earnings-related payments that are paid if taxable profits exceed the lower profits limit. They are calculated at 8 per cent of profits between the upper and lower profits limits and 1 per cent above the upper profits limit. The current rates of Class 2 and Class 4 contributions are shown in Table 5.3. Voluntary payment of Class 2 contributions 5.12

A self-employed person may choose to pay Class 2 contributions even if not liable to do so

(because, for instance, earnings are below the small earnings exception in a particular week). The rate of Class 2 contributions in 2009-10 is £2.40 per week. Paying voluntary Class 2 contributions in such

142

Section 5: National insurance contributions circumstances can be a better and more affordable way of preserving entitlement to benefit than paying Class 3 contributions. This is because Class 3 contributions carry entitlement to a more restricted range of benefits and are set at a higher cost. Voluntary payment of Class 3 contributions 5.13

Class 3 contributions may be paid by people aged 16 and over to enable them to qualify for

Retirement Pension and widow's benefits if their contribution record would not otherwise be sufficient. The rate of Class 3 contributions in 2009-10 is £12.05 per week, an increase from £8.10 per week for 2008-09. The rise in rate reflects a cost neutral package with Class 3 contribution rules changed to allow those reaching State Pension age between April 2008 and April 2015 with 20 qualifying years to purchase up to 6 additional years from 1975-76. Table 5.3: Class 2,3 and 4 rates and limits in 2009-10 Class Class 2 (Flat-rate weekly) (Small earnings exception £4,825 (per annum)) Class 3 (Flat-rate voluntary weekly contributions)

Rate £2.40

£12.05

Class 4 (Self-employed, profit-related): Rate on profits between LPL and UPL: Rate on profits above UPL: Lower profits limit (LPL): Upper profits limit (UPL):

8.0% 1.0% £5,715 £43,875

143

Section 5: National insurance contributions

B. HISTORY 1911 to 1948 5.14

National Insurance was introduced in 1911 to provide a source of non-means-tested basic income

during interruptions in earning capacity caused by sickness and (to a lesser extent) unemployment. Throughout the period it was limited to workers below an earnings threshold, with a small area of voluntary participation for those with earnings just above it. Some occupations (mainly large public-sector employments) were excluded from insurance. Contributions were flat-rate, and paid and collected separately for different contingencies. Sickness benefits were insured (and the benefits paid) through Friendly Societies and it was possible for benefits to vary above a flat-rate minimum depending on the investment performance of the society. It was possible to be insured for different combinations of unemployment, sickness, pensions, and widows' benefits. There were also separate insurance schemes, with different benefit and contribution rates, for some types of occupation, such as agricultural workers. 5.15

Over the period, the scheme became more comprehensive, covering more groups of workers and

a wider income range. The range of benefits provided expanded from the initial working-age protection against sickness, unemployment and maternity needs introduced in the National Insurance Act 1911 to include contributory retirement and survivors' benefits in 1925. However, there was no consistency in the rate of benefit or in the treatment of dependants. July 1948 to April 1961 5.16

Following the recommendations in Sir William Beveridge's 1942 report Social Insurance and Allied

Services, the National Insurance system included all employed and self-employed earners and was accessible voluntarily to non-workers, though married women were not expected to participate. However, contributors were divided into different classes with access to different groups of benefits. From 1948, the introduction of the National Health Service meant that sickness insurance contributions purchased benefits alone, not—as previously—benefits and medical care. 5.17

In this period National Insurance contributions were flat rate contributions paid by the employed

(Class 1), the self-employed (Class 2) and the non-employed (Class 3). Different rates were payable for each class.

The rate also depended on the contributor's sex and age (whether they were under or

over 18). In addition to national insurance, the contributions included elements for the National Health Service and, in the case of Class 1 contributions, for industrial injuries. For employees (i.e. Class 1) separate contributions were paid by the employee and employer. Rates of Class 1 contributions paid for men and women over the age of 18 are shown in Table 5.6. 5.18

Married women could choose whether to pay the full contribution or a reduced payment, which only

covered the industrial injuries contribution and gave no entitlement to other contributory benefits (although married women could claim retirement pension based on their husband's contribution record).

144

Section 5: National insurance contributions

5.19

Men over 65 and women over 60 only paid industrial injuries contributions until the National

Insurance Act 1957 allowed the elderly to choose to earn additional pension rights whilst working by paying full rate contributions. 5.20

Members of HM Forces also paid a reduced flat-rate contribution.

April 1961 to April 1975 5.21

After April 1961 weekly flat-rate contributions continued to be paid in much the same way as before

(although ‘contracting-out’ was introduced - see below). However additional graduated contributions were introduced for employees (Class 1 contributors). These qualified the person for the new graduated pension. Flat rate weekly ‘stamps’ continued to be the sole means of obtaining all other contributory benefits. Graduated contributions were levied as a straight percentage (see Table 5.6 for figures)1 on the excess of income over the LEL up to the UEL. From October 1967 there was a second rate of contribution on earnings over an intermediate earnings limit up to the UEL. For not contracted-out contributions only, the rate was consolidated once more at a single rate in October 1972. Example 5.2 gives an illustration.

1

Actual contributions rose in small discrete steps that approximated to these percentage rates (see Social Security Statistics 1975, Table 40.04 and 40.05).

145

Section 5: National insurance contributions

Example 5.2: Male employee, over 18 earning £25 per week: not contracted out August 1969 Male employee, over 18 earning £25 per week: not contracted out. Employee:

Employer:

Flat rate contribution Graduated element

= =

£0.83 pw

Total

= =

£0.46 pw £1.30 pw

Flat rate contribution Graduated element Total

= = =

£0.78 pw £0.46 pw £1.24 pw

(18-9) x 4.75% + (25-18) x 0.50%

Example 5.3: Employee over 16 not contracted out August 1978 Employee over 16, earning £15 pw Employee Employer Employee over 16, earning £18 pw Employee Employer National Insurance Surcharge

5.22

- nil - nil 18 x 0.065 18 x 0.10 18 x 0.02

= £1.17 = £1.80 = £0.36

The employer made an equal graduated contribution. For the purposes of this calculation income

was defined as gross pay including overtime, commission and bonuses. Employees could be contracted-out of the graduated pension if they had an occupational pension scheme that achieved certain specified standards.

If they chose this option they would pay higher flat rate contributions but lower

graduated contributions. The latter would result in a smaller graduated pension. 5.23

The rates of graduated contributions were the same for men and women (whether the latter opted for

reduced flat rate contributions or not). No graduated contributions were payable by, or on behalf of, those under 18 or those treated as retired for pension purposes. April 1975 to October 1985 5.24

From April 1975, the flat rate contributions and graduated elements were replaced with an earnings

related percentage based system.

There were different percentage rates for employees and employers

and contracted out and not contracted-out contributions (see Table 5.7).

146

Section 5: National insurance contributions 5.25

The transition to an earnings-related contribution system led to a number of major changes in the

structure of National Insurance. These included: — the introduction of lower and upper earnings limits for contribution liability. A lower limit was required both for practical administrative reasons and to concentrate contributions and benefits on people who depended substantially on income from work. The lower limit was linked to the level of basic retirement pension. An upper limit was required to prevent excessive burdens (and the acquisition of very high benefit entitlements); — the concept of a two-part benefit system for longer-term needs, consisting of a basic flat-rate benefit and an earnings-linked second pension (SERPS); — equalisation of contribution and benefit rates for men and women and young people; — the abolition of the "married women's election" (the special lower-rate National Insurance contribution paid by married women) for marriages after April 1977; — the introduction of Home Responsibilities Protection (HRP) for people prevented from working to the full by the care of children. HRP made it easier to achieve a full retirement pension by excluding years of very low earnings and child-care from the length of the working life over which retirement pension was calculated; No contributions were paid unless earnings were above the LEL. However, where earnings exceeded the lower limits the relevant rate applied to all earnings. In addition, employers were liable for national insurance surcharge between April 1977 and October 1984. 5.26

The contracted out rebate for employer and employee contributions was only applied between the

LEL and UEL. Earnings below the LEL and above the UEL were charged at the appropriate not contractedout rate. October 1985 to October 1989 5.27

From 1985 a number of different rates were introduced between the lower and upper earnings

limits.

For each level of earnings the appropriate rate was applied to all earnings, not just the earnings

within the band to which each rate applied. (See Table 5.8.) There was also no UEL for employer contributions.

147

Section 5: National insurance contributions

Example 5.4: Not contracted out August 1988 Not Contracted Out Earnings £ per week 30 60 100 200 400 500

Employee 0.05 0.07 0.09 0.09 0.09

x x x x x

60 100 200 305 305

= = = = =

Employer 0 £ 3.00 £ 7.00 £18.00 £27.45 £27.45

0.05 0.07 0.1045 0.1045 0.1045

x x x x x

60 100 200 400 500

= = = = =

0 £ 3.00 £ 7.00 £20.90 £41.80 £52.25

October 1989 to April 1999 Class 1 5.28

An employee aged 16 or over had to pay primary Class 1 contributions and the employer had to

pay secondary contributions unless weekly earnings were below the LEL in which case neither payment was made. In 1998-99, employees Class 1 contributions were equal to 2 per cent of earnings up to the LEL (£64 per week) and 10 per cent of earnings above the LEL, up to the UEL (£485 per week). (See Table 5.4.) 5.29

It was possible for Class 1 contributors to contract-out. The option of contracting-out had been (re)

introduced for those employees with an occupational pension scheme that achieved certain specified standards. Contracted-out employees and their employers paid a lower rate of contribution on earnings between the lower and upper limits; however, they lost entitlement to the earnings-related pension as a result.

This contracted-out rate was, in 1998-99, 1.6 per cent below the not contracted-out rate for

employees, and 3.0 per cent below the not contracted-out rate for employers. 5.30

Women who had paid earnings-related reduced rate contributions before 5 April 1978 were able to

continue to do so2. The reduced percentage rate remained unchanged at 3.85 per cent from1983 to 200304. Although reduced rate contributions gave no entitlement to sickness and unemployment benefits, women in Class 1 employment with reduced rate liability were covered for Industrial Injury Benefits. The woman's right to pay contributions at the reduced rate did not affect the employer's obligation to pay full secondary contributions. 2

Unless the woman's marriage ends in divorce or annulment, or she ceases to be entitled to widow's benefit or if there are two consecutive tax years in which she has not been liable to pay Class 1 contributions, or has been self-employed. Thus the number of women entitled to pay reduced rate contributions falls every year.

148

Section 5: National insurance contributions

Examples 5.5: Pre-April 1999 NICs system (assuming no car or fuel benefits), 1998-99 Not Contracted Out Earnings per week 30 70 100 200 400 500 Contracted Out Earnings per week 30 70 100 200 400 500

5.31

Employee (0.02 (0.02 (0.02 (0.02 (0.02

0 x 64) + (0.1 x 64) + (0.1 x 64) + (0.1 x 64) + (0.1 x 64) + (0.1

(0.02 (0.02 (0.02 (0.02 (0.02

0 x 64) + (0.084 x 64) + (0.084 x 64) + (0.084 x 64) + (0.084 x 64) + (0.084

x 6) x 36) x 136) x 336) x 421)

= £ 1.88 = £ 4.88 = £14.88 = £34.88 = £43.38

x 6) = £ 1.78 x 36) = £ 4.30 x 136) = £12.70 x 336) = £29.50 x 421) = £36.64

Employer 0 0.03 x 70 0.03 x 100 0.07 x 200 0.10 x 400 0.10 x 500

= = = = =

£ 2.10 £ 3.00 £14.00 £40.00 £50.00

0 (0.03 x 64) + (0.000 x 6) (0.03 x 64) + (0.000 x 36) (0.07 x 64) + (0.04 x 136) (0.10 x 64) + (0.07 x 336) (0.10 x 64) + (0.07 x 421) + (0.10 x 15)

= £ 1.92 = £ 1.92 = £ 9.92 = £29.92 = £37.37

Since April 1978, NICs had not been paid by employees over the pension age (65 for men, 60 for

women). However contributions were still to be paid, at the not contracted-out rate, by their employers where their earnings exceed the Class 1 LEL. 5.32

From 1975 HM forces had paid a reduced percentage rate. This no longer applied from April 1996

when members of the forces and their employer began to pay NICs at the standard rate. 5.33

From 1991-92 Class 1A employers' NICs have been charged on company cars and free fuel

provided by the employer for private use. These benefits-in-kind remained exempt from employees' NICs. Employers' NIC liability in respect of company cars and free fuel was calculated on the basis of the Inland Revenue scale charges used to assess income tax. Employers' contributions based on the scale charges were paid at the not contracted-out rate (10 per cent in 1998-99) in all cases, except where the employee earned at a rate of less than £8,500 per year, including expenses and benefits, in which case no contributions were levied on benefits in kind. See Table 1.7 for details of car and fuel scales. Liability was assessed annually, and paid in arrears. 5.34

The range within which the LEL and UEL had to fall was specified in legislation. The weekly LEL was

fixed at the level of the single basic pension rounded down to the nearest pound (50 pence until 1986). The UEL had to fall between 6½ and 7½ times the level of the LEL. Primary legislation was required to relax these constraints.

149

Section 5: National insurance contributions Contributions by the self-employed (Class 2 and 4) 5.35

Class 2 contributions were flat-rate payments payable by all self-employed people over 16 unless

they had applied for the small earnings exception. Class 4 contributions were a percentage of earnings between the lower and upper profits limit. The rates of Class 2 and Class 4 contributions are shown in Table 5.5. Married women could have chosen to pay a ‘reduced rate’ of contributions (under the same conditions as for Class 1 contributions - see above). This exempted them from any Class 2 contributions. They remained liable to Class 4 contributions at the normal rate. Class 4 contributions did not count towards any benefits. They were intended to spread the cost of benefits available to the self-employed in a more equitable way and so reduce the burden on the self-employed with low earnings. Voluntary payment of Class 2 contributions 5.36

A self-employed person might choose to pay Class 2 contributions even if not liable to do so

(because, for instance, earnings were below the small earnings exception). Paying voluntary Class 2 contributions in such circumstances could be a better way of preserving entitlement to benefit than paying Class 3 contributions because Class 3 contributions carried entitlement to a more restricted range of benefits. Voluntary payment of Class 3 contributions 5.37

Class 3 contributions might be paid by people aged 16 and over to enable them to qualify for

Retirement Pension and widow's benefits if their contribution record would not otherwise have been sufficient. Personal pensions 5.38

As a result of the Social Security Act 1986, people could make their own provision for retirement by

taking out Personal Pensions (PP). Personal Pensions which meet certain conditions (called Appropriate Personal Pensions or APPs) can be used to contract out of the SERPS (previously only occupational schemes have been allowed to opt out of SERPS). The DSS make minimum contributions to these schemes a year in arrears. These may combine three different elements: the contracted-out national insurance rebate, an addition for age and some tax relief. PPs taken out before 5 April 1989 could be backdated to April 1987 and would receive the full minimum contribution for this period. 5.39

The contracted out rebate - all PP optants were required to pay full rate NICs based on their earnings

between the LEL and UEL. The rebate made over by the DSS into the APP scheme was the appropriate percentage applied to the difference between these two rates. On earnings from 1988/89 to 1992/93 it was 5.8 per cent. From 1993/94 to 1997/98 it was 4.8 per cent. From 1997/98 age related rebates have applied and these range from 3.4 per cent, at age 16, to the capped rate of 9 per cent at age 46.

150

Section 5: National insurance contributions

Changes from April 1999 5.40

The Chancellor announced in the March 1998 and March 1999 Budgets that the Government

would introduce the biggest reform to national insurance since the mid-1970s. The changes involved: -

from April 1999, removing the ‘entry fee’ for employees which was a 2 per cent liability on earnings below the lower earnings limit (£66 for 1999-00); and

-

removing the liability for employers to pay contributions on earnings below the Lower Earnings Limit (LEL) and aligning the point at which they start to pay NICs (the secondary threshold) with the income tax personal allowance. The system of multiple national insurance rates payable by employers was replaced with a single rate of 12.2 per cent.

Changes from April 2000 5.41The changes from April 2000 were as follows: -

the first stage of a two-stage alignment of the level at which employees start to pay NICs (the primary threshold) with the non-aged (under 65) personal allowance for income tax was implemented. At the same time appropriate measures were taken to protect benefit entitlement for those earning between the LEL and the new primary threshold. The Upper Earnings Limit (UEL) was increased to maintain the NIC base;

-

the flat rate Class 2 NIC was reduced to £2 a week. The point at which Class 4 NICs on profits become payable was aligned with the personal allowance for income tax (£85 per week for 2000-01) and the rate was increased to 7 per cent. The upper profit limit - the point at which Class 4 liability ends – was increased to £535 a week; and

-

in 1999-2000, Class 1A contributions were a percentage of the value of company cars and fuel. From April 2000, the liability for this class was extended to include other taxable benefits such as accommodation benefits and loan benefits which were not already subject to Class 1.

Changes from April 2001 5.42The changes from April 2001 were as follows: -

an alignment of the primary and secondary thresholds for Class 1 contributions with the Personal Allowance, which has been increased in line with the retail price index. For 2001/ 02 this was £87 a week for weekly paid employees and £378 a month for other employees;

-

an increase in the lower and upper earnings limits for Class 1 contributions to £72 (from £67) a week and £575 (from £535) a week respectively. The increase in the LEL was in line with the increase to the basic state retirement pension, while the increase in the UEL was as announced in the March 1999 Budget;

-

Class 3 contributions were increased broadly in line with RPI; and

151

Section 5: National insurance contributions -

the lower and upper profit limits for Class 4 were aligned with the personal allowance and the upper earnings limit for Class 1 contributions respectively.

-

Stakeholder pensions introduced which could be used to contract out of SERPS in the same manner as Appropriate Personal Pensions.

Changes from April 2002 5.43The changes from April 2002 were as follows: -

reduction of the Class 1 secondary rate to 11.8 percent (from 11.9 percent);

-

State Second Pension (S2P) replaced SERPS to provide more generous additional State Pensions for low to moderate earners.

Changes from April 2003 5.44The changes from April 2003 were as follows: -

an additional one per cent increase in contribution rates for employers, employees and the self-employed on all earnings above the primary threshold and profits above the lower profits limit..

Changes from April 2004 5.45 Normal up rating. Changes from April 2005 5.46 Normal up rating. Changes from April 2006 5.47 The changes from April 2006 were as follows: -

an increase in the lower and upper earnings limits for Class 1 primary contributions to £84 (from £82) a week and to £645 (from £630) a week respectively - in line with inflation;

-

an increase of the annual small earnings exception for Class 2 contributions to £4,465 (from £4,345);

-

an increase of the annual upper profits limit for Class 4 contributions to £33,540 (from £32,760);

-

an increase of the Class 3 contribution from £7.35 to £7.55; and the special rate of Class 2 contributions for volunteer development workers was increased by 10 pence to £4.20 in line with the statutory formula of 5 percent of the primary Class 1 LEL.

152

Section 5: National insurance contributions Changes from April 2007 5.48 Normal up rating. Changes from April 2008 5.49 -

The changes from April 2008 as announced in the 2007 Budget were as follows

an increase in the upper earnings limit for class 1 contributions of £75 per week above indexation with a corresponding increase in the annual upper profits limit for Class 4 contributions;

Changes from April 2009 5.50 The following changes were also announced in the 2007 Budget from April 2009 -

Fully align the level of the upper earnings limit and upper profits limit with the higher rate threshold for income tax;

-

Increase the higher rate threshold for tax, and consequently the UEL and UPL, by £800 a year above indexation.

5.51 As announced at PBR 2008 the Class 3 rate was increased above indexation to £12.05 per week and contribution rules changed to allow those reaching SPA who met certain restrictions to purchase up to 6 additional qualifying years. This package was intended to be cost neutral. Announced future changes 5.52 The changes announced at PBR 2008 were: -

Increasing the employee, employer and self-employed NICs rates by 0.5% from April 2011

-

Aligning the primary threshold (but not the secondary threshold) with the level of the weekly equivalent of the income tax personal allowance from April 2011

153

Section 5: National insurance contributions

C HISTORICAL TABLES POST 1990 Table 5.4 Class 1 national insurance contributions

1990-91

Weekly Income 46 (LEL) 46 to 79.99 80 to 124.99 125 to 174.99 175 to 350 350 (UEL)

Below

Above

3

Rebate

1991-92

income between 46 (LEL) and 350 (UEL) 52 (LEL) 52 to 84.99 85 to 129.99 130 to 184.99 185 to 390 390 (UEL)

Below

Above

3

Rebate

1992-93

Above

3

Rebate

1993-94

Above

3

Rebate

1994-95

Above

3

Rebate

1995-96

Above

3

Rebate

3.80%

------------------------------------------------(No NICs payable)-------------------------------------------all income 4.60% all income 6.60% 2% on first £54; 9% on income over £54 all income 8.60% all income 10.40% income under 405 (UEL) for employees £32.67 10.40% all income for employers 2.0%

3.80%

------------------------------------------------(No NICs payable)-------------------------------------------all income 4.60% all income 6.60% 2% on first £56; 9% on income over £56 all income 8.60% all income 10.40% income under 420 (UEL) for employees £33.88 10.40% all income for employers 1.8%

3.00%

------------------------------------------------(No NICs payable)-------------------------------------------all income 3.60% all income 5.60% 2% on first £57; 10% on income over £57 all income 7.60% all income 10.20% income under 430 (UEL) for employees £38.44 10.20% all income for employers income between 57 (LEL) and 430 (UEL)

58 (LEL) 58 to 104.99 105 to 149.99 150 to 204.99 205 to 440 440 (UEL)

Below

2.0%

income between 56 (LEL) and 420 (UEL) 57 (LEL) 57 to 99.99 100 to 144.99 145 to 199.99 200 to 430 430 (UEL)

Below

3.80%

------------------------------------------------(No NICs payable)-------------------------------------------all income 4.60% all income 6.60% 2% on first £52; 9% on income over £52 all income 8.60% all income 10.40% income under 390 (UEL) for employees £31.46 10.40% all income for employers

income between 54 (LEL) and 405 (UEL) 56 (LEL) 56 to 94.99 95 to 139.99 140 to 194.99 195 to 420 420 (UEL)

Below

2.0%

income between 52 (LEL) and 390 (UEL) 54 (LEL) 54 to 89.99 90 to 134.99 135 to 189.99 190 to 405 405 (UEL)

Below

Employers 1 2 Income chargeable Employee's contribution contribution ------------------------------------------------(No NICs payable)-------------------------------------------all income 5.00% all income 7.00% 2% on first £46; 9% on income over £46 all income 9.00% all income 10.45% income under 350 (UEL) for employees £28.28 10.45% all income for employers

1.8%

3.00%

------------------------------------------------(No NICs payable)-------------------------------------------all income 3.00% all income 5.00% 2% on first £58; 10% on income over £58 all income 7.00% all income 10.20% income under 440 (UEL) for employees £39.36 10.20% all income for employers income between 58 (LEL) and 440 (UEL)

1.8%

154

3.00%

Section 5: National insurance contributions

Table 5.4 Class 1 National Insurance Contributions (continued) 1996-97

Weekly Income 61 (LEL) 61 to 109.99 110 to 154.99 155 to 209.99 210 to 455 455 (UEL)

Below

Above

Rebate 3 1997-98

Below

income between 61 (LEL) and 455 (UEL) 62 (LEL) 62 to 109.99 110 to 154.99 155 to 209.99 210 to 465 465 (UEL)

Above Rebate 3

1998-99

Above Rebate 3 1999-00

Below

66 (LEL) 66 to 82.99 83 to 500

Above

500 (UEL)

67 (LEL) 67 to 75.99 76 to 83.99 84 to 535

Above

535 (UEL)

Rebate 3

2001-02

Below

Rebate

3

3.00 4% (1.50%) 5

------------------------------------------------(No NICs payable)-------------------------------------------all income 3.00% 5.00% all income 2% on first £64; 10% on income over £64 7.00% all income 10.00% all income 10.00% income under 485 (UEL) for employees £43.38 all income for employers 1.6%

3.00 4% (1.50%) 5

------------------------------------------------(No NICs payable)-------------------------------------------income above 66 (LEL) 10% 0.00% income above 66 (LEL) for employees, 10% 12.20% income above 83 (ST) for employers 12.20% income under 500 (UEL) for employees £43.40 income above 83 (ST) for employers 1.6%

3.00 4% (0.60%) 5

------------------------------------------------(No NICs payable)-------------------------------------------income above 67 (LEL) 0% 0.00% income above 76 (PT) 10% 0.00% 12.20% income above 76 (PT) for employees, 10% income above 84 (ST) for employers 12.20% income under 535 (UEL) for employees £45.90 income above 84 (ST) for employers income between 67 (LEL) and 535 (UEL)

72 (LEL) 72 to 86.99 87 to 575 575 (UEL)

Above

1.6%

income between 66 (LEL) and 500 (UEL)

Below

3.00%

------------------------------------------------(No NICs payable)-------------------------------------------all income 3.00% 5.00% all income 2% on first £62; 10% on income over £62 7.00% all income 10.00% all income income under 465 (UEL) for employees £41.54 10.00% all income for employers

income between 64 (LEL) and 485 (UEL)

Rebate 3

2000-01

1.8%

income between 62 (LEL) and 465 (UEL) 64 (LEL) 64 to 109.99 110 to 154.99 155 to 209.99 210 to 485 485 (UEL)

Below

Employers Income Chargeable Employee's contribution 1 contribution 2 ------------------------------------------------(No NICs payable)-------------------------------------------all income 3.00% 5.00% all income 2% on first £61; 10% on income over £61 7.00% all income 10.20% all income income under 455 (UEL) for employees £40.62 10.20% all income for employers

1.6%

3.00% 6

------------------------------------------------(No NICs payable)-------------------------------------------income above 72 (LEL) 0% 0.00% income above 87 (PT/ST) 10% 11.90% income under 575 (UEL) for employees £48.80 11.90% income above 87 (ST) for employers income between 72 (LEL) and 575 (UEL)

1.6%

155

3.00%

6

Section 5: National insurance contributions

T a b le 5 .4 C la s s 1 N a tio n a l In s u ra n c e C o n trib u tio n s (c o n tin u e d )

W e e k ly In c o m e 2 0 0 2 -0 3

B e lo w

7 5 (L E L ) 7 5 to 8 8 .9 9 8 9 to 5 8 5 5 8 5 (U E L )

A bove

R e b a te

2 0 0 3 -0 4

3

B e lo w

R e b a te 2 0 0 4 -0 5

3

B e lo w

R e b a te

2 0 0 5 -0 6

3

B e lo w

A bove R e b a te

2 0 0 6 -0 7

3

B e lo w

A bove R e b a te

2 0 0 7 -0 8

3

A bove R e b a te

2 0 0 8 -0 9

3

A bove R e b a te

2 0 0 9 -1 0

3

A bove R e b a te

3

1 .6 %

1 .6 %

------------(N o N IC s p a ya b le )-------------------------------------------in c o m e a b o v e 8 7 (L E L ) 0% in c o m e a b o v e 1 0 0 (P T /S T ) 11% in c o m e a b o v e 6 7 0 (U E L ) fo r e m p lo ye e s 1% 1 .6 %

------------(N o N IC s p a ya b le )-------------------------------------------in c o m e a b o v e 9 0 (L E L ) 0% in c o m e a b o v e 1 0 5 (P T /S T ) 11% in c o m e a b o v e 7 7 0 (U E L ) fo r e m p lo ye e s 1% in c o m e b e tw e e n 9 0 (L E L ) a n d 7 7 0 (U E L )

9 5 (L E L ) 9 5 to 1 1 0 1 1 0 to 8 4 4 8 4 4 (U E L )

B e lo w

1 .6 %

------------(N o N IC s p a ya b le )-------------------------------------------in c o m e a b o v e 8 4 (L E L ) 0% in c o m e a b o v e 9 7 (P T /S T ) 11% in c o m e a b o v e 6 4 5 (U E L ) fo r e m p lo ye e s 1%

in c o m e b e tw e e n 8 7 (L E L ) a n d 6 7 0 (U E L ) 9 0 (L E L ) 9 0 to 1 0 5 1 0 5 to 7 7 0 7 7 0 (U E L )

B e lo w

1 .6 %

------------(N o N IC s p a ya b le )-------------------------------------------in c o m e a b o v e 8 2 (L E L ) 0% in c o m e a b o v e 9 4 (P T /S T ) 11% in c o m e a b o v e 6 3 0 (U E L ) fo r e m p lo ye e s 1%

in c o m e b e tw e e n 8 4 (L E L ) a n d 6 4 5 (U E L ) 8 7 (L E L ) 8 7 to 1 0 0 1 0 0 to 6 7 0 6 7 0 (U E L )

B e lo w

1 .6 %

3 .5 0 %

6

3 .5 0 %

6

-----------------------------------------(N o N IC s p a ya b le )------------------------------------0 .0 0 % in c o m e a b o v e 7 9 (L E L ) 0% 1 2 .8 0 % in c o m e a b o v e 9 1 (P T /S T ) 11% in c o m e a b o v e 6 1 0 (U E L ) fo r e m p lo ye e s 1% 1 2 .8 0 %

in c o m e b e tw e e n 8 2 (L E L ) a n d 6 3 0 (U E L ) 8 4 (L E L ) 8 4 to 9 7 9 7 to 6 4 5 6 4 5 (U E L )

E m p lo ye rs 2 c o n trib u tio n

-----------------------------------------(N o N IC s p a ya b le )------------------------------------in c o m e a b o v e 7 7 (L E L ) 0% 0 .0 0 % 1 2 .8 0 % in c o m e a b o v e 8 9 (P T /S T ) 11% in c o m e u n d e r 5 9 5 (U E L ) fo r e m p lo ye e s £ 5 5 .6 6 1 2 .8 0 % in c o m e a b o v e 5 9 5 (U E L ) fo r e m p lo ye e s 1% in c o m e a b o v e 8 9 (S T ) fo r e m p lo ye rs

in c o m e b e tw e e n 7 9 (L E L ) a n d 6 1 0 (U E L ) 8 2 (L E L ) 8 2 to 9 4 9 4 to 6 3 0 6 3 0 (U E L )

1

-----------------------------------------(N o N IC s p a ya b le )------------------------------------0 .0 0 % in c o m e a b o v e 7 5 (L E L ) 0% 1 1 .8 0 % in c o m e a b o v e 8 9 (P T /S T ) 10% in c o m e u n d e r 5 8 5 (U E L ) fo r e m p lo ye e s £ 4 9 .6 0 1 1 .8 0 % in c o m e a b o v e 8 9 (S T ) fo r e m p lo ye rs

in c o m e b e tw e e n 7 7 (L E L ) a n d 5 9 5 (U E L ) 7 9 (L E L ) 7 9 to 9 1 9 1 to 6 1 0 6 1 0 (U E L )

A bove

E m p lo ye e 's c o n trib u tio n

in c o m e b e tw e e n 7 5 (L E L ) a n d 5 8 5 (U E L ) 7 7 (L E L ) 7 7 to 8 8 .9 9 8 9 to 5 9 5 5 9 5 (U E L )

A bove

In c o m e C h a rg e a b le

1 .6 %

------------(N o N IC s p a ya b le )-------------------------------------------in c o m e a b o v e 9 5 (L E L ) 0% in c o m e a b o v e 1 1 0 (P T /S T ) 11% in c o m e a b o v e 8 4 4 (U E L ) fo r e m p lo ye e s 1% in c o m e b e tw e e n 9 5 (L E L ) a n d 8 4 4 (U E L )

Footnote in the next page

156

1 .6 %

3 .5 0 %

6

0 .0 0 % 1 2 .8 0 % 1 2 .8 0 % 3 .5 0 %

6

0 .0 0 % 1 2 .8 0 % 1 2 .8 0 % 3 .5 0 %

6

0 .0 0 % 1 2 .8 0 % 1 2 .8 0 % 3 .7 0 %

6

0 .0 0 % 1 2 .8 0 % 1 2 .8 0 % 3 .7 0 %

6

0 .0 0 % 1 2 .8 0 % 1 2 .8 0 % 3 .7 0 %

6

Section 5: National insurance contributions

Notes to Table 5.4 This rate applies to all earnings below the UEL for 1985-86 to 1998-99 2 This rate applies to all earnings 3 The contracted out rebate rate is applied only to earnings between the LEL and UEL 4 Rate for Contracted-Out Salary Related (COSR) scheme 1

5

Rate for Contracted-Out Money Purchase Scheme (COMPS). The employer's contracted-out rebate varies according to the age of the employee. However, in 1999-2000 only a rebate of 0.6 percent (1.5 percent in 1997-98 and 1998-99) was deducted from fromm contributions at the time they were paid, the remainder was paid by the Contribition Agency in the following financial year the submission by employers of end-of-year returns. 6

For the year 2000-01 and 2001-02, the contracted-out rebate for secondary contributions is 3% of earnings between the LEL and UEL for contracted-out salary-related schemes. The rate for 2002-03 to 2006-07 is 3.5% and in 2007-08 it is 3.7%. For contracted-out money purchase schemes, the employer's contracted -out rebate varies according to the age of the employee. For appropriate personal pensions, the total rebate (primary and secondary combined) applicable to earnings is like the rebate from COMPS, related to the age of the employee.

157

Section 5: National insurance contributions

Table 5.5: Class 2, 3 and 4 contributions 1990/91

1991/92

1992/93

1993/94

1994/95

Class 2: (Flat rate weekly) Flat rate weekly 1 Small earnings exception : (per annum)

£4.55 £2,600

£5.15 £2,900

£5.35 £3,030

£5.55 £3,140

£5.65 £3,200

£5.75 £3,260

£6.05 £3,430

Class 4: (Self-employed; profit-related) Rate on profits between LPL and UPL Lower profits limit (LPL) Upper profits limit (UPL)

6.3% £5,450 £18,200

6.3% £5,900 £20,280

6.3% £6,120 £21,060

6.3% £6,340 £21,840

7.3% £6,490 £22,360

7.3% £6,640 £22,880

6.0% £6,860 £23,660

£4.45

£5.05

£5.25

£5.45

£5.55

£5.65

£5.95

1997/98

1998/99

1999/00

2000/01

2001/02

Class 2: (Flat rate weekly) Flat rate weekly 1 Small earnings exception : (per annum)

£6.15 £3,480

£6.35 £3,590

£6.55 £3,770

£2.00 £3,825

£2.00 £3,955

£2.00 £4,025

£2.00 £4,095

Class 4: (Self-employed; profit-related) Rate on profits between LPL and UPL Rate on profits above UPL Lower profits limit (LPL) Upper profits limit (UPL)

6.0% £7,010 £24,180

6.0% £7,310 £25,220

6.0% £7,530 £26,000

7.0% £4,385 £27,820

7.0% £4,535 £29,900

7.0% £4,615 £30,420

8.0% 1.0% £4,615 £30,940

£6.05

£6.25

£6.45

£6.55

£6.75

£6.85

£6.95

Class 3: (Flat-rate voluntary weekly contributions) Contributions

Class 3: (Flat-rate voluntary weekly contributions) Contributions

2004/05

2005/06

2006/07

2007/08

2008/09

1995/96 1996/97

2002/03 2003/04

2009/10

Class 2: (Flat rate weekly) Flat rate weekly 1 Small earnings exception : (per annum)

£2.05 £4,215

£2.10 £4,345

£2.10 £4,465

£2.20 £4,635

£2.30 £4,825

£2.40 £5,075

Class 4: (Self-employed; profit-related) Rate on profits between LPL and UPL Rate on profits above UPL Lower profits limit (LPL) Upper profits limit (UPL)

8.0% 1.0% £4,745 £31,720

8.0% 1.0% £4,895 £32,760

8.0% 1.0% £5,035 £33,540

8.0% 1.0% £5,225 £34,840

8.0% 1.0% £5,435 £40,040

8.0% 1.0% £5,715 £43,875

£7.15

£7.35

£7.55

£7.80

£8.10

£12.05

Class 3: (Flat-rate voluntary weekly contributions) Contributions 1

If earnings from self-employment are below this annual limit and the contributor applies for and is granted a small

earnings exception, then Class 2 contributions may be paid voluntarily if desired.

158

Section 5: National insurance contributions

D HISTORICAL TABLES PRE 1990 Table 5.6: Class 1 contributions July 1948 - April 1975 Flat-rate contributions1, £pw not contracted-out rate2 Men over 18 Employee Employer

Graduated element3, per cent4 Lower rate Upper rate5

Women over 18 Employee Employer

not contracted contracted out out

Earnings Limits6 £ pw L

I

U

Employee's maximum contributions Men over 18 not contracted out

contracted out

05/07/1948

0.246

0.208

0.192

0.162

0.246

01/10/1951

0.254

0.217

0.200

0.171

0.254

06/10/1952

0.287

0.250

0.225

0.196

0.287

06/06/1955

0.337

0.300

0.275

0.246

0.337

02/09/1957

0.371

0.308

0.300

0.254

0.371

03/02/1958

0.471

0.404

0.383

0.329

0.471

07/07/1958

0.496

0.412

0.400

0.338

03/04/617

0.487

0.421

0.400

0.358

4.25

9

-

15

0.742

03/07/1961

0.529

0.429

0.433

0.367

4.25

9

-

15

0.783

03/06/638

0.583

0.483

0.483

0.417

4.25

9

-

18

0.967

29/03/1965

0.683

0.646

0.571

0.558

4.25

9

-

18

1.067

06/12/659

0.683

0.646

0.571

0.558

4.25

9

-

18

1.067

05/09/669

0.683

0.646

0.571

0.558

4.75

0.50

0.50

9

18

30

1.171

0.908

06/02/1967

0.683

0.646

0.571

0.558

4.75

0.50

0.50

9

18

30

1.171

0.908

30/10/1967

0.783

0.758

0.658

0.658

4.75

0.50

0.50

9

18

30

1.271

1.008

06/05/1968

0.833

0.783

0.704

0.679

4.75

0.50

0.50

9

18

30

1.321

1.058

02/09/1968

0.833

0.783

0.704

0.679

4.75

0.50

0.50

9

18

30

1.321

1.058

07/07/1969

0.833

0.783

0.704

0.679

4.75

0.50

0.50

9

18

30

1.321

1.058

03/11/1969

0.883

0.833

0.750

0.725

4.75

0.50

3.25

9

18

30

1.700

1.438

06/07/1970

0.883

0.883

0.750

0.775

4.75

0.50

3.25

9

18

30

1.700

1.438

15/02/1971

0.880

0.887

0.750

0.771

4.75

0.50

3.25

9

18

30

1.700

1.430

05/07/1971

0.880

0.887

0.750

0.771

4.75

0.50

3.25

9

18

30

1.700

1.430

20/09/2000

0.880

0.887

0.750

0.771

4.75

0.50

4.35

9

18

42

2.350

2.080

02/10/1972

0.880

0.987

0.750

0.861

4.75

0.50

4.75

9

18

48

2.730

2.470

02/04/1973

0.880

0.987

0.750

0.861

4.75

0.50

4.75

9

18

48

2.730

2.470

01/10/1973

0.840

1.127

0.710

0.981

5.00

0.75

5.00

9

18

54

3.090

2.830

21/01/1974

0.840

1.217

0.710

1.051

5.00

0.75

5.00

9

18

54

3.090

2.830

05/08/1974

0.750

1.657

0.620

1.431

5.50

0.75

5.50

9

18

62

3.660

3.400

0.496

Notes to Table 5.6 are shown on the next page.

159

Section 5: National insurance contributions Notes to Table 5.6 1

'Flat-rate' contributions include National Insurance, Industrial Injuries, and National Health Allocation. Different rates were payable: by employee and employer; by men and women; by those over 18 and under 18; and (after April 1961) in respect of those contracted-in to the graduated pension scheme, and those contracted-out. The rates shown in the table pre-February 1971 have been converted into decimal form from the £sd rates which applied then. 5 July 1948-2 April 1961: no graduated contributions were payable. 3 April 1961-5 April 1975: the contributions were made up of two components: flat-rate contributions payable by all employees; and contributions based on weekly earnings in excess of £9 (the 'graduated contribution'). For those earning less than £9 a week, no graduated contribution was payable. Each component had two rates of contribution: one for those contracted-in to (or more properly 'not contracted-out' of) the graduated pension scheme, and the other for those contracted-out. The flat-rate contributions for the contracted-out were higher than for those not contracted-out, whereas the graduated contributions for the contracted-out were lower.

2

The contracted-out rates were higher by the following amounts: Men over 18 From: Employee Employer 3 April 1961 £0.079 £0.063 3 June 1963 £0.121 £0.121 15 February 1971 12p 12p

Women over 18 Employee Employer £0.042 £0.021 £0.075 £0.075 8p 8p

3

The rates shown were payable by both the employer and the employee. Until April 1975 the employer's graduated contribution was always equal to that of the employee.

4

Graduated contributions were derived from tables of contributions against earnings. Contributions went up in discrete steps of £0.50, £1, or £3 of earnings. The percentage rates shown here are thus only approximate. (The full tables are given in Social Security Statistics 1975, tables 40.04 and 40.05, p199-204).

5

3 April 1961-4 October 1966: there was one rate for graduated contributions between the LEL and UEL. Graduated contributions were payable only on earnings in excess of the lower limit. 5 October 1966-5 April 1975: there were two rates for graduated contributions. The lower rate applied to earnings between the lower and the intermediate earnings limit, and the upper band ran from the intermediate to the upper limit. The contracted-out rate was lower than the not-contracted-out rate in the lower band, but in the upper band the two rates were the same. After October 1972, the not-contracted-out rates in the upper and lower bands were the same but two rates remained for those contracted-out.

6

L: lower; I: intermediate (top of lower band); U: upper. No graduated contributions were payable on earnings above the upper earnings limit.

7

The graduated pension scheme, with its graduated rates came into operation on 6 April 1961.

8

The graduated rates changed on 1 June 1963.

9

The graduated rates changed on 5 October 1966.

160

Section 5: National insurance contributions

Table 5.7: Class 1 contributions 6 April 1975 to October 1985 Employee's Contributions 2 Contracted-out Not Contracted-out Rate(%) Max(£) Rate(%) Max(£)

1

Employers' Contributions 2 Contracted-out Not Contracted-out Rate(%) Max(£) Rate(%) Max(£)

Earnings Limits Lower(£) Upper(£)

1975-76

5.50

3.79

As not

8.50

5.86

As not

11.00

69

1976-77

5.75

5.46

contracted

8.75

8.31

contracted

13.00

95

1977-78

5.75

6.04

8.75

9.19

15.00

105

1978-79

6.50

7.80

4.00

5.24

10.00

12.00

5.50

7.39

17.50

120

1979-80

6.50

8.77

4.00

5.89

10.00

13.50

5.50

8.30

19.50

135

1980-81

6.75

11.14

4.25

7.59

10.20

16.83

5.70

10.44

23.00

165

1981-82

7.75

15.50

5.25

11.17

10.20

20.40

5.70

12.61

27.00

200

1982-83

8.75

19.25

6.25

14.49

10.20

22.44

5.70

13.87

29.50

220

1983-84

9.00

21.15

6.85

16.80

10.45

24.56

6.35

16.26

32.50

out

out

3

1984-85 9.00 22.50 6.85 17.86 10.45 26.12 6.35 17.27 34.00 1 In addition, national insurance surcharge (NIS) was payable by most employers (excluding charities) from April 1977 to its abolition on 1st October 1984 (6 April 1985 for local authorities). NIS was levied on employees' gross earnings on exactly the same basis as employers' NICs. Rates of NIS since its introduction: from: 06-Apr-77 02-Oct-78 02-Aug-82 06-Apr-83 01-Oct-84 per cent rate 2 3½ 2 1½ 0 At the end of 1982-83 a rebate was made to employers. This reduced the effective rate of NIS for the year as a whole to 2 per cent. 2 The contracted-out rebate for employer and employees contributions is applied only between LEL and UEL. Earnings below the LEL and above the UEL are charged at the appropriate not contracted-out rate. 3

Between April 1985 and October 1985 the LEL and UEL were £35.50 and £265 respectively.

161

235 250

Section 5: National insurance contributions

Table 5.8: Class 1 contributions October 1985 to April 1990

06-Oct-1985 to 05-Apr -1986

Below

Above Rebate

1986-87

Above Rebate

06-Apr-1989 to 04-Oct-1989

3

Below

Rebate

05-Oct-1989 to April 1990

3

Below

Above Rebate 1 2 3

3

0 all income all income all income all income 0-295

2.15

4.10

__________(No NICs payable)____________ 5% 5.00% 7% 7.00% 9% 9.00% 9% 10.45% £26.55 10.45% 2.15

4.10

__________(No NICs payable)____________ 5% 5.00% 7% 7.00% 9% 9.00% 9% 10.45% £27.45 10.45%

0 all income all income all income all income 0-305

2.00

3.80

__________(No NICs payable)____________ 5% 5.00% 7% 7.00% 9% 9.00% 9% 10.45% £29.25 10.45%

0 all income all income all income all income 0-325 income between 43 (LEL) and 325 (UEL)

43 (LEL) 43 to 75 75 to 115 115 to 165 165 to 325 325 (UEL)

4.10

__________(No NICs payable)____________ 5% 5.00% 7% 7.00% 9% 9.00% 9% 10.45% £25.65 10.45%

0 all income all income all income all income 0-285

income between 41 (LEL) and 305 (UEL) 43 (LEL) 43 to 75 75 to 115 115 to 165 165 to 325 325 (UEL)

Above

2.15

income between 39 (LEL) and 295 (UEL) 41 (LEL) 41 to 70 70 to 105 105 to 155 155 to 305 305 (UEL)

Employer's 2 contributions rate

__________(No NICs payable)____________ 5% 5.00% 7% 7.00% 9% 9.00% 9% 10.45% £23.85 10.45%

income between 38 (LEL) and 285 (UEL)

3

Below

Emloyee's 1 contributions rate

income between 35.50 (LEL) and 265 (UEL)

39 (LEL) 39 to 65 65 to 100 100 to 150 150 to 295 295 (UEL)

Above

1988-89

0 all income all income all income all income 0-265

3

Below

Rebate

35.50 (LEL) 35.50 to 55 55 to 90 90 to 130 130 to 265 265 (UEL)

38 (LEL) 38 to 60 60 to 95 95 to 140 140 to 285 285 (UEL)

Above

1987-88

Income Chargeable

3

Below

Rebate

Weekly income

2.00

3.80

__________(No NICs payable)____________ 2% on first £43; 5.00% 9% on balance 7.00% 9.00% 10.45% £26.25 10.45%

0 all income all income all income all income 0-325 income between 43 (LEL) and 325 (UEL)

This rate applies to all earnings below the UEL for 1985-86 to 1998-99. This rate applies to all earnings. The non contracted-out rebate is applied only to earnings between the LEL and the UEL.

162

2.00

3.80

Section 5: National insurance contributions

Table 5.9: Reduced rate contributions for married women

£ 0.013 0.021 0.017 0.021 0.025 0.029 0.033 0.040 % 2.00 2.75 3.20 3.85

05-Jul-48 03-Feb-58 03-Apr-61 03-Jun-63 29-Mar-65 30-Oct-67 03-Nov-69 20 September 1971 to 5 April 1975 06-Apr-75 06-Apr-81 06-Apr-82 1 6 April 1983 onwards

1

From April 1999, this applies only on income above the LEL.

Table 5.10: Class 2, 3 and 4 contributions1 1975-76

1976-77

1977-78

1978-79

1979-80

1980-81

1981-82

1982-83

Class 2: (Flat-rate weekly) Men Women 2 Small earnings exception (per annum)

£2.41 £2.10 £675

£2.41 £2.20 £775

£2.66 £2.55 £875

£1.90

£2.10

£2.50

£3.40

£3.75

£950

£1,050

£1,250

£1,475

£1,600

Class 4: (Self-employed profit related) Rate on profits between LPL and UPL Lower profits limit (LPL) Upper profits limit (UPL)

8.00% £1,600 £3,600

8.00% £1,600 £4,900

8.00% £1,750 £5,500

5.00% £2,000 £6,250

5.00% £2,250 £7,000

5.00% £2,650 £8,300

5.75% £3,150 £10,000

6.00% £3,450 £11,000

Class 3: (Flat-rate voluntary weekly contributions) Contribution £1.90

£2.10

£2.45

£1.80

£2.00

£2.40

£3.30

£3.65

1983-84

1984-85 1985-86

3

1986-87

1987-88

1988-89

1989-90

Class 2: (Flat-rate weekly) Flat rate weekly (men and women) 2 Small earnings exception (per annum)

£4.40 £1,775

£4.60 £1,850

£4.75 £1,925

£3.75 £2,075

£3.85 £2,125

£4.05 £2,250

£4.25 £2,350

Class 4: (Self-employed; profit-related) Rate on profits between LPL and UPL Lower profits limit (LPL) Upper profits limit (UPL)

6.30% £3,800 £12,000

6.30% £3,950 £13,000

6.30% £4,150 £13,780

6.30% £4,450 £14,820

6.30% £4,590 £15,340

6.30% £4,750 £15,860

6.30% £5,050 £16,900

£4.30

£4.50

£4.65

£3.65

£3.75

£3.95

£4.15

Class 3: (Flat-rate voluntary weekly contributions) Contributions 1

Pre-April 1975 Class 2 and 3 contributions can be found in Social Security Statistics (1974) pages 187-188.

2

If earnings from self-employment are below this annual limit Class 2 contributions need not be paid. Class 2

3

On 6 October 1985 the Class 2 rate fell to £3.50 and the Class 3 rate fell to £3.40.

or 3 contributions may be paid voluntarily if desired.

.

163

Section 5: National insurance contributions

164

Section 6: Contribution conditions

Section 6: Contribution conditions Contents A:

Page

Current system

Introduction Jobseeker’s Allowance Credits Home Responsibilities Protection Incapacity Benefit Basic State Pensions, Widowed Mother’s Allowance, Widow’s Pension, Widowed Parent’s Allowance and Bereavement Allowance Changes to the State Pension system from April 2010

171 172

Tables: Table 6.1:

168

B:

Contributions and benefit entitlements

167 168 169 170 170

History

The old system of ‘earnings factors’ Unemployment Benefit: reduced rates Jobseeker’s Allowance Sickness Benefit State Pension qualifying years before 1975-76 Widow’s allowance

173 173 173 173 174 174

165

Section 6: Contribution conditions

166

Section 6: Contribution conditions

A.

CURRENT SYSTEM

Introduction 6.1 Contribution records and the contribution conditions for benefit are expressed in terms of the earnings on which contributions have been paid. The technical expression is the 'earnings factor’. Employees’ contributions (Class 1) are paid as a percentage of their earnings. The Primary Threshold is the point from which employees start to pay contributions. Employees' earnings become relevant for contributory benefit purposes when they reach the ‘lower earnings limit’ (LEL) but they do not become liable to pay contributions until they reach the Primary or ‘employee's threshold’.

National Insurance contributions

(NICs) are payable on earnings above the ‘upper earnings limit’. Earnings upon which contributions have been paid, or treated as paid, are recorded by employers and the figure is used to calculate an earnings factor. Those with earnings below the LEL will have an earnings factor of zero, and those with earnings above the UEL will have an earnings factor equal to the UEL. The contribution conditions are expressed in terms of multiples of the LEL for the relevant tax year. 6.2

The other classes of contribution that can confer benefit rights are Class 2 (self-employed) and Class

3 (voluntary). Contributions are set at a weekly flat rate with Class 3 payable weekly and Class 2 either monthly or quarterly. Where they do confer benefit rights these contributions are treated as a Class 1 contribution paid at the lower weekly limit for employees; the resulting earnings factor is equal to the LEL. 6.3 Self-employed people pay Class 2 Contributions at a flat rate. Share Fishermen and Volunteer Development Workers (VDW) pay Special Class 2 Contributions. For National Insurance (NI) purposes, share fishermen are treated as self-employed but they pay a special kind of Class 2 contributions. Special Class 2 contributions differ from ordinary Class 2 contributions because:

6.4



they are paid at a higher weekly rate than ordinary Class 2 contributions; and



they count towards entitlement to JSA (C).

To receive certain benefits, an individual must have sufficient contributions that have been paid,

treated as paid, or credited in the relevant tax years. These are usually the tax years finishing in the previous calendar year and the previous tax year. Thus, if benefit were claimed between January and December 2007 the relevant tax years would be 2004-05 and 2005-06. Different conditions may apply to some benefits, such as the basic State Pension, Widow's Benefits, Bereavement Benefits or Maternity Allowance.

167

Section 6: Contribution conditions

6.5

Certain classes of contribution do not count towards entitlement to some or all benefits. Self-

employed Class 4 contributions and Employer's Class 1 contributions do not give any benefit entitlement; reduced-rate contributions paid by women holding certificates of election do not give entitlement to any benefits. 6.6

Table 6.1 sets out the contributory state benefits discussed in this manual and the class of

contributions that can count towards entitlement. Table 6.1: Contributions and benefit entitlements Benefit Contributions taken into account Class 1 Class 2 Class 3 Retirement Pension Yes Yes Yes 2 No Jobseeker's Allowance Yes No Incapacity Benefit Yes Yes No Widow's Benefit Yes Yes Yes 1 Maternity Allowance No Yes No 1 2

Class 4 No No No No No

See chapter 3 for maternal/paternal benefits. Class 2 contributions paid by Share fishermen and Volunteer development workers (overseas) do go towards helping a person qualify for Job Seeker’s Allowance.

Jobseeker’s Allowance 6.7 Jobseeker's Allowance (JSA) includes two forms of help: -

contribution-based JSA is a personal benefit paid to unemployed people for up to 182 days who have paid sufficient NICs. It is paid irrespective of any capital held or a partner's earnings. Claimants with occupational or personal pensions who claim contribution-based JSA will have their benefit reduced by the amount the pension exceeds £50 a week; and

-

income-based JSA is an indefinite means-tested benefit for unemployed people and their dependants, very similar to Income Support. The amount in payment has various elements: a personal allowance is paid for a single person (at the same age-related rate as contribution-based JSA) or for a couple [N.B. where the claimant has a partner, a higher amount of personal allowance is payable]; premiums, which can be paid for groups of people with special needs; and help in certain circumstances with mortgage interest and other housing costs not met by Housing Benefit. Certain couples may have to make a joint claim in order to receive income-based Jobseeker’s Allowance.

6.8 On 6 April 2004, Child Tax Credit (CTC) replaced the elements within income-based Jobseeker’s Allowance that were paid for children, such as child personal allowances, lone parent, family and disabled child premiums. This means that a family entitled to JSA now receives the appropriate adult elements only. This applies to: -

new and repeat claims made on or after 6 April 2004; and

-

existing claims where the customer already has a CTC award taken into account in their assessment on or after 12 April 2004.

168

Section 6: Contribution conditions

6.9 The contribution conditions that applied for Unemployment Benefit were carried forward into JSA. A person's entitlement to contribution-based JSA is normally based on their NICs in the last two full tax years before the benefit year in which they made their JSA claim. There are two contribution conditions that the jobseeker must satisfy: -

Class 1 contributions on earnings of at least 25 times the lower earnings limit must be actually paid in one of the two relevant tax years on which the claim is based. Credits do not count for this condition; and

-

Class 1 contributions on earnings of at least 50 times the lower earnings limit must be paid or credited in both of the relevant tax years on which the claim is based.

Credits 6.10 In addition to paying, or being treated as having paid contributions, a person can be credited with NICs: a.

special (non-permanent) credits are available to people who have not paid sufficient contributions to qualify for certain benefits. These credits are available to some people who received bereavement benefits and people who have recently finished a course of full-time education, training or apprenticeship that began before the age of 21; and

b.

a person may be credited with a contribution, subject to certain rules, for each week during which he or she: • was unemployed and available for and actively seeking employment; • was incapable of work through sickness or disability; • received Maternity Allowance; • was entitled to Statutory Maternity Pay or Statutory Adoption Pay; • received Carer’s Allowance (or would have done if they had not received a bereavement benefit of a higher amount); • received Working Tax Credit; • attended an approved training course that was not expected to last more than 12 months; • was on jury service; or • was imprisoned following a conviction that was subsequently quashed; Credits are currently awarded automatically to men for the tax years in which they reach age 60 and the four subsequent years provided they are not liable to pay Class 1 or 2 NICs and to young people for the tax years containing their 16th, 17th and 18th birthdays. Credits for men aged 60 and over will start to be phased out from April 2010 in line with the increase in women’s State Pension age.

169

Section 6: Contribution conditions

Home Responsibilities Protection 6.11

Home Responsibilities Protection (HRP) helps to protect the basic State Pension of those precluded

from regular employment because they are caring for children or a sick or disabled person at home.

It is

available to people who either: a.

get Child Benefit (for which they are the claimant1) for a child under age 16;

b.

get Income Support and are not required to register for work because they look after someone who is sick or disabled;

c.

spend at least 35 hours a week in caring for someone who receives Attendance Allowance or the middle or highest rate of Disability Living Allowance care component or Constant Attendance Allowance for a minimum of 48 weeks in the year; or

d.

are registered foster carers (since April 2003) throughout the tax year and do not receive Child Benefit and are either not in paid work or do not earn enough in a tax year for it to count towards the basic State Pension.

It is awarded automatically to people in groups (a) and (b) who have a NI number (people in groups (c) and (d) have to apply) and works by reducing the number of qualifying years needed for a basic State Pension or Bereavement Benefits. HRP does not help in qualifying for other benefits and is not awarded to married women and widows who have maintained the right to pay reduced rate NI contributions. For a full basic State Pension, HRP cannot reduce the number of qualifying years below 20. From 6 April 2010, HRP will be replaced by credits for parents and carers. Years of HRP acquired before April 2010 will be converted to credits where the contributor reaches State Pension age on or after 6 April 2010. Incapacity Benefit 6.12 Employees who are not entitled to Statutory Sick Pay (see Section 13) and other workers may qualify for short-term Incapacity Benefit. A claimant must satisfy two qualifying conditions. First, in one of the last three tax years before the benefit claim year, the claimant must have paid Class 1 contributions (credits do not count) on earnings and/or paid Class 2 contributions of at least 25 times LEL for that year. Second, in the 2 relevant tax years before the year in which the claim is made, he must have paid or been credited with Class 1 contributions on earnings and/or paid Class 2 contributions of at least 50 times LEL in those years.

1

Since 6 April 2008, people reaching State Pension age after this date can apply to have their partner’s HRP transferred to them if their partner who claimed Child Benefit does not need HRP because he or she was working and paying contributions for the relevant years.

170

Section 6: Contribution conditions

6.13 A person who becomes ill or disabled before age 20 (25 in certain circumstances) may be able to qualify for Incapacity Benefit without having to satisfy the contribution conditions. 6.14

Note that since October 2008 IB has been to be replaced with the Employment and Support

Allowance (ESA). For details of this see Section 9. Basic State Pensions, Widowed Mother's Allowance, Widow's Pension, Widowed Parent's Allowance and Bereavement Allowance 6.15

Until April 2010, two conditions must be satisfied to qualify for a basic State Pension. First, the

individual must have actually paid, in any tax year since 6 April 1978, Class 1 contributions on earnings of at least 52 times the weekly lower earnings limit for the tax year concerned or, in the tax years 1975-76, 1976-77 or 1977-78, Class 1 contributions on earnings of at least 50 times the weekly lower limit for the tax year concerned. Either way, the equivalent number of Class 2 or Class 3 contributions actually paid in a tax year will be sufficient. Alternatively, he/she must have actually paid at least 50 flat-rate contributions in any year before 6 April 1975. 6.16

Second, the contribution record must show a minimum number of ‘qualifying’ tax years in the

‘working life’ (about nine out of ten years of the contributor's working life)2. The number of qualifying years is determined as follows. For the tax year from 6 April 1978 and later tax years, a qualifying year is any tax year containing qualifying earnings of at least 52 times the weekly lower earnings limit for that year (50 times for April 1975-April 1978). Qualifying earnings are: -

earnings on which full rate employees' Class 1 contributions have been paid, or treated as paid (earnings on which married womens' and widows' reduced rate contributions have been paid do not count);

-

each Class 2 or Class 3 contribution, which counts as one weeks' earnings at the lower earnings limit (LEL); and

-

each credit awarded for a week during which the person was incapable of work or unemployed and available for work or Incapacity benefit, Carer’s Allowance, Working Tax Credit, Statutory Maternity Pay, Statutory Adoption Pay, Maternity Allowance or JSA was received, undertook approved training or jury service, served a prison sentence following which the conviction was quashed, or had credits automatically awarded on age grounds.

6.17

The full rate of basic State Pension will only be paid if the contribution record has the number of

qualifying years required, taking into account any years of HRP.

2

The working life is currently 49 years for men and 44 years for women born on or before 5 October 1950.

171

Section 6: Contribution conditions

6.18 A reduced rate of basic State Pension may be paid if the contribution record being used satisfies the first contribution condition but does not contain the number of qualifying years required for the second condition. No basic State Pension is payable at all, however, unless the contribution record contains at least one-quarter of the number of qualifying years required for the full rate of basic State Pension. 6.19

The reduced rate of basic State Pension is found by taking the number of qualifying years on the

contribution record and expressing this as a percentage of the number required for the full rate of basic State Pension. The reduced rate of basic State Pension is that percentage of the full rate or married women's rate on her husband's contributions, as appropriate. 6.20

All young people can receive Class 3 credits for the year of their 16th birthday and the two following

tax years.

These credits are for long-term benefits, (basic State Pension, Widow’s Benefits and

Bereavement Benefits) and are included when calculating their basic State Pension providing that they have actually paid contributions as detailed in paragraph 6.9. Changes to the State Pension system from April 2010 6.21 For those reaching State Pension a on or after 6 April 2010, the two current contribution conditions will be removed and replaced by a new single contribution condition, which will need to be satisfied for a person to be entitled to a basic State Pension. 6.22 To qualify for any basic State Pension, a person must have in any tax year in their working life: (i) have paid (or have been treated as paid); or (ii) have been credited with; or (iii) have a combination of paid (or treated as paid) and credited, Class 1 (full rate), 2 or 3 NI contributions which give an Earnings Factor (within tolerance∗) of not less than the Qualifying Earnings Factor for that year; or (iv) have actually paid or been credited with at least one Class 1 (full rate), 2 or 3 NI contribution at any time before 6 April 1975. There will no longer be a requirement to have a minimum number of qualifying tax years in the working life to get a minimum basic State Pension. 6.23 Both men and women reaching State Pension age on or after 6 April 2010 will need 30 qualifying years during their working life to qualify for the full basic State Pension. Please note that these changes do not apply to the qualifying conditions for Bereavement Benefits.



If the total earnings factor includes any Class 1 contributions and is less than the Qualifying Earnings Factor for the relevant year, a tolerance level of up to £50 can be applied, so the year would be qualifying for example if annual earnings were short of the annual Qualifying Earnings Factor by £50.

172

Section 6: Contribution conditions

B:

HISTORY

The old system of ‘earnings factors’ 6.24 The old system differs from the current system insofar as, from April 1975 to April 1987, the earnings factor was expressed in terms of contributions paid on earnings. The DSS recorded the amount of an employee's contributions and translated it back into an earnings factor. 6.25

Since April 1987, the earnings factor has been expressed in terms of the earnings on which

contributions have been paid. A primary threshold was introduced in April 2000 as the point from which employees start to pay contributions, although employees’ earnings become relevant for contributory benefit purposes when they reach the LEL. Unemployment Benefit (UB): reduced rates 6.26 Before October 1986 claimants with insufficient contributions were entitled to reduced rates of shortterm benefits if they had paid or been credited with an earnings factor of at least 25 times the LEL. There were two rates: half rate benefit for those with an earnings factor of between 25 and 37½ times the LEL and three quarter rate benefit for those with an earnings factor between 37½ and 50 times the LEL. 6.27 Reduced rates were abolished on 5 October 1986, although claimants continued to receive reduced rate benefits where the period of claim (called the period of interruption of employment or PIE) began before 5 October. Reduced rate benefit remained payable in these cases until the earlier of either the end of the PIE or 4 October 1987. Jobseeker’s Allowance 6.28

JSA replaced contributory Unemployment Benefit and Income Support for unemployed people from

October 1996. The contribution conditions that applied for Unemployment Benefit were carried forward into contribution-based JSA. See Section 7 for more details of these systems. Sickness Benefit 6.29 Prior to 1975, a claimant must have had at least 26 flat-rate Class 1 and/or Class 2 contributions or credits in the relevant contribution year to be eligible for Sickness Benefit (SB).

173

Section 6: Contribution conditions

6.30

From 1975 to 5 April 2001 a claimant would have satisfied the first contribution condition for

sickness/incapacity benefit if they had paid Class 1 and/or 2 contributions of at least 25 times the LEL in any one tax year. 6.31

Reduced rates of short-term benefits, including SB, were ended on 5 October 1986, unless a

claimant's PIE began before that date. SB claims that began after 5 October 1986 could be paid at reduced rates where the SB period linked to a period of SSP that began on 5 October 1986. Transitional protection in all these cases ceased on 4 October 1987. 6.32 SB was replaced on 13 April 1995 with short-term Incapacity Benefit (IB). Existing cases transferred onto short-term IB (lower rate) on 13 April 1995 payable at the same rate as SB. From the 29th week of incapacity these cases transferred onto short-term IB (higher rate). 6.33 From 6 April 2001, the first contribution condition for IB was changed so that contributions had to be paid in one of the last three tax years before the benefit claim year. Previously it had been in any one tax year. In addition, the contributions for IB were relaxed to enable people who became ill or disabled before the age of 20 (or 25 in certain cases) to gain access to IB without having to satisfy the contribution conditions. State Pensions qualifying years before 1975-76 6.34 For tax years before 1975-76, the total numbers of flat-rate contributions paid by (or credited to) the person before 6 April 1975 is added up and divided by 50, but a person cannot have more qualifying years than tax years in this part of his or her working life. Widow's Allowance 6.35 This was paid for the first 26 weeks after death if the widow was under 60 at the time or her husband was not entitled to a State Pension when he died, and he had actually paid before his death either: a.

before 6 April 1975 - at least 25 Class 1, Class 2, or Class 3 contributions before age 65; or

b.

after 6 April 1975 - contributions in any one tax year on wages at least 25 times the lower earnings limit for that year (a Class 2 or 3 contribution counts as one week's earnings at the lower earnings limit).

6.36 Widow's Allowance was abolished for women whose husband died on or after 11 April 1988. It was replaced by ‘Widow's payment’ (see Section 9). Contribution conditions were not changed.

174

Section 7: Jobseeker’s Allowance and Unemployment Benefit

Section 7: Jobseeker’s Allowance and Unemployment Benefit Contents A:

Page

Current system

Introduction Eligibility Rates of Jobseeker’s Allowance

177 177 178

Tables Table 7.1:

177

B:

Jobseeker’s Allowance (JSA) key figures

History

Historical rates of Unemployment Benefit Earnings related supplement (ERS) Calculation of earnings related supplement Payment Weekly benefit ceiling Jobseeker’s Allowance C:

Historical tables post 1990

Table 7.2: Table 7.3: D:

179 179 179 180 180 180

Unemployment Benefit and Jobseeker’s Allowance rates Rates for claimants over pension age

181 181

Historical tables pre 1990

Table 7.4: Table 7.5: Table 7.6: Table 7.7:

Unemployment Benefit: standard rates Rates for claimants over pension age Rates of earnings related supplement October 1966 - January 1982 Timetable for entitlement to UB and ERS 1966-1981

175

182 183 183 183

Section 7: Jobseeker’s Allowance and Unemployment Benefit

176

Section 7: Jobseeker’s Allowance and Unemployment Benefit A.

CURRENT SYSTEM

Table 7.1: Jobseeker's Allowance (JSA) key figures 2003-04

2004-05

2005-06

Average number of beneficiaries over the financial year JSA( income based) JSA( contribution based)

2007-08

Plans 2008-09 2009-10

Thousands 649 164

Annual expenditure JSA (income based) JSA (contribution based) JSA (total)

2006-07

2,052 507 2,559

601 140

1,759 445 2,204

646 146

704 139

625 122

774 167

1449 304

1,825 486 2,311

£ Millions 1,962 478 2,440

1,816 427 2,244

2,148 733 2,880

4,743 1,115 5,858

Source: Department for Work and Pensions

Introduction 7.1 Jobseeker's Allowance (JSA) is a weekly benefit for the unemployed. It has a unified structure that meets the needs of unemployed people until they return to work. JSA consists of both contribution-based and income-based elements paid at standard rates. Those who have paid sufficient national insurance contributions (NICs) may receive a personal rate of contribution-based JSA for 182 days, irrespective of income or capital (except in the case of those with occupational or personal pensions (see paragraph 7.5)) or a partner's earnings.

Those who do not qualify, or whose needs are not met by the contributory

element, may qualify for income-based help for themselves and their dependants, if their income is insufficient for their needs. This help will be provided for as long as it is needed, if the qualifying conditions continue to be met. JSA is liable to income tax, though the tax is not deducted from the benefit payments. Eligibility 7.2 To be eligible for JSA a claimant must be unemployed, in Great Britain, capable of and available for employed work (i.e. employment assessable for income tax under Schedule E (PAYE) and liable to Class 1 NICs), actively seeking work, have entered into a jobseeker's agreement and not be in relevant education. They may also be available for self-employment, provided they are still prepared to take a job as an employed earner. For contribution-based JSA they must also satisfy the contribution conditions explained in Section 6. Benefit is not payable where the claimant works on average 16 hours or more a week, (24 hours a week for partners in income-based JSA cases). A person working below 16/ 24 hours can have a certain amount of earnings disregarded. 7.3 People who leave their job without just cause, or who are dismissed for misconduct, and people who refuse to take up an offer of employment without good cause, suffer a benefit penalty. Currently, the sanction is loss of benefit for up to 26 weeks.

177

Section 7: Jobseeker’s Allowance and Unemployment Benefit

Rates of Jobseeker’s Allowance 7.4 The rates of JSA are age related and the same amount for both components. Single aged 24 or under

50.95

Single aged 25 or over

64.30

Lone Parent under 18

50.95

Lone Parent aged 18 or over

64.30

Couple both under 18

Max 76.90

Couple both 18 or over

100.95

Note: From 7 April 2008 the lower rate of benefit for single under 18s has been abolished.

7.5 Claimants with occupational or personal pensions who claim contribution-based JSA will have their benefit reduced by the amount the pension exceeds £50 a week. Claimants receiving income-based JSA will have their benefit reduced pound for pound.

178

Section 7: Jobseeker’s Allowance and Unemployment Benefit

B.

HISTORY

Historical rates of Unemployment Benefit 7.6 The standard rates of Unemployment Benefit (UB) and increases payable to partners or adult dependants since 1948 are shown in Table 7.4. Increases were paid if the dependant's total earnings did not exceed the weekly amount of the increase. Until November 1984, claimants under pension age also received an increase for each dependent child. 7.7 Those above pensionable age and not retired (ie between 65 and 70 for men, 60 and 64 for women) received a higher rate of benefit - see Table 7.3. If a dependant's earnings exceeded the dependency increase, then no increase was payable. Earnings related supplement (ERS) 7.8 This was introduced in October 1966 and finally discontinued on 2 January 1982.

Claims for

unemployment were honoured until the end of June 1982; following this no further payments of ERS were made. 7.9 ERS was payable to claimants below pension age who were entitled to standard rate UB and had reckonable weekly earnings of more than the lower limit (see Table 7.6). Reckonable weekly earnings (RWE) were taken as one-fiftieth of the total reckonable earnings in the relevant tax-year where reckonable earnings were those from employment in the relevant tax-year on which schedule E income tax has been assessed and paid through PAYE. Calculation of earnings related supplement 7.10 Table 7.6 shows the rates of ERS payable and the limits of reckonable weekly earnings between which these rates operated. Thus, for the whole of the duration of the scheme, ERS was payable at a rate of one-third of earnings above the lower limit up to the top of the lower band, and then at either 15 per cent or 10 per cent above the top of the lower band up to the upper limit. For earnings levels at or above the upper limit the ERS payable reached a maximum, the size of which is shown in the final column. 7.11 Thus, for example, for unemployment in 1981 (the last benefit year in respect of which ERS claims were payable): -

if reckonable weekly earnings (RWE) (as defined above) were less than £19.50 per week in 1979-80 ERS was zero;

179

Section 7: Jobseeker’s Allowance and Unemployment Benefit

-

for RWE between £19.50 and £30, ERS was one-third of the amount by which they exceeded £19.50;

-

for RWE above £30, but less than £135, ERS was 10 per cent of the amount that RWE exceeded £30 plus £3.50, ie one-third of the difference between £30 and £19.50;

-

for RWE at or above £135, ERS reached a ceiling of £14.00.

Payment 7.12 ERS was payable after 12 waiting days, including Saturdays – i.e. two weeks - for a period of up to 156 days, again including Saturdays – i.e. 26 weeks - during an interruption of employment. Weekly benefit ceiling 7.13 As a final restraint, and in order to mitigate the employment trap effects of UB and ERS combined, the total of UB and ERS payable each week could not exceed 85 per cent of the reckonable weekly earnings. The restriction operated only on ERS, however. Thus, if UB and ERS as calculated together exceeded 85 per cent of RWE, ERS was reduced so that the total payable came to the 85 per cent figure. If the flat-rate UB alone exceeded 85 per cent of RWE, however, UB was nonetheless paid in full, but no ERS would be paid. Jobseeker’s Allowance 7.14 JSA was introduced on 7 October 1996, replacing UB/IS for the unemployed. Like the benefits it replaced, JSA is liable to income tax, though the tax is not deducted from the benefit payments.

180

Section 7: Jobseeker’s Allowance and Unemployment Benefit

C. HISTORICAL TABLES POST 1990 Table 7.2: Unemployment Benefit and Jobseeker’s Allowance rates Standard benefit for adult claiming on own contributions 09/04/1990 08/04/1991 06/04/1992 12/04/1993 13/04/1994 13/04/1995 11/04/1996 07/10/1996 07/04/1997 06/04/1998 12/04/1999 10/04/2000 12/04/2001 12/04/2002 07/04/2003 05/04/2004 04/04/2005 03/04/2006 06/04/2007 07/04/2008 06/04/2009 1

2

16-17 28.85 29.60 30.30 30.95 31.45 31.95 32.50 32.90 33.50 33.85 34.60 35.65

37.35 41.40 43.10 44.65 45.45 46.45 48.25 18-24 37.90 38.90 39.85 40.70 41.35 42.00 42.70 43.25 44.05 44.50 45.50 46.85 47.95 50.95

Over 24 47.90 49.15 50.35 51.40 52.20 53.05 53.95 54.65 55.65 56.65 57.45 59.15 60.50 64.30

Increase for dependent adult 23.05 25.55 26.60 27.55 28.05 28.65 29.75

Married 1 couple

-

75.20 77.15 79.00 80.65 81.95 83.25 84.65 85.75 87.30 88.15 90.10 92.80 94.95 100.95

60.40 66.95 69.70 72.20 73.50 75.10 78.00

Married couple, i.e. man claiming on own contributions with dependent wife (or partner) claiming

on man's contributions. Sum of higher/standard benefit and increase for dependent adult. 2

Jobseeker's Allowance replaced unemployment benefit on 7 October 1996. The above rates

refer to contribution-based JSA. The rates of income-based JSA are the same as for Income Support. Please note that there are different rates for couples under-18 which are to a maximum of £76.90.

Table 7.3: Rates for claimants over pension age Date

09/04/1990 08/04/1991 06/04/1992 12/04/1993 13/04/1994 13/04/1995 11/04/1996 07/04/1997 06/04/1998

Claimant £/week

Adult Dependant £/week

46.90 52.00 54.15 56.10 57.60 58.65 61.15 68.80 70.45

28.20 31.25 32.55 33.70 34.50 35.25 36.60 3 3 -

1

Jobseeker's Allowance replaced UB on 7 October 1996

2

Pensioners do not receive JSA. They receive IS

for the elderly. There are no adult dependent increases in JSA/IS

3

for the elderly.

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D. HISTORICAL TABLES PRE 1990 Table 7.4: Unemployment Benefit: standard rates Man or Those Married woman Increase for Married Increase for dependent children 2 single under 18 over 18 claiming dependent couple 1st 2nd 3rd and woman ('Lower on own adult subsequent over 18 rate') contributions ('Higher rate') ('Middle rate') 05/07/48 1.300 0.750 1.00 0.800 2.10 0.375 30/08/51 1.300 0.750 1.00 0.800 2.10 0.500 0.125 0.125 24/07/52 1.625 1.000 1.30 1.075 2.70 0.525 0.125 0.125 19/05/55 2.000 1.150 1.50 1.250 3.25 0.575 0.175 0.175 06/02/58 2.500 1.425 1.70 1.500 4.00 0.750 0.350 0.350 06/04/61 2.875 1.625 1.95 1.750 4.63 0.875 0.475 0.475 07/03/63 3.375 1.925 2.30 2.075 5.45 1.000 0.600 0.600 28/01/65 4.000 2.275 2.75 2.500 6.50 1.125 0.725 0.725 3 26/10/67 4.500 2.500 3.10 2.800 7.30 1.250 0.850 0.850 3 11/04/68 4.500 2.500 3.10 2.800 7.30 1.400 0.650 0.550 3 10/10/68 4.500 2.500 3.10 2.800 7.30 1.400 0.500 0.400 06/11/69 5.000 2.750 3.50 3.100 8.10 1.550 0.650 0.550 23/09/71 6.000 3.300 4.20 3.700 9.70 1.850 0.950 0.850 05/10/72 6.750 3.700 4.75 4.150 10.90 2.100 1.200 1.100 04/10/73 7.350 4.050 5.15 4.550 11.90 2.300 1.400 1.300 4 4.750 6.05 5.300 13.90 2.700 1.800 1.700 25/07/74 8.600 10/04/75 9.800 6.90 6.100 15.90 3.100 1.600 1.600 20/11/75 11.100 7.80 6.900 18.00 3.500 2.000 2.000 18/11/76 12.900 9.20 8.000 20.90 4.050 2.550 2.550 5 3.050 04/04/77 12.900 9.20 8.000 20.90 2.550 2.550 17/11/77 14.700 10.50 9.100 23.80 3.500 3.000 3.000 Standard benefit for adult claiming Increase for each dependent child 6 on own contributions 06/04/78 14.70 9.10 23.80 2.20 7 1.85 16/11/78 15.75 9.75 25.50 15/11/79 18.50 11.45 29.95 1.70 27/11/80 20.65 12.75 33.40 1.25 26/11/81 22.50 13.90 36.40 0.80 25/11/82 25.00 15.45 40.45 0.30 23/11/83 27.05 16.70 43.75 0.15 29/11/84 28.45 17.55 46.00 25/11/85 30.45 18.80 49.25 28/07/86 30.80 19.00 49.80 06/04/87 31.45 19.40 50.85 11/04/88 32.75 20.20 52.95 10/04/89 34.70 21.40 56.10 1

These were also the rates for Sickness Benefit until November 1983, though the rates have now diverged. Married couple, i.e. man claiming on own contributions with dependent wife (or partner) claiming on man's contributions. Sum of higher/standard benefit and increase for dependent adult. 3 The reduction in rates for second and further children compensated for concomitant increases in family allowance at these dates. 4 The lower rate of Unemployment Benefit for those under the age of 18 was discontinued at 7 April 1975; after that date they were entitled to the appropriate adult rate. 5 Reduced to take account of the introduction of Child Benefit - which, unlike family allowance, is awarded to the first child as well as subsequent ones. 6 For those not qualifying, on grounds of insufficient contributions, for standard rate UB, three-quarters, and half-rates were payable according to contributions record until October 1986 (see Section 5). 7 £0.85 between 2 April 1979 and 15 November 1979. 2

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Table 7.5: Rates for claimants over pension age Date 24/11/80 23/11/81 22/11/82 21/11/83 26/11/84 25/11/85 28/07/86 06/04/87 11/04/88 10/04/89

Claimant £/week

38.50 38.85 39.50 41.15 43.60

Adult Dependant £/week 15.60 17.00 18.85 20.45 21.50 23.00 23.25 23.75 24.75 26.20

Table 7.6: Rates of earnings related supplement October 1966 - January 1982 Unemployment commencing in period

Relevant taxyear for calculation 1 of earnings 1965-66 to 1971-72

Lower limit (£)

Rate in lower band

Top of lower band (£) 30.00

Rate in upper band (%) -

Upper band (£)

6 Oct 1966 9.00 1/3 23 6 Jan 1974 In Benefit Commencing 3 year 1974 07-Jan 1972-73 10.00 1/3 30.00 15 42.00 1975 06-Jan 1973-74 10.00 1/3 30.00 15 48.00 1976 04-Jan 1974-75 10.00 1/3 30.00 15 54.00 1977 02-Jan 1975-76 11.00 1/3 30.00 15 69.00 1978 01-Jan 1976-77 13.00 1/3 30.00 15 95.00 1979 07-Jan 1977-78 15.00 1/3 30.00 15 105.00 1980 06-Jan 1978-79 17.50 1/3 30.00 15 120.00 1981 04-Jan 1979-80 19.50 1/3 30.00 10 135.00 1982 03-Jan Abolished 1 From 1967 to May 1972 the benefit years began on the first Monday in May. The relevant tax-year was the tax-year ending one month previously. 2 From January 1973 the benefit year began on the first Monday in January (from 1976, the first Sunday). The relevant tax-year was that ending in April of the previous year. Transitionally, ERS payable for unemployment commencing between 1 May 1972 and 6 Jan 1974 (two benefit years) was based on earnings in the 1971-72 tax year. 3 See text for calculation of earnings.

Table 7.7: Timetable for entitlement to unemployment benefit and earnings related supplement, 1966-1981 Period of interruption of employment Days - including Weeks Payable Saturdays equivalent Up to 3 neither 4-12 ½-2 UB only 13-169 2-28 UB and ERS 169-312 28-52 UB only 313+ 52+ Supplementary benefits

183

Max ERS payable (£)

8.47 9.37 10.27 12.18 15.42 16.25 17.67 14.00

Section 7: Jobseeker’s Allowance and Unemployment Benefit

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Section 8: State Pensions

Section 8: State Pensions Contents

Page

A: Current system Introduction The equalisation of women’s State Pension age Basic State Pension Additional State Pension-State Earnings-Related Pension Scheme (SERPS) Contracting out SERPS Additional State Pension, State Second Pension Non-contributory State Pension (Category D) Deferral Changes to the State Pension system Pension Credit Extra amounts

187 188 188 190 191 192 193 193 194 195 196

Tables: Table 8.1:

187

State Pension key figures

B: History The ‘earnings rule’ Definition of earnings Child dependency increase Pension Credit

197 198 198 199

Tables: Table 8.2:

197

State Pension earnings limits

C: Historical tables post 1990 Table 8.3a: The State Pension: standard rates Table 8.3b: Pension Credit Table 8.4: Dependent’s earnings limits

200 201 201

D: Historical tables pre 1990 Table 8.5:

The State Pension: standard rates

202

185

Section 8: State Pensions

186

Section 8: State Pensions

A.

CURRENT SYSTEM

Table 8.1:State Pension key figures Estimate

Plans

2007/08

2008/09

2009/10

Outturn 2004/05 2005/06 2006/07 Average number of beneficiaries over the financial year State Pension Non-contributory pension

11,451 23

11,561 23

Thousands 11,705 11,907 23 25

12,132 26

12,426 28

Annual expenditure State Pension Non-contributory pension

48,772 30

51,392 31

£ Millions 53,629 57,554 34 40

61,589 43

67,204 50

Source: Department for Work and Pensions.

Introduction 8.1 The pensions landscape in the UK is complex, and it is helpful to think of it as having three tiers:

Source: Diagram from the Pensions Policy Institute’s Pensions Primer

8.2 The first tier of pension provision is provided by the state, and consists of a basic level of pension provision. This constitutes both (i) the basic State Pension of up to £95.25 per week, which almost all will be entitled to, and (ii) the Pension Credit which is an income-related benefit that guarantees those aged 601 or over a minimum income of £130.00 per week. Pension Credit also rewards people aged 65 or over who have made modest provision towards their retirement such as savings or a second pension.

1

From 6 April 2010 the State Pension age for women will gradually rise from 60 reaching 65 by April 2020. The age from which people can start to get Pension Credit will rise in line with this. 187

Section 8: State Pensions

8.3 The aim of the second tier is to provide a further pension for employees the value of which is more closely related to their lifetime earnings. So, whereas the first tier aims to provide a base level of support, the second is more concerned with reducing the difference between pre- and post-retirement incomes. This is currently achieved through the additional State Pension or State Second Pension. 8.4 The third tier is private pensions, namely all those voluntary pension arrangements that are not directly funded by the state. The primary aim of private pensions is to redistribute income across an individual’s lifetime, and not to redistribute income from higher-income to lower-income people (as is frequently the case in the state pension system). The equalisation of women’s State Pension age 8.5 The State Pension age for women will gradually rise to 65 between 2010 and 2020 so that for women born on or after 6 April 1955 their State Pension age will be the same as men. For women born between 6 April 1950 and 5 April 1955 the State Pension age will be between 60 and 65 depending on their date of birth. The Pension Service website - www.thepensionservice.gov.uk - has a simple calculator which people can use to find the precise date at which they can claim their State Pension. Basic State Pension 8.6 In 2009/10 the full basic State Pension is £95.25 a week and the minimum basic State Pension is £23.81 a week. 8.7 A person can get a basic State Pension by building up enough qualifying years before State Pension age (currently 65 for a man and 60 for a woman born on or before 5 April 1950). A qualifying year is a tax year in which a person has sufficient earnings upon which they have paid, are treated as having paid or have been credited with, National Insurance contributions. In 2009/10 a person needs to have £4,940 or more of such earnings if they are an employee (Class 1 contributions) or £5,075 or more if they are selfemployed (Class 2 contributions). 8.8 Currently men normally need 44 qualifying years to get the full basic State Pension and 11 qualifying years to get the minimum basic State Pension. Women with a State Pension age of 60 normally need 39 qualifying years for a full basic State Pension and 10 qualifying years to get the minimum basic State Pension. For both men and women attaining State Pension age after 5 April 2010, the number of qualifying years needed for the full basic State Pension will be reduced to 30 years and they will only need a minimum of one qualifying year to get any basic State Pension.

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8.9 However, the number of qualifying years needs be reduced if someone qualifies for Home Responsibilities Protection. 8.10 Also, by State Pension age, a person needs to have one qualifying year from National Insurance contributions they have paid or from National Insurance contributions treated as being paid, to be eligible for any State Pension. A person will not be eligible for a State Pension if they only have one year of credits. 8.11 Married women who have not built up their own entitlement to a basic State Pension can use their husband’s National Insurance record instead (as long as he has reached State Pension age and has claimed his State Pension). They could then receive a Category B basic State Pension of up to 60% of their husband’s Category A basic State Pension entitlement (up to £57.05 in 2009/10). 8.12 A married woman may be entitled to both Category A and Category B Pensions at the same time. If so, and the rate of their Category A basic State Pension is less than the full rate of Category B Pension payable to a married woman, the two State Pensions will be combined to give a composite pension. The Category A Pension will be increased by the lesser of these amounts: -

the difference between the full Category B Pension and the Category A basic State Pension to which they are entitled; or

-

the weekly rate of the Category B Pension to which they are entitled.

8.13 The basic State Pension is increased for dependants including a spouse, an adult childminder and, in some cases, children for whom the individual is entitled to Child Benefit (see paragraph 8.7). However, the increase for adult dependants is only payable for new claims if the dependant's earnings are below a set limit. Where the spouse who is dependant is living with the spouse who is getting a State Pension, then this limit is equal to the rate of Jobseeker’s Allowance for a person aged 25 or over (£64.30 from April 2009). Where the spouse who is dependant is not living with the spouse who is getting the State Pension the limit is equal to the full rate of Category B Pension (£57.05 from April 2009). Any earnings above this limit mean that the dependency increase is completely withdrawn. A dependant's earnings cannot affect a person's right to a standard rate State Pension. See Part B for details relating to the 'earnings rule', which is still in force for adult dependency increases of the basic State Pension (though no longer for the principal claimant). In addition to this rule, there is a separate earnings rule for child dependency increases. Where a pensioner is entitled to a State Pension increase for a child, payment of this increase depends on the earnings of his or her spouse, civil partner or partner. No increase is payable for the eldest, or only, child if the earnings exceed £195 per week from April 2009. The earnings limit is increased by £26 for each subsequent child. Entitlement to dependency increases is affected if the dependant is receiving other state benefits in their own right, such as State Pension. If the amount of that benefit is equal to or exceeds the

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amount of the dependency increase then no dependency increase is paid. Otherwise the amount of the benefit is deducted from the dependency increase and only the balance is paid. 8.14 For new claims on or after 6 April 2003, it is not possible to get an increase in a Category A or Category B Pension for dependant children. Instead provision for children is made through Child Tax Credit. Individuals who were in receipt of an increase for children at 6 April 2003 will continue to receive the increase for as long as they are entitled to, or are treated as being entitled to, Child Benefit for that child or children. Additional State Pension-State Earnings-Related Pension Scheme (SERPS) 8.15 SERPS is based on earnings on which standard rate Class 1 national insurance contributions have been paid as an employee from the tax year beginning 6 April 1978 – 5 April 2002. The scheme provides for an additional State Pension, which depends on revalued earnings. 8.16 Main points: -

entitlement depends on the individual having earnings over the annual Lower Earnings Limit (LEL) on which he/ she has paid standard rate Class 1 national insurance contributions in one or more tax years after 5 April 1978;

-

it is a cash benefit consisting of an earnings-related weekly State Pension, usually paid on top of the basic State Pension, although the individual does not have to be entitled to a basic State Pension;

-

It is reduced or extinguished by a ‘contracted-out deduction’ in respect of those tax years in which the claimant was 'contracted-out' up to 5 April 1997, and;

-

it applies for the tax years 1978-79 to 2001-02 inclusive.

8.17 The amount payable is based on the total amount of earnings on which an individual paid contributions in each relevant tax year since 6 April 1978. The qualifying level of earnings for the basic State Pension for each year is deducted from the relevant annual earnings. The resulting surpluses are revalued in line with the increase in national average earnings. The amount of additional State Pension earned in each year is divided by the number of years in the working life since 1978. For someone reaching State Pension age in 2009/10 this will be 30 years. 8.18 The amount accrued each year under SERPS is a fixed proportion of earnings in excess of the LEL. This figure is revalued in line with average earnings to the year before the person reaches State Pension age and is then added to similar amounts accrued from all the other years worked. 8.19 For people reaching State Pension age on, or after, 6 April 2000, SERPS is worked out as follows:

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Section 8: State Pensions

8.20 For the period 1978/79 to 1987/88 the revalued surplus figure for those years is multiplied by 25 per cent. This figure is then divided by the total number of years between1978/79 (or the tax year in which they reached age 16, if this is later) and the tax year ending before the one in which the person reaches State Pension age. 8.21 For the period 1988/89 – 2001/02, the percentage used depends on when the person reaches State Pension age. For those reaching State Pension age between 1988/89 and 1999/2000, the percentage is 25 per cent. 8.22 For those reaching State Pension Age from 2000/01 onwards, the percentage is between 24.5 per cent and 20 per cent, as shown in the table below. This figure is then divided by the total number of years between 1978/79 (or the tax year in which they reached 16, if this is later) and the tax year ending before the one in which they reach State Pension age. 8.23 For example, for someone who reaches State Pension age in 2009/10 the percentage was 20.5 per cent. Additionally, the amount of SERPS that a surviving spouse or civil partner may inherit was changed from 6 October 20022. There were differences in the computation of additional State Pension for people who reached State Pension age on or before 5 April 2000. Contracting out of SERPS 8.24 Prior to 6 April 1997, an occupational, salary-related scheme that was used to contract out of SERPS had to provide a minimum level of pension for each member. In such schemes, both the employer and the employee paid a lower rate of National Insurance contributions and, in return, the schemes committed themselves to paying a pension that was no lower than a statutory minimum - the Guaranteed Minimum Pension (GMP). The value of the GMP was broadly equivalent to the SERPS. When a member claims their state retirement pension, their SERPS is reduced by their full GMP entitlement by way of a “contracted out deduction” (COD). The COD is set at the level of the GMP payable by the occupational pension scheme (or, if the person has been a member of more than one contracted-out scheme, the total GMP entitlement from all schemes). In contracted-out money purchase (COMP) schemes, the occupational pension provided takes the place of SERPS. At state retirement age a COD is applied to SERPS in the same way as for members of COSR schemes. The COD avoids double provision as it would be wrong for a member to benefit from paying reduced rate NI contributions and to then receive a full SERPS entitlement for the same period.

2

Where the deceased spouse or civil partner had reached State Pension age before 6 October 2002, a maximum of 100 per cent SERPS can be inherited, irrespective of when the death occurred. Otherwise there is a sliding scale in two year bands so that the maximum amount reduces to 50 per cent for those who reach, or are due to reach, State Pension age on or after 6 October 2010.

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Section 8: State Pensions

8.25 From 1979-1988, COSR schemes were not required to inflation proof GMPs.

From 1988-1997,

schemes were required to provide inflation proofing, capped at 3 per cent. As SERPS receives full inflation proofing, the value of a GMP may eventually fall below the level of SERPS – in these circumstances SERPS would come into payment, thus ensuring that a scheme member is no worse-off as a result of having joined a contracted out pension scheme. The links between SERPS and contracted-out schemes (COMPs and COSRs) were broken from 6 April 1997. COSR schemes are no longer required to provide GMPs, but instead have to meet a test of overall scheme quality in respect of future service. Breaking the link meant that SERPS ceased to provide top-up inflation proofing of contracted-out pensions for benefits accrued from 1997 onwards. Inflation proofing of up to 5 per cent, reduced to 2.5 per cent from 2005, will be provided by pension schemes to pensions in payment through limited price indexation (LPI). SERPS also ceased to offer top-up inflation proofing for COMPs and APPs (appropriate personal pensions). Additional State Pension, State Second Pension 8.26 The Child Support, Pensions and Social Security Act 2000 introduced the legislation that reformed SERPS through the State Second Pension from 6 April 2002. State Second Pension differs from SERPS in that: a.

It has three cumulative ‘Earnings Bands’ that are as follows: The first band covers earnings between the LEL and a statutory Low Earnings Threshold (LET), between £4,940 and £13,900 in 2009/10. Employees whose earnings fall into this band are treated as having earnings at the LET. As rights are accrued at 40 per cent rather than at 20 per cent under SERPS, employees will be at least twice as well off as they would have been under SERPS. The weekly accrual for employees in this band in 2009/10 is calculated as follows: (1 / 49) x (2 / 5) x (£13,900/52 - £95) = £0.70 Note: the accrual rate used in this example is 20 per cent. This rate will not apply to those who reach State Pension age before 2009-10 (see paragraph 8.12 for a full explanation). Additionally, this example assumes that additional pension has been going for 49 years. This will not happen until 2027. Until then the divisor is the number of tax years between 1978-79 and the tax year immediately before the person reaches State Pension age. The second band covers earnings between the LET and a new Upper Earnings Threshold (UET), which is £31,800 in 2009/10. Employees earning up to the upper limit of Band 2 also gain over SERPS, but the gains taper off above the LET the more they earn. The third band covers earnings between the UET and the annual national insurance Upper Earnings Limit (UEL), which was £40,040 in 2008/09. From 6 April 2009 the UEL is replaced by a new upper accrual point as the cap on accruals in the State Second Pension and rebate

192

Section 8: State Pensions calculations. It is fixed at the 2008/09 level of the UEL. Employees in this range will get the same benefits from the State Second Pension, as they would have done from SERPS. b. Carers are treated as having earnings at the LET for each complete tax year they do not work at all, or earn less than the annual LEL and they are looking after: -

a child under age six and get child benefit for that child; or

-

an ill or disabled person and are entitled to Carer’s Allowance or qualify for Home Responsibilities Protection (HRP).

c.

Long-term ill/disabled people – are treated as having earnings at the LET for each complete tax year they are entitled to long-term Incapacity Benefit, Employment and Support Allowance3 or get Severe Disablement Allowance, as long as, at State Pension age, they have worked and paid Class 1 National Insurance Contributions, or are treated as having paid Class 1 National Insurance Contributions, for at least a tenth of their working life since 1978.

d.

Employees whose earnings fall within Bands 1 and 2 who are contracted-out will benefit from a combination of enhanced rebates to their private scheme and/or state scheme top-ups.

Non-contributory State Pension (Category D) 8.27 This State Pension was introduced in 1971 for any person who is not getting a contributory basic State Pension or who is receiving a contributory State Pension that is less than the rate of the non-contributory State Pension (£57.05 in 2009/10). The non-contributory State Pension is payable to any person above the age of 80, living in Great Britain and resident in the United Kingdom for a total of at least ten years in any previous continuous period of twenty years after their 60th birthday. 8.28 The non-contributory State Pension is taxable but is unaffected by earnings. Table 8.5 shows that married women received a reduced rate of non-contributory State Pension up until 25 November 1985. They now receive the full rate. Deferral 8.29 It is possible for people to defer drawing their State Pension to earn an increase to their State Pension or a one-off taxable lump-sum payment. Changes introduced in April 2005 mean that a person who defers for a minimum of 12 months after 6 April 2005 will have the option of either an increase in their weekly pension (when finally claimed) of approximately 10.4 per cent for every year of deferral (compared to about 3

To qualify a person would need to meet one of the following conditions: i) be entitled to the support component; ii) be treated as entitled to the support component by having received statutory sick pay immediately before getting Employment and Support Allowance; or iii) be entitled to the work related activity component for 52 weeks or more; 193

Section 8: State Pensions

7.5 per cent extra before 6 April 2005) or a one-off taxable lump sum comprising pension foregone plus a rate of return of 2 per cent above the Bank of England base rate and their normal pension. Extra State Pension and the lump-sum payment accrue on all components of the contributory State Pension, including any earnings-related element (whether this is by way of State Earnings–Related Pension Scheme (SERPS) pension, State Second Pension or Graduated Retirement Benefit) but excluding increases payable for a dependent adult. 8.30 The extra State Pension is taxable in the same way as normal State Pension. Lump-sum payments will also be taxable at the marginal rate applicable to the person’s other income either in the year they retire or in the following year, if they choose so. The lump sum will not erode the age-related personal tax allowance. 8.31 The extra State Pension is treated in the same way as any other retirement income in Pension Credit, Housing Benefit and Council Tax Benefit. Extra State Pension may also earn additional savings credit in Pension Credit where a person’s income exceeds the savings credit threshold. 8.32 The gross amount of lump sum payments will be disregarded in calculating Pension Credit, Housing Benefit or Council Tax Benefit. 8.33 No National Insurance contributions are payable by employees after reaching State Pension age (currently 60 for women; 65 for men). Changes to the State Pension system 8.34 It is worth noting that proposals first set out in the May 2006 Pensions White Paper and taken forward in the Pensions Act 2007 will change the current State Pension system considerably. Some of the main changes include the following. 8.35 To make the State Pension fairer and more widely available for people reaching State Pension age on or after 6 April 2010 by: -

reducing the number of qualifying years needed for a full basic State Pension to 30;

-

removing the minimum contribution conditions that require people to have at least 25 per cent of the qualifying years needed for a full basic State Pension to get any basic State Pension at all, at least on qualifying year of which they must have paid, or been treated as having paid. The new contribution condition will mean that just one qualifying year, of paid or credited contributions, will give entitlement to some basic State Pension. Each qualifying year, up to a total of 30, will be worth 1/30 of the full basic State Pension;

194

Section 8: State Pensions -

modernising the contributory principle for the State Pension so that paid and caring contributions are treated equally and periods spent caring for children or severely disabled people will build entitlement to both the basic State Pension and State Second Pension. Home Responsibilities Protection (which reduces the number of qualifying years needed for the basic State Pension) will be replaced with more flexible weekly National Insurance credits for people getting Child Benefit for a child aged under 12, approved foster carers and people caring at least 20 hours a week for severely disabled people.

8.36 These changes will improve State Pension coverage for women and carers in particular. As a result of reforms under the Pensions Act 2007 around three quarters of women reaching State Pension age in 2010 will be entitled to a full basic State Pension compared with around half without the reforms. By 2025 over 90 per cent of women reaching State Pension age (the same proportion as men) will be entitled to a full basic State Pension. Almost 1 million extra people (approximately 90 per cent of them women) will build up entitlement to State Second Pension from 2010 as a result of the reforms. 8.37 To simplify and make more generous state pensions provision by: -

re-linking the uprating of the basic State Pension to average earnings during the next Parliament. The objective is to do this in 2012, subject to affordability and the fiscal position, but in any event by the end of the next Parliament at the latest. A statement will be made on the precise date at the beginning of the next Parliament;

-

reforming the State Second Pension so that, by around 2030, it becomes a simple, flat-rate weekly top-up to the basic State Pension;

-

abolishing adult dependency increases for new claimants from 6 April 2010 and reinvesting the money saved to provide improved state pensions;

-

continuing to uprate the Pension Credit standard minimum guarantee in line with earnings over the long term;

8.38 Pension age is to increase broadly in line with average life expectancy gains, from 65 to 68 between 2024 and 2046. Pension Credit 8.39 Pension Credit is a tax-free income-related benefit that provides a guaranteed income for people aged 604 or over living in Great Britain.

4

From 6 April 2010 the State Pension age for women will gradually rise from 60 reaching 65 by April 2020. The age from which people can start to get Pension Credit will rise in line with this. 195

Section 8: State Pensions

8.40 There are two parts to Pension Credit, Guarantee Credit and Savings Credit. Guarantee Credit works by topping up the weekly income of those aged 60 or over to a guaranteed minimum level. The Savings Credit rewards pensioners aged 65 and over who have saved some money towards their retirement, such as savings or a second pension. 8.41 The guarantee element is £130 a week for single pensioners and £198.45 a week for couples. The savings credit threshold starts at £96 a week for a single pensioner aged 65 or over, with a maximum weekly reward of £20.40; the threshold for couples (where at least one member of the couple is aged 65 or over) is £153.40, with a maximum weekly reward of £27.03. The savings credit provides 60p for each £1 of income above the savings threshold. Once the maximum reward is reached it is reduced by 40p for each additional £1 of income. Single pensioners with incomes of up to around £181 a week, and couples with up to around £266 a week, may still be entitled to Pension Credit. Even if customers have more money than this coming in each week they may still get Pension Credit if they are entitled to extra amounts. Extra amounts 8.42 Pension Credit makes provisions for extra amounts (similar to premiums in Income Support – see Chapter 10) in specific circumstances. These are normally where: -

the customer or partner are severely disabled;

-

the customer or partner look after a severely disabled person; or

-

the customer has certain housing costs, like mortgage interest payments (see Chapter 10).

8.43 The first £6,000 of capital is disregarded (£10,000 if you are in a care home). Capital over £6,000 will be treated as having an assumed income of £1 for every £500 (or part of £500) by which capital exceeds £6,000. There is no upper capital limit. Budget 2009 announced an increase to the capital threshold in Pension Credit, Housing Benefit and Council Tax Benefit for those aged 60 or over from £6,000 to £10,000, bringing it in line with the threshold for those living in care homes, coming into effect from November 2009.

Example 8.1:

Single Pensioner A, aged 67, has a full basic State Pension and an occupational pension worth £20 a week. She also has £7,000 of capital. Her own income is £107.30 a week, plus £2 a week from her capital. She will be entitled to a total of £28.68 Pension Credit a week, made up of £20.70 guarantee element and £7.98 savings credit.

196

Section 8: State Pensions

B

HISTORY

The 'earnings rule' 8.44 The abolition of the earnings rule, which reduced the amount of State Pension people could receive if they had earnings above a certain limit, was announced in the 1989 Budget and was effective from 1 October 1989. The earnings rule attached to increases for dependants was not, however, abolished. The former earnings rule, as it stood, is described below. 8.45 A retired pensioner between the ages of 65 and 70 for a man, or 60 and 65 for a woman, who took work had his/her basic State Pension and increments, invalidity additions and increments, any increase for spouse or childminder and any increase for a child reduced if earnings exceeded a specified limit (see Table 8.2). (Earnings did not affect additional State Pension, Graduated Retirement Benefit, contracted-out deductions, or increments to those.) Table 8.2: Pension earning limits Earnings Top Earnings Limit

1

From Nov '79 £52 £56

From Nov '82 £57 £61

From Nov '83 £65 £69

From Nov '84 £70 £74

From Nov '85 1 £75 1 £79

Unchanged at July 1986, April 1987, April 1988 and April 1989.

8.46 Between the earnings limit and the top earnings limit the basic State Pension was reduced by 5p for every 10p of earnings. Above the top limit it was reduced one for one. Thus, just prior to abolition of the earnings rule, a pensioner in the relevant age group earning more than £120 per week had his basic State Pension abated entirely. 8.47 Before 16 September 1985 there was a similar arrangement for the increase in the State Pension available for a dependent adult.

The dependency increase was reduced by 5p for every 10p of the

dependant's earnings between £45.00 and £49.00 (from November 1978) and by 5p for every 5p above that limit. Existing beneficiaries at September 1985 continue to benefit from this ‘taper’ rule so long as they receive their dependant's increase. From 16 September 1985 the increase for adult dependants is only payable for new claims if the dependant's earnings do not exceed a limit equal to the personal rate of unemployment benefit. Since April 1997, this has been equal to the rate of Jobseekers’ Allowance for a person aged 25 or over. Any earnings above this limit mean that the dependency increase is completely withdrawn. (See Table 8.4.) 8.48 Where a wife is living with her husband, and both are over State Pension age, she may be entitled to a Category B Pension if she has no, or little, entitlement to a Category A Pension. This is equal in amount

197

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to the dependent adult's increase. The Category B Pension, however, was subject to the same limits for earnings rule purposes as the husband's State Pension. The State Pension of each partner was only affected by his/her own earnings, not those of his/her partner. The effect of the earnings rule was that between April 1989 and 1 October 1989, a married couple, both over State Pension age, with standard rate basic State Pension based on the husband's contributions totalling £69.80 per week could each earn up to £75 a week each without their State Pensions being affected. Definition of earnings 8.49 Earnings include wages, overtime, salaries, fees, commission, regular tips, bonuses (other than the Christmas Bonus) of up to £10 paid by an employer, pensions paid by employers and from personal pensions and self-employed pension arrangements, basic allowances, attendance allowances and special responsibilities allowances as a councillor under the Local Government Act 1972 (or Local Government (Scotland) Act 1973) and Local Government and Housing Act 1989 whether or not the allowances are actually claimed or paid, and amounts received by taking in boarders and lodgers. 8.50 In assessing earnings the value of the following items may be disregarded: -

meals provided by the employer at the place of work;

-

accommodation provided by the employer in which the earner is required to live as a condition of employment; and

-

food or produce provided for the earner's personal needs or those of his/her household.

8.51 Until 5 April 1975 the earner's share of National Insurance contributions could be deducted from total earnings. (Since 6 April 1975 a retired person has not paid National Insurance contributions.) Deductions can also be made for reasonable expenses incurred in connection with employment (e.g. Trade Union subscriptions, fares, overalls and tools and equipment). Where no meal voucher is provided the cost of a meal up to 15p taken during working hours could be deducted. The reasonable cost of providing care for a member of the household because the pensioner was at work could also be deducted from earnings. Child dependency increase 8.52 Since 6 April 2003, it has not been possible to get an increase in the Category A or Category B Pension. Instead provision for children is made in Child Tax Credit.

Individuals already receiving an

increase for children at 6 April 2003 will continue to receive the increase for as long as they are entitled to, or are treated as being entitled to, Child Benefit for that child or children.

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Section 8: State Pensions

Pension Credit 8.53 Pension Credit was introduced in October 2003 replacing the Minimum Income Guarantee (Income Support for people aged 60 or over). Pension Credit, for the first time, rewards people aged 65 or over who have made a modest provision for their retirement, such as savings or a second pension. With Pension Credit the weekly income assessment/means test was abolished for those aged 65 or over, reducing the level of intrusion and the burden placed on pensioners by removing the need for pensioners to report all changes in their circumstances. 8.54 On the introduction of Pension Credit the rules excluding pensioners with £12,000 or more of savings from any help were also abolished, capital/savings below £6,0005 (£10,000 for those in care homes) are fully disregarded and the notional rate of income applied to capital above these levels is set at a rate of £1 for each £500 or part of £500 – which is half the previous assumed rate of income under the Minimum Income Guarantee. In addition the remunerative work rule that excluded pensioners who worked 16 hours a week or more (24 hours for couples) under the Minimum Income Guarantee scheme was also abolished. 8.55 Table 8.3b shows current and historical rates of Pension Credit. These amounts may be more for people who have caring responsibilities, disabilities or have certain housing costs.

5

In the Budget 2009, the Chancellor announced plans to increase the capital threshold in Pension Credit, Housing Benefit and Council Tax Benefit for those aged 60 or over from £6,000 to £10,000, bringing it in line with the threshold for those living in care homes.

199

Section 8: State Pensions

C HISTORICAL TABLES post 1990 Table 8.3a: The State Pension: standard rates 1

£ per week

09/04/90 08/04/91 06/04/92 12/04/93 11/04/94 10/04/95 08/04/96 07/04/97 06/04/98 12/04/99 10/04/00 09/04/01 08/04/02 07/04/03 12/04/04 11/04/05 10/04/06 09/04/07 07/04/08 06/04/09 1

Basic State Pension Increase for Single Married Adult dependent children person couple on dependant on own husband's insurance 2 ins urance 2,3 46.90 75.10 28.20 9.65 4 Eldest Other 52.00 83.25 31.25 9.70 10.70 54.15 86.70 32.55 9.75 10.85 56.10 89.80 33.70 9.80 10.95 57.60 92.10 34.50 9.80 11.00 58.85 94.10 35.25 9.85 11.05 61.15 97.75 36.60 9.90 11.15 62.45 99.80 37.35 9.90 11.20 64.70 103.40 38.70 9.90 11.30 66.75 106.70 39.95 9.90 11.35 67.50 107.90 40.40 9.85 11.35 72.50 115.90 43.40 9.70 11.35 75.50 120.70 45.20 9.65 11.35 77.45 123.80 46.35 9.55 11.35 79.60 127.25 47.65 9.55 11.35 82.05 131.20 49.15 9.40 11.35 84.25 134.75 50.50 9.25 11.35 87.30 139.60 52.30 9.00 11.35 90.70 145.05 54.35 8.75 11.35 95.25 152.30 57.05 8.20 11.35

Non-contributory pension Each man or single woman 28.45

The rates quoted here are standard rates for those with qualifying contribution records. Lower

rates may be payable in certain circumstances - for instance where an individual has a deficient record. 2

From September 1971 those over 80 receive an extra 25p per week age addition.

3

This is the rate where the wife's State Pension is based on the husband's contributions. Where

it is based on her own contri bution the rate for the married couple i s twice that for a single person, if both individual s are entitled to 100 per cent State Pension. 4

The rate for the eldest or only child is reduced in relation to other children to take account of

the corresponding increase in Child Benefit.

200

31.50 32.80 33.95 34.75 35.50 36.85 37.60 38.95 40.20 40.65 43.65 45.20 46.35 47.65 49.15 50.50 52.30 54.35 57.05

Section 8: State Pensions

Table 8.3b: Pension Credit 2003-041

2004-052

2005-2006

2006/07

2007/08

2008/09

2009/10

£102.10 £155.80

£105.45 £160.95

£109.45 £167.05

£114.05 £174.05

£119.05 £181.70

£124.05 £189.35

£130.00 £198.45

£77.45 £123.80 £14.79 £19.20 £6,000

£79.60 £127.25 £15.51 £20.22 £6,000

£82.05 £131.20 £16.44 £21.51 £6,000

£84.25 £134.75 £17.88 £23.58 £6,000

£87.30 £139.60 £19.05 £25.26 £6,000

£91.20 £145.80 £19.71 £26.13 £6,000

£96.00 £153.40 £20.40 £27.03 6 £6,000

3

Guarantee element Single Couple 4 Savings reward Threshold - single Threshold - couple Maximum - single Maximum - couple 5 Amount of capital disregarded 1

Pension Credit was introduced on 6 October 2003.

2

From 12 April 2004.

3

Available to those aged 60 or over.

4

Available to singles aged 65 or over, or for couples where at least one member is aged 65 or over.

5

Deemed income of £1 for each £500 in excess of these amounts.

6

The threshold will rise to £10,000.00 for all from November 2009

Table 8.4: Dependant's earnings limits 1 £ 28.45 30.45 30.80 31.45 32.75 34.70 37.35 41.40 43.10 44.65 45.45 46.45 48.25 49.15 50.35 51.40 52.20 53.05 53.95 54.65 55.65 56.20 57.45 59.15 60.50 64.30

16/09/1985 25/11/1985 28/07/1986 06/04/1987 11/04/1988 10/04/1989 09/04/1990 08/04/1991 06/04/1992 12/04/1993 11/04/1994 10/04/1995 08/04/1996 07/04/1997 06/04/1998 12/04/1999 10/04/2000 09/04/2001 08/04/2002 07/04/2003 12/04/2004 11/04/2005 10/04/2006 09/04/2007 07/04/2008 06/04/2009 1

If the dependant's earnings exceed this limit the dependant's increase is completely

withdrawn. See paragraph 8.24 for arrangements before 16 September 1985.

201

Section 8: State Pensions

D

HISTORICAL TABLES pre 1990 Table 8.5: The State Pension: standard rates1

£ per week

05/07/48 03/09/51 29/09/52 25/04/55 27/01/58 03/04/61 27/05/63 29/03/65 30/10/67 09/04/68 08/10/68 02/11/69 03/11/70 20/09/71 02/10/72 01/10/73 22/07/74 07/04/75 17/11/75 15/11/76 6 04/04/77 14/11/77 6 03/04/78 13/11/78 6 02/04/79 12/11/79 24/11/80 23/11/81 22/11/82 21/11/83 26/11/84 25/11/85 28/07/86 06/04/87 11/04/88 10/04/89 1

Basic State Pension Single Married Adult person couple on dependant on own husband's 2 23 Insurance Insurance 1.30 2.10 0.80 1.50 2.50 1.00 1.63 2.70 1.08 2.00 3.25 1.25 2.50 4.00 1.50 2.88 4.63 1.75 3.75 5.45 2.08 4.00 6.50 2.50 4.50 7.30 2.80 4.50 7.30 2.80 4.50 7.30 2.80 5.00 8.10 3.10 5.00 8.10 3.10 6.00 9.70 3.70 6.75 10.90 4.15 7.75 12.50 4.75 10.00 16.00 6.00 11.60 18.50 6.90 13.30 21.20 7.90 15.30 24.50 9.20 15.30 24.50 9.20 17.50 28.00 10.50 17.50 28.00 10.50 19.50 31.20 11.70 19.50 31.20 11.70 23.30 27.15 29.60 32.85 34.05 35.80 38.30 38.70 39.50 41.15 43.60

37.30 43.45 47.35 52.55 54.50 57.30 61.30 61.95 63.25 65.90 69.80

14.00 16.30 17.75 19.70 20.45 21.50 23.00 23.25 23.75 24.75 26.20

4

Increase for dependent children 1st 2nd further Child Child Child

0.38 0.50 0.13 0.53 0.13 0.58 0.18 0.75 0.35 0.88 0.48 1.00 0.60 1.13 0.73 1.25 0.85 1.40 0.65 1.40 0.50 1.55 0.65 1.55 0.65 2.95 2.05 3.30 2.40 3.80 2.90 4.90 4.00 5.65 4.15 6.50 5.00 7.45 5.95 6.45 5.95 7.40 6.90 6.10 6.10 6.35 6.35 5.35 5.35 Dependant child 7.10 7.50 7.70 7.95 7.60 7.65 8.05 8.05 8.05 8.40 8.95

0.13 0.13 0.18 0.35 0.48 0.60 0.73 8 0.85 0.55 0.40 0.55 0.55 1.95 2.30 2.80 3.90 4.15 5.00 5.95 5.95 6.90 6.10 6.35 5.35

5

Non-contributory pension Each man Married or single woman woman

3.00 3.85 4.30 4.90 6.25 7.15 8.15 9.45 9.45 10.75 10.75 11.95 11.95

1.85 2.45 2.75 3.10 3.95 4.55 5.15 5.85 5.85 6.55 6.55 7.30 7.30

14.25 16.55 18.00 19.95 20.70 21.75 23.25 23.50 24.00 25.00 26.45

8.65 10.05 10.90 12.05 12.50 13.10 7 -

The rates quoted here are standard rates for those with qualifying contribution records. Lower rates may be payable in

certain circumstances - for instance where an individual has a deficient record. 2 From September 1971 those over 80 receive an extra 25p per week age addition. 3

This is the rate where the wife's State Pension is based on the husband's contributions. Where is it based on her own

contribution the rate for the married couple is twice that for a single person, if both individuals are entitled to 100 per cent pension. Payable in addition to Child Benefit.

4 5

Introduced in November 1970 to apply to those over State Pension age in July 1948. From September 1971 it was extended

to all those aged 80 or over who satisfy the residence tests but either fail to qualify for contributory State Pension or qualify for a lower rate than the rate of non-contributory State Pension. The figures in these columns include the 25p age addition, since normally only those aged 80 or over qualify. There may, however, be a few women aged under 80 who are entitled to the benefit because they are or have been married to a man who is/was entitled. In the calendar years 1977, 1978 and 1979 adjustments were made to the child increases in the first week of April to take

6

account of simultaneous changes in the level of Child Benefit. The reduced rate for married women was abolished from 25 November 1985. They now receive the full rate, unless they are

7

under 80 and their entitlement depends upon their husband's entitlement to the benefit. 85p was paid for the third child and 60p for each further child.

8

202

Section 9: Other contributory benefits

Section 9: Other contributory benefits Contents

Page

A: Current system Incapacity Benefit Short-term Long-term Employment and Support Allowance Bereavement Benefits Bereavement Payment Widowed Parent's Allowance Bereavement Allowance Widow’s Benefits Widowed Mother’s Allowance Widow’s Pension

205 205 206 207 209 210 210 210 210 211 211

Tables Table 9.1: Table 9.2: Table 9.3: Table 9.4:

205 206 207 209

Other Contributory Benefits key figures Rates of short-term Incapacity Benefit Rates of long-term Incapacity Benefit Employment and Support Allowance

B: History Sickness Benefit Invalidity Benefit Incapacity Benefit Widow’s Payment Widow’s Allowance Widowed Mother’s Allowance Death Grant

212 212 213 213 213 213 214

C: Historical tables post 1990 Table 9.5: Rates of Incapacity Benefit Table 9.6a: Rates of Bereavement Benefit Table 9.6b: Rates of Widow’s Benefit

215 215 216

D: Historical tables pre 1990 Table 9.7: Table 9.8: Table 9.9: Table 9.10: Table 9.11:

Rates of Death Grant Maternity Grant Rates Rates of Sickness Benefit Rates of Invalidity Benefit Rates of Widow’s Benefit

217 217 217 218 219

203

Section 9: Other contributory benefits

204

Section 9: Other contributory benefits

A. CURRENT SYSTEM

Table 9.1:Other Contributory Benefits key figures

Average number of beneficiaries over the financial year Widows'/ Bereavement Benefit Industrial Injuries disablement Benefit Incapacity Benefit/Employment and 1 Support Allowance Annual expenditure Widows'/Bereavement Benefit Industrial Injuries disablement Benefit Incapacity Benefit/Employment and 1 Support Allowance 1

Outturn 2004-05 2005-06

2002-03

2003-04

255 267

230 266

206 267

1,585

1,570

1,087 733

1,007 737

Forecast 2008-09 2009-10

2006-07

2007-08

185 266

166 265

151 259

131 256

116 253

1,543

1,500

1,456

1,412

1,398

1,331

923 750

875 746

797 750

737 759

679 781

634 806

Employment and Support Allowance replaced Incapacity Benefit and Income Support paid on the grounds of incapacity for new claimants

in October 2008. The above figures relate to the contributory element of Employment and Support Allowance only.

Source: Department for Work and Pensions

Incapacity Benefit 9.1 Incapacity Benefit (IB) is a flat rate National Insurance benefit intended to provide a basic non-means tested income to people who are incapacitated by their illness or disability. From 27 October 2008, ESA replaced IB and Income Support paid on the grounds of incapacity to become the main income replacement benefit for people with a disability or health condition for new customers. There are two types of Incapacity Benefit (IB) – short-term and long-term. Incapacity benefit is a contributory benefit and, for those people who do not qualify under the special provisions for people incapacitated in youth, certain groups of young people may qualify under the entitlement based on their National Insurance contributions record. Short-term 9.2 Short-term IB is paid for a maximum of 52 weeks; short-term lower rate is payable from week 1 to 28, and short-term higher rate is payable from week 29 to 52. Short-term IB is contributory and can be paid from the fourth day of incapacity for those who do not have entitlement to Statutory Sick Pay (SSP), or after a period of SSP has ended (see Section 13 for details of SSP). Short term IB is not paid for the first three days of sickness; these are known as ‘waiting days’. This applies to people who move straight onto IB. 9.3 Short-term IB is payable regardless of a claimant’s capital. Since 6 April 2001, occupational and personal pensions paid by employers in excess of £85 a week are taken into account when assessing IB for people making a new non-linking claim. Benefit is reduced by 50 per cent of the excess over £85.

205

Section 9: Other contributory benefits

People with the most severe disabilities, who receive the highest rate of the care component of Disability Living Allowance, will not have their IB affected by pensions. The claimant must be incapable of work due to illness or disability. Entitlement is dependent upon the satisfaction of one or two medical tests, the own occupation test and the Personal Capability Assessment (PCA).

Medical certificates provided by the

claimant’s GP are required until the PCA has been applied. If the claimant had a regular occupation prior to the onset of incapacity, the Own Occupation Test (OOT) will apply for the first 28 weeks of sickness, followed by the PCA from the 29th week of incapacity. For those who have no regular job such as the unemployed or non-employed, prior to the onset of incapacity the PCA will apply from week 1. 9.4 Short-term IB may be paid for up to one year past State Pension age (60 for women, 65 for men), providing the claim for IB began before the claimant reached State Pension age. Entitlement is based on the rate of their State Pension (SP) entitlement. Increases for an adult dependant can be paid with shortterm and long-term IB. Increases for child dependants can be paid with short-term higher rate IB and longterm IB, and IB paid at State Pension rate, providing the claim began prior to April 2003. Child Tax Credits may be available for people who are claiming since that date. Table 9.2: Rates of short-term Incapacity Benefit £ per week

04/2009

Short-term lower rate Short-term higher rate Dependency Increase If over pensionable age Short-term lower rate Short-term higher rate Dependency Increase Child Dependency Increase (higher and pension rates only) First child Subsequent children

£67.75 £80.15 £41.35 £86.20 £89.80 £51.10 £8.20 £11.35

9.5 Short-term (higher rate) IB is taxable from week 29. Tax will only be payable where the person’s taxable income from all sources, including IB, exceeds their income tax allowance. Long-term 9.6 Long-term IB is payable after a person has been incapable of work for 52 weeks, and received either short-term IB, or a combination of SSP and short-term IB throughout the 52 weeks. The long-term rate of IB will be payable from week 29 to those who are terminally ill, or in receipt of the highest rate care component of Disability Living Allowance.

206

Section 9: Other contributory benefits

9.7 An age addition is payable to people whose incapacity begins early in life. The age addition is paid at one of two rates dependent on the person’s age when their incapacity for work began. Dependency increases may also be paid. Long-term IB is taxable, and is not payable past State Pension age. 9.8 Most Invalidity Benefit (IVB) recipients were transferred to the long-term rate of IB on 13 April 1995. Their benefit is transitionally protected and all elements apart from the former additional pension will continue to be uprated. In addition their benefit remains tax-free. Table 9.3: Rates of long-term Incapacity Benefit £ per week

04/2009

Long-term IB Incapacity Age Addition (higher) Incapacity Age Addition (lower) Invalidity Allowance (transitional cases): Higher Middle Lower Dependency Increase: Adult dependant Child dependency increase: First child Subsequent child

£89.80 £15.65 £6.55 £15.65 £9.10 £5.35 £53.10 £8.20 £11.35

9.9 From 28 October 2008 Incapacity Benefit new claims ceased and were replaced by Employment and Support Allowance (ESA). There are only linking Incapacity Benefit claims. Employment and Support Allowance 9.10 New customers go onto an assessment phase rate of ESA for 13 weeks while their capability for work is assessed. Whilst on the assessment phase they are paid the same rate as basic Jobseeker’s Allowance of £64.30 a week. Alongside ESA we have introduced a new more robust medical assessment the Work Capability Assessment, which focuses on what people can do, as well as what they cannot. The Work Capability Assessment is conducted during the assessment phase. 9.11 Following the completion of the assessment phase, customers pass to the main phase of ESA and are placed in either the Work- Related Activity Group or the Support Group. In the main phase of ESA they all receive the base rate plus either the Work-related Activity Component or the Support component, at the rates specified under Table 9.4. Those who qualify to income-related ESA and are in the Support Group are also passported to the Enhanced Disability Premium. The Work-related Activity Group is for those who, with the right help, should be able to return to work. Those in the Work-related Activity Group can be subject to sanctions (up to the value of the work-related activity component) if the customer does not

207

Section 9: Other contributory benefits

engage in the conditionality requirements without good reason. The maximum sanction under ESA is equal to the Work-Related Activity Component.

We have a wide range of safeguards in place for

vulnerable customers to ensure sanctions are applied in an appropriate way – for instance customers with mental health conditions will be contacted by visit if needed when there is a risk a sanction is to be imposed. 9.12 Those with the most severe health conditions will receive the Support Component. People in the Support Group will be free of any requirement to engage in work-related activities. People receiving the Support Component can volunteer for appropriate support on offer or undertake permitted work if their condition allows. It is important that those in the Support Group do not feel written off by the benefit system. Support Group customers cannot be required to attend interviews – and are not therefore at risk of sanctions for not taking part in them.

208

Section 9: Other contributory benefits

Table 9.4: Eemployment and Support Allowance £ per week Personal Allowances single under 25 25 or over lone parent under 18 18 or over couple both under 18 both under 18 with child both under 18 (main phase) both under 18 with child (main phase) one 18 or over, one under 18 both over 18 claimant under 25, partner under 18 claimant 25 or over, partner under 18 claimant (main phase), partner under 18

2008/09

2009/10

£47.95 £60.50

£50.95 £64.30

£47.95 £60.50

£50.95 £64.30

£47.95 £72.35 £60.50 £94.95 £94.95 £94.95 £47.95 £60.50 £60.50

£50.95 £76.90 £64.30 £100.95 £100.95 £100.95 £50.95 £64.30 £64.30

£12.60 £18.15

£13.40 £19.30

£50.35 £50.35 £100.70 £27.75

£52.85 £52.85 £105.70 £29.50

Pensioner single with WRAC single with support component single with no component couple with WRAC couple with support component couple with no component

£39.55 £34.55 £63.55 £70.40 £65.40 £94.40

£40.20 £34.85 £65.70 £72.00 £66.65 £97.50

Components Work-related Activity Support

£24.00 £29.00

£25.50 £30.85

Premiums enhanced disability single couple severe disability single couple (lower rate) couple (higher rate) carer

Bereavement Benefits 9.13 Bereavement Benefits are payable to those widowed since 9 April 2001. From 5 December 2005 the scheme was extended to include civil partners. Current and historic rates are shown in Table 9.5a.

209

Section 9: Other contributory benefits

Bereavement Payment 9.14 A non-taxable lump sum of £2,000, based on the contribution record of the late spouse or late civil partner is payable to men and women on bereavement if the person widowed is under state pension age or if the late spouse or late civil partner was not entitled to a Category A Retirement Pension. Widowed Parent’s Allowance 9.15

Widowed Parent’s Allowance is payable to the surviving spouse or civil partner from the Tuesday

of, or immediately following, bereavement.

Fathers widowed before 9 April 2001 were able to claim

Widowed Parent’s Allowance from that date as long as they satisfied the entitlement conditions.

An

increase is paid for each dependent child up to age 16, and or for a qualifying young person up to age 20 if in full-time non-advanced education. 9.16 Increases for children (known as Child Dependency Increases (CDIs)) are no longer paid on new claims to Widowed Parent’s Allowance, as the Child Tax Credit has replaced them. Individuals in receipt of Widowed Parent’s Allowance and Widowed Mother’s Allowance on 5 April 2003 have their CDIs transitionally protected. Bereavement Allowance 9.17

Bereavement Allowance is payable for 52 weeks to the surviving spouse or civil partner from the

Tuesday of, or immediately following, bereavement to those who were 45 or over when their spouse or civil partner died and they were not entitled to Widowed Parent’s Allowance. Widows/widowers and surviving civil partners whose entitlement to Widowed Parent’s Allowance ends within 52 weeks of widowhood, who are aged 45 or over, will be able to claim Bereavement Allowance for the remainder of the 52 weeks. 9.18

For widows/widowers and surviving civil partners aged 55 or over at widowhood or cessation of

Widowed Parent’s Allowance, the rate payable is equal to the single person’s Retirement Pension (£87.30 from April 2007). For widows/widowers and surviving civil partners between the ages of 45 and 54 the rates range in 7 per cent steps, from 93 per cent of the standard rate for a 54 year old to 30 per cent for a 45 year old. Widow’s Benefits 9.19

Widows’ Benefits were replaced by Bereavement Benefits from 9 April 2001. However women

widowed before that date will continue to receive Widow’s Benefits for as long as they satisfy the entitlement conditions. Current and historic rates are shown in Table 9.5b.

210

Section 9: Other contributory benefits

Widowed Mother’s Allowance 9.20

For those widowed between 11 April 1988 and 9 April 2001, Widowed Mother's Allowance is

payable from the Tuesday of, or immediately following, bereavement.

An increase is paid for each

dependant child; this is transitionally protected (see paragraph 9.12). Those widowed after 11 April 1988 no longer receive this allowance if their youngest child is aged 16-20 and they are not entitled to Child Benefit. Widow’s Pension 9.21

For widows whose husband died between 11 April 1988 and 9 April 2001, Widow's Pension is

payable from the Tuesday of, or immediately following, bereavement to those who were: -

45 or over when their husband died and they were not entitled to Widowed Mother's Allowance; or

9.22

45 or over when their Widowed Mother's Allowance ends. For widows aged 55 or over at death of husband or cessation of Widowed Mother's Allowance, the

rate is equal to the single person's Retirement Pension (£ 87.30 from April 2007); for widows between the ages of 45 and 54 at widowhood or cessation of Widowed Mother's Allowance the rates range in 7 per cent steps, from 93 per cent of the standard rate for the 54 year old widow to 30 per cent for the widow who was 45 at the time of widowhood.

211

Section 9: Other contributory benefits

B. HISTORY Sickness Benefit 9.23

The standard rate of Sickness Benefit and the increases payable in the presence of dependents,

were the same as Unemployment Benefit (see Section 7) until November 1983. Increases for children were abolished from November 1984 except for claimants over pension age.

The Earnings Related

Supplement was payable on the same basis as Unemployment Benefit until 2 January 1982, when it was abolished. 9.24

Sickness Benefit was replaced with IB on 13 April 1995.

Prior to this Sickness Benefit was

contributory and tax-free. It should not be confused with Statutory Sick Pay (SSP), which most employees receive in the first 28 weeks of sickness (see Section 13), which is taxable. Sickness Benefit was payable regardless of the claimant's capital. The claimant had to be incapable of work because of illness or disablement (established by self-certification for the first week of incapacity) and thereafter with proof of incapacity –usually a medical statement and must then satisfy contribution conditions. (See Section 6). 9.25

Since April 1986, when SSP was extended from 8 weeks to 28 weeks and prior to 13 April 1995,

most employees would go directly on to IVB if still sick when SSP ended provided that they satisfied the contribution conditions. If SSP ended before the completion of 28 weeks, Sickness Benefit was payable for the remaining weeks (provided that the contribution conditions were satisfied). Sickness Benefit was also paid to those who did not qualify for SSP, such as the self-employed and unemployed. The benefit could not be paid if the claimant also received Unemployment Benefit or Maternity Allowance. 9.26

Rates of Sickness Benefit are contained in Table 9.8.

Invalidity Benefit 9.27 Prior to 13 April 1995, when IVB was replaced with IB, claimants who had been entitled to Sickness Benefit or SSP (with underlying entitlement to Sickness Benefit) for 28 weeks went on to IVB.

IVB

consisted of the basic invalidity pension payable in all cases, with increases for dependants; an Invalidity Allowance payable where incapacity began more than 5 years below state pension age; and an earningsrelated Additional Pension. Invalidity Allowance was payable at one of three rates depending on the claimant's age when their incapacity began. Additional Invalidity Pension depends upon the claimant's record of earnings, on which national insurance was paid, in the tax years 1978/79 to 1990/91 (both years included). Since 16 September 1985, where both the Invalidity Allowance and Additional Pension are payable, a beneficiary could only receive an amount equal to the larger of the Invalidity Allowance or Additional Pension. IVB was not taxable. 9.28

Rates of IVB are contained in Table 9.9. 212

Section 9: Other contributory benefits

Incapacity Benefit 9.29

Short-term IB replaced Sickness Benefit on 13 April 1995. Incapacity Benefit for new customers

was replaced by Employment and Support Allowance on 27th October 2008. 9.30 Occupational and personal pensions paid by employers in excess of £85 a week have been taken into account when assessing IB for new claimants since April 2001 (see paragraph 9.3). 9.31 Long-term IB replaced IVB on 13 April 1995. Former IVB recipients were transferred to the longterm rate of IB on 13 April 1995. Their benefit is transitionally protected and all elements apart from the former additional pension will continue to be uprated. In addition their benefit remains tax-free. If a person was over State Pension age and in receipt of IVB on 13 April 1995, they continued to receive long-term IB until five years past State Pension age (65 for women, 70 for men). IB for new claimants has ceased in the 27th of October 2008 and has been replaced by ESA. 9.32 Rates of IB are contained in Table 9.4. Widow’s Payment 9.33

For women widowed between 11 April 1988 and 9 April 2001. Widow’s Payment was a non-

taxable lump sum of £1,000, introduced to replace the previous Widow’s Allowance (see below). It was paid on bereavement if widowed under age 60 or if the husband was not entitled to a Category A Retirement Pension. Widow’s Allowance 9.34 Women widowed before 11 April 1988 were entitled to Widow's Allowance. This was paid for the first 26 weeks of widowhood if the widow was under 60; or if her husband was not entitled to Retirement Pension. An increase was payable for each dependent child. An earnings-related addition was also payable (related to the late husband's earnings) to those who were widowed before 3 January 1982; no further awards of earnings-related addition were made for those widowed on or after that date. Entitlement ceased if the widow remarried or cohabited and was reduced if she received any other weekly benefit. Widowed Mother’s Allowance 9.35

For women widowed before 11 April 1988, Widowed Mother's Allowance (WMA) was payable

when payment of Widow's Allowance ceased (or if Widow's Allowance was not payable). At least one of the following conditions had to be satisfied:

213

Section 9: Other contributory benefits

-

the widow had at least one dependent child for whom she was entitled to Child Benefit;

-

the widow had a young person under 19 living with her in respect of whom she would have been entitled to an increase of WMA; or

-

she was expecting her late husband's baby.

9.36 An increase was payable for each dependent child. 9.37 See Table 9.5b and 9.10 for rates of Widow's and Widowed Mother's Allowances. Death Grant 9.38 A Death Grant was based on the contributions of the deceased; or of a living husband or wife; or of a predeceased husband or wife. Death Grant was a national insurance benefit, paid as a lump sum on death and was not taxable. Death Grant was not payable in the case of a stillborn baby. (See Table 9.6). 9.39 The Death Grant was not payable in respect of men born before 4 July 1883 and women born before 4 July 1888. The higher rate of Death Grant was paid on the death of men born after 4 July 1893 and women born after 4 July 1898. 9.40

Death Grants were abolished from 6 April 1987 and replaced by the Social Fund Funeral payment

Scheme (see Section 10).

214

Section 9: Other contributory benefits

C. HISTORICAL TABLES post 1990 Table 9.5: Rates of Incapacity Benefit £ per week (from April each year) Short-term Incapacity Benefit Lower rate: Personal benefit Increase for: adult dependant Higher rate: Personal benefit Increase for: adult dependant first child each other child Over Pension Age Personal benefit Increase for: adult dependant first child each other child Long-term Incapacity Benefit Personal benefit Increase for: adult dependant first child each other child Age addition: Incapacity began before age 35 Incapacity began between ages 35 & 4

1997

1998

1999

2000

2001

2002 2003

2004

47.10

48.80

50.35

50.90

52.60

53.50

54.50

55.90

57.65 59.20

61.35

63.75

67.75

29.15

30.20

31.15

31.50

32.55

33.10

33.65

34.60

35.65 36.60

37.90

39.40

41.35

55.70

57.70

59.55

60.20

62.20

63.25

64.35

66.15

68.20 70.10

72.55

75.40

80.15

29.15 9.90 11.20

30.20 9.90 11.30

31.15 9.90 11.35

31.50 9.85 11.35

32.55 9.70 11.35

33.10 9.65 11.35

33.65 9.55 11.35

34.60 9.55 11.35

35.65 36.60 9.40 9.25 11.35 11.40

37.90 9.00 11.35

39.40 8.75 11.35

41.35 8.20 11.25

59.90

62.05

64.05

64.75

66.90

68.05

69.20

71.15

73.35 78.50

78.05

81.10

86.20

35.90 9.90 11.20

37.20 9.90 11.30

38.40 9.90 11.35

38.80 9.85 11.35

40.10 9.70 11.35

40.80 9.65 11.35

41.50 9.55 11.35

42.65 9.55 11.35

43.95 47.00 9.40 9.25 11.35 11.40

46.80 9.00 11.35

48.65 8.75 11.35

51.10 8.20 11.35

62.45

64.70

66.75

67.50

69.75

70.95

72.15

74.15

76.45 78.50

81.35

84.50

89.80

37.35 9.90 11.20

38.70 9.90 11.30

39.95 9.90 11.35

40.40 9.85 11.35

41.75 9.70 11.35

42.45 9.65 11.35

43.15 9.55 11.35

44.35 9.55 11.35

45.70 47.00 9.40 9.25 11.35 11.40

48.65 9.00 11.35

50.55 8.75 11.35

53.10 8.20 11.35

13.15 6.60

13.60 6.80

14.05 7.05

14.20 7.10

14.65 7.35

14.90 7.45

15.15 7.60

15.55 7.80

16.05 16.50 8.05 8.25

17.10 8.55

17.75 8.90

15.65 6.55

Table 9.6a: Rates of Bereavement Benefit £ per week 04/2001 04/2002 04/2003 04/2004 04/2005 04/2006 04/2007 04/2008 04/2009 1

Bereavement 1 payment 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000

Widowed Parent's Allowance 72.50 75.50 77.45 79.60 82.05 84.25 87.30 90.70 95.25

Increase for Bereavement 2 Allowance each child first each other 9.70 11.35 72.50 9.65 11.35 75.50 9.55 11.35 77.45 9.55 11.35 79.60 9.40 11.35 82.05 9.55 11.35 84.25 9.00 11.35 87.30 8.75 11.35 90.70 8.20 11.35 95.25

On 9 April 2001, Widow’s Payment was replaced by a tax-free lump sum payment of

£2,000, for widows and widowers whose spouse died on or after 9 April 2001. Standard rate, lower rates for those below 55.

2

215

2005 2006

2007

2008

2009

Section 9: Other contributory benefits

Table 9.6b: Rates of Widow's Benefit £ per week

04/1990 04/1991 04/1992 04/1993 04/1994 04/1995 04/1996 04/1997 04/1998 04/1999 04/2000 04/2001 04/2002 04/2003 04/2004 04/2005 04/2006 04/2007 04/2008 04/2009 1

Widow's 1 payment

Widowed Mother's Allowance

1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

46.90 52.00 54.15 56.10 57.60 58.85 61.15 62.45 64.70 66.75 67.50 72.50 75.50 77.45 79.60 82.05 84.25 87.30 90.70 95.25

Increase for each child first each other 9.65 9.70 9.75 9.80 9.80 9.85 9.90 9.90 9.90 9.90 9.85 9.70 9.65 9.55 9.55 9.40 9.25 9.00 8.75 8.2

9.65 10.70 10.85 10.95 11.00 11.05 11.15 11.20 11.30 11.35 11.35 11.35 11.35 11.35 11.35 11.35 11.35 11.35 11.35 11.35

On 11 April 1988, Widow’s Allowance was replaced by a tax-free lump sum

payment of £1,000 for widows whose husband died on or after 11 April 1988. 2 Standard rate, lower rates for those below 55.

216

Widow's 2 Pension

46.90 52.00 54.15 56.10 57.60 58.85 61.15 62.45 64.70 66.75 67.50 72.50 75.50 77.45 79.60 82.05 84.25 87.30 90.70 95.25

Section 9: Other contributory benefits

D. HISTORICAL TABLES pre-1990 Table 9.7: Rates of death grant £ per Under 18 week Under 3 3-5 05/07/1949 6.00 10.00 27/01/1958 7.50 12.50 30/10/1967 9.00 15.00

6-17 15.00 18.75 22.50

18 and over at date of death Lower rate Higher rate 10.00 20.00 12.50 25.00 15.00 30.00

Table 9.8: Maternity Grant rates £ per week 05/07/1948 4.00 26/10/1953 9.00 16/05/1955 10.00 03/02/1958 12.50 03/04/1961 14.00 11/03/1963 16.00 25/01/1965 22.00 03/11/1969 25.00

Table 9.9: Rates of Sickness Benefit £ per week Nov Nov Nov 1983 1984 1985 Under pension age 1 Personal benefit 25.95 27.25 29.15 Increase for: 1 adult dependant 16.00 16.80 18.00 each child 0.15 Over pension age Personal benefit 34.25 36.65 Increase for: adult dependant 20.55 22.00 1

Jul 1986

Apr 1987

Apr 1988

Apr 1989

Apr 1990

Apr 1991

Apr 1992

Apr 1993

Apr 1994

29.45 30.05 31.30 33.20 35.70 39.60 41.20 42.70 43.45 18.20 18.60 19.40 20.55 22.10 24.50 25.50 26.40 26.90 37.05 37.85 39.45 41.80 45.00 49.90 51.95 53.80 55.25 22.25 22.70 23.65 25.10 27.00 29.95 31.20 32.30 33.10

Before 5th October 1986 reduced rates at ¾ and ½ rate may have been payable if contribution conditions were not

fully satisfied. (See Section 5 on contribution conditions.)

217

Section 9: Other contributory benefits

Table 9.10: Rates of Invalidity Benefit £ per week

Personal Benefit 11/78 11/79 11/80 11/81 11/82 11/83 11/84 11/85 07/86 04/87 04/88 04/89 04/90 04/91 04/92 04/93 04/94 04/95

1

19.50 23.30 26.00 28.35 31.45 32.60 34.25 38.30 38.70 39.50 41.15 43.60 46.90 52.00 54.15 56.10 57.60 58.85

Invalidity Pension increase for dependant adult Child first each other 3 3 6.35 6.35 11.70 14.00 7.10 7.10 15.60 7.50 7.50 17.00 7.70 7.70 18.85 7.95 7.95 19.55 7.60 7.60 20.55 7.65 7.65 23.00 8.05 8.05 23.25 8.05 8.05 23.75 8.05 8.05 24.75 8.40 8.40 26.20 8.95 8.95 28.20 9.65 9.65 31.25 9.70 10.70 32.55 9.75 10.85 33.70 9.80 10.95 34.50 9.80 11.00 35.25 9.85 11.05

1

Invalidity Allowance Higher Middle Lower 2 2 2 Rate Rate Rate 4.15 4.90 5.45 6.20 6.90 7.15 7.50 8.05 8.15 8.30 8.65 9.20 10.00 11.10 11.55 11.95 12.15 12.40

2.60 3.10 3.45 4.00 4.40 4.60 4.80 5.10 5.20 5.30 5.50 5.80 6.20 6.90 7.20 7.50 7.60 7.80

1.30 1.55 1.75 2.00 2.20 2.30 2.40 2.55 2.60 2.65 2.75 2.90 3.10 3.45 3.60 3.75 3.80 4 3.90

Since 16 September 1983, where both the Invalidity Allowance and Additional Pension are payable, a

beneficiary can only receive an amount equal to the larger of the two. The Additional Pension is earningsrelated. The average amount in payment in 1992-93 was £14.03. Rate depends on age at onset of incapacity. Higher rate payable if incapacity began before age 40

2

(35 prior to April 1979). From 2 April 1979 to 14 November 1979: each child £5.35.

3 4

Applicable rates for transitionally protected cases. Incapacity Benefit replaced Invalidity Benefit on

13 April 1995.

218

Section 9: Other contributory benefits

Table 9.11: Rates of Widow's Benefit £ per Widow's Widow's week Allowance payment 11/1978 11/1979 11/1980 11/1981 11/1982 11/1983 11/1984 11/1985 06/1986 04/1987 04/1988 04/1989

27.30 32.60 38.00 41.40 45.95 47.65 50.10 53.60 54.20 55.35 1 57.65 -

2 1000.00 1000.00

Widowed Mother's Allowance 19.50 23.30 27.15 29.60 32.85 34.05 35.80 38.30 38.70 39.50 41.15 43.60

Increase for each child 3 6.35 7.10 7.50 7.70 7.95 7.60 7.65 8.05 8.05 8.05 8.40 8.95

Widow's 4 Pension

1

Payable only to widow's whose husband died before 11 April 1988.

2

On 11 April 1988, widow's allowance was replaced by a tax-free lump sum payment of £1,000, for

widows whose husband died on or after 11 April 1988. 3 £5.35 from 3 April 1979 to 11 November 1979. 4 Standard rate, lower rates for those below 50 (55 from April 1988).

219

19.50 23.30 27.15 29.60 32.85 34.05 35.80 38.30 38.70 39.50 41.15 43.60

Section 9: Other contributory benefits

220

Section 10: Income Support

Section 10: Income Support Contents

Page

A: Current system Income Support Summary Personal Allowance Housing Costs Income and Disregards Uprating Passport to other benefit entitlements Social Fund Regulated provision Non-regulated provision

223 224 226 226 227 227 229 229 230

Tables: Table 10.1: Income Support key figures Table 10.2: Income Support personal allowances Table 10.3: Income Support weekly premiums from April 2004

223 224 225

B: History Supplementary Benefit Entitlement to other social security benefits Resources Requirements Normal requirements Housing costs Additional requirements Income Support Social Fund

232 232 233 234 234 234 236 238 238

C: Historical tables post 1988 Table 10.4: Income Support

240

D: Historical tables pre 1988 Table 10.5: Supplementary Benefit and National Assistance: scale rate Table 10.6: Capital resources and rates for Supplementary Benefit calculation Table 10.7: Non-dependant deductions for Supplementary Benefit

221

244 245 245

Section 10: Income Support

222

Section 10: Income Support

A.

CURRENT SYSTEM

Summary Income Support is a means-tested non-taxable benefit to provide for basic living expenses, and is paid to people out of work as well as to top up a low income from either benefits or part-time work. The target group is people who are not required to be available for work - the main eligibility criteria for claiming is that they must have a long-term sickness or disability, have caring responsibilities (for a disabled person) or be a lone parent. In addition, they must have few assets. Those claiming Income Support on the basis of being long-term sick or disabled will be claiming Incapacity Benefit (Income Related) if their claim dates from prior to October 2008. New claims for out of work disability benefits after October 2008 will be for Employment Support Allowance; which like Incapacity Benefit can be claimed for on an income or contributory basis. The rules for ESA on income grounds are the same as IB on income grounds.

Table 10.1: Income Support key figures Estimate

Plans

2007-08

2008-09

2009-10

2,144 2,729

2,157 2,732

2,116 2,718

1,904 2,746

8,839 5,758 14,597

8,948 6,271 15,219

8,687 6,533 15,221

7,856 6,820 14,676

Outturn 2005-06 2006-07

2003-04

2004-05

Average number of beneficiaries over the financial year Income Support (aged under 60) (excluding 1 Jobseeker's Allowance income based) 2 Minimum Income Guarantee/ Pension Credit

2,231 1,980

2,175 2,594

2,152 2,700

Annual expenditure 1 Income Support (aged under 60) (excluding Jobseeker's Allowance income based) Minimum Income Guarantee/ Pension Credit Total

10,344 4,529 14,873

10,029 5,016 15,045

9,150 5,424 14,574

(1) Figures include caseloads and expenditure for Income Support, paid for children, which is due to migrate to the Tax Credit System. (2) Pension Credit replaced Minimum Income Guarantee from October 2003.

Source: Department for Work and Pensions.

10.1

The following are the main features of the Income Support system – other income-related benefits

(income-based Employment and Support Allowance, income based Jobseeker’s Allowance, Housing Benefit and Council Tax Benefit) are calculated using the same basic rules: -

it is non-contributory and income-related;

- claimants must normally be aged 16 or over and aged under 60 (the upper age limit applies for Income Support only) and not required to be available for work because they are a lone parent with a child under 12 (under 10 from October 2009 and under seven from October 2010) or required to care for somebody at home, or are aged 16 to 19 in relevant education and estranged from parents or guardian(s). People who are required to be available for work claim Jobseeker’s Allowance rather than Income Support; and those aged over 60 can claim Pension Credit. 223

Section 10: Income Support

-

claimants must not be subject to immigration control and must be habitually resident, or treated as habitually resident in the UK, republic of Ireland, Isle of Man or the Channel Islands;

-

it is not normally payable if claimants are in remunerative work for 16 hours or more each week, or if their partner is in remunerative work for 24 hours or more a week; and

-

the general possession of capital and/or savings with a net value of over £16,000 removes all entitlement to Income Support, income-based Jobseeker's Allowance, Housing Benefit and Council Tax Benefit. Savings of £6,000 or less do not affect Income Support; above this level a tariff income of £1 is assumed for every £250 or part thereof between £6,000 and £16,000. Actual income from capital is ignored. For people living permanently in a care home, the upper and lower limits are £16,000 and £10,000 respectively (there are some exceptions to this rule).

-

From October 2008, Employment and Support Allowance has replaced Income Support paid on the grounds of incapacity or sickness for new claimants.

-

From 26th October 2009 lone parents whose youngest child is aged 10 or over will no longer be entitled to Income Support solely on the grounds of being a lone parent.

Personal allowances and Premiums 10.2

Income Support is assessed on the basis of personal allowances for claimant/partner and any

dependent children in respect of whom Child Tax Credit is not in payment, plus premiums for people in groups with special needs such as families and the disabled, and an amount towards certain types of housing costs. Personal allowances for recent years are shown in Table 10.2, while the current rates of premiums are shown in Table 10.3. Table 10.2: Income support personal allowances £ per week

April 2008

April 2009

Couple

both aged 18+ both under 18 with responsibility for a child

94.95 72.35

100.95 76.90

Lone parent

aged 18+ under 18

60.50 47.95

64.30 50.95

Single claimant1

aged 25+ 18-24 under 18

60.50 47.95 47.95

64.30 50.95 50.95

From April 1997 Birth to September following 16th birthday 3 September following the 16th to day before the 19th birthday

52.59 52.59

56.11 56.11

Dependent Children

1

2

Single claimants and lone parents aged 16-17 who get Income Support and have no option but to live apart from their

parental home are entitled to the higher rate. All disabled 16-17 year olds will receive the higher rate. From April 2008 all 16-17 year olds receive the higher rate. Allowances for dependent children were increased in October 2002 to £37.00 and £37.80. 3 To day before their 20th birthday from April 2006. 2

224

Section 10: Income Support

Table 10.3: Income Support weekly premiums from April 2009 £ per week Disability Premium Pensioner Premium( couples only) Lone Parent Premium

Single 27.50

Couples 39.15 97.50 17.30

10.3 It is not possible to receive more than one of the premiums in Table 10.3. 10.4 Claimants who have been receiving Income Support since 6 April 2003 with one or more dependent children also receive a family premium (currently £17.30). Claimants with a disabled child/children receive an additional premium of £51.24 for each such child. These premiums are payable in addition to all other premiums.

New claimants with children are provided with financial support for children through Tax

Credits. 10.5 The process of moving families from child allowances in Income Support onto Child Tax Credit began in April 2004. From this date, families on Income Support who are already receiving Child Tax Credit start to receive support for their children solely through Child Tax Credit. Any new claimants to Income Support from this date are no longer awarded child allowances or premiums from Income Support but will receive Child Tax Credit instead. There is no date for the automatic phased transfer to Child Tax Credit for the remaining families with children receiving Income Support but in the meantime, families will continue to receive the same level of support through Income Support as they would from Child Tax Credit. 10.6 There are provisions that allow for a ‘severe disability premium’ of £52.85 and a ‘carer premium’ of £29.50 to be included in an award of Income Support, but this is conditional upon the circumstances of the claimant. These two premiums can be paid in addition to any other premium awarded. If both members of a couple qualify for the severe disability premium or the carer premium, the amounts are doubled. 10.7 The Enhanced Disability Premium is payable where the claimant or a member of the family is in receipt of the highest rate of care component of Disability Living Allowance. The current rates are £20.65 a week for a child, £13.40 for a single person and £19.30 where the qualifying benefit is paid to a member of a couple or polygamous marriage and both are aged under 60. An Enhanced Disability Premium is not payable when a Pensioner Premium, Enhanced Pensioner Premium or a Higher Pensioner Premium is payable.

225

Section 10: Income Support

Housing Costs 10.8 From 5th January 2009, Income Support can help with interest on mortgages/loans, worth up to a total of £200,000, which are taken out for the purchase of the home or for essential repairs or improvements that are needed to maintain the fitness of the home for human habitation. Loans taken out to adapt the home for the special needs of a disabled person are exempt from this limit. Help may also be available with service charges, ground rent and some other housing costs that Housing Benefit cannot help with. 10.9 Borrowers with loans taken out after 1 October 1995 have to serve a waiting period of 39 weeks before they can receive any help with their mortgage interest. For borrowers with loans taken out before 2 October 1995 there is a waiting period of 8 weeks; from week 9 they can receive help with 50 per cent of their mortgage interest rising to 100 per cent from week 27.

If these borrowers re-mortgage their home

with the same lender for the same amount or less, they continue to be treated as pre-2 October 1995 borrowers. Some borrowers who have taken out loans after 1 October 1995 are treated as if they have existing housing costs; for example, carers who are not required to be available for work, or lone parents who have made a claim due to the death of their partner or because of abandonment by their partner. 10.10 On 5th January 2009 a temporary package of measures was introduced to help new claimants during the economic downturn: −

New claimants are eligible for 100 per cent of eligible mortgage interest after a waiting period of 13 weeks.



The capital limit up to which mortgage interest can be met is £200,000



There is a two year time limit on payment of mortgage interest, but only for new Jobseekers Allowance claims.

10.11 Mortgage interest is calculated using a standard interest rate. The rate is usually 1.58 per cent above the Bank of England base rate, but the Government has held it at 6.08 per cent until December 2009. Help with mortgage interest is normally paid directly to the lender. The standard interest rate may not cover all of a customer’s mortgage interest liabilities. In such circumstances, it is the responsibility of the customer to make up any shortfall. 10.12 The amount of Income Support payable is calculated by offsetting a claimant's resources against the applicable amount (the total of the personal allowances, premiums and housing costs).

226

Section 10: Income Support

Income and Disregards 10.13 The first £5 of a claimant's net weekly earnings (after tax and national insurance and half of any pension fund contribution) does not affect Income Support levels. Couples are entitled to a joint £10 disregard. A £20 a week earnings disregard applies to certain groups including: lone parents, long-term sick, disabled people, carers, and members of certain specialist forces (e.g. part-time fire-fighters). Most Social Security Benefits and pensions are fully taken into account, as are occupational and private pensions. Disability Living Allowance and Attendance Allowance are disregarded. Some other income types are fully or partially disregarded. For example, some specified payments that are both intended and used for items other than normal daily living expenses can be fully disregarded; the first £10 of a war pension is disregarded. Uprating 10.14 Income Support rates are normally uprated by the ROSSI Index that is based on the Retail Prices Index less housing costs such as mortgage interest or rent. Passport to other benefit entitlements 10.15 Receipt of Income Support usually acts as a passport to other benefits. Recipients also receive free NHS prescriptions and dental treatment, help with the costs of glasses and may be able to receive assistance via the Social Fund. They are also normally entitled to maximum Housing Benefit and Council Tax Benefit. Recipients with young children will also be entitled to the Healthy Start vouchers and older children will be entitled to Free School Meals (see section 12 for more details).

227

Section 10: Income Support

Numerical examples of Income Support Example 10.1: Couple both aged 18+ with children aged 6 and 12, no income other than Child Benefit. Receiving Income Support since April 2004 and not receiving Child Tax Credit April 2007 April 2008 April 2009 £ £ £ Personal Allowance Couple 92.80 94.95 100.95 Child aged 6 47.45 52.59 56.11 Child aged 12 47.45 52.59 56.11 Premiums Family Premium 16.25 16.75 17.30 Total allowances and premiums

203.95

216.88

230.47

30.20

31.35

33.20

173.75

185.53

197.27

Less Income Child Benefit Income Support

Example 10.2: Lone Parent aged 18+ with one child aged 11, only income is net part-time earnings of £20 a week + Child Benefit. Receiving Income Support since April 2004 and not receiving Child Tax Credit April 2007 £

April 2008 £

April 2009 £

59.15 47.45

60.50 52.59

64.30 56.11

Family Premium

16.43

16.75

17.30

Total allowances and premiums

123.03

129.84

137.71

18.10 20.00 20.00

18.80 20.00 20.00

20.00 20.00 20.00

104.93

111.04

117.71

Personal Allowance Lone parent 18+ Child aged 11 Premiums

Less Income Child Benefit Part-time earnings Less disregard Income Support

N.B. From 26 October 2009 lone parents whose youngest child is 11 will not qualify for Income Support on the grounds of being a lone parent as the qualifying age limit for the youngest child will reduce to age 10

228

Section 10: Income Support

Social Fund

10.16 Provision is made on both a regulated and a discretionary basis. Regulated provision 10.17 Regulations provide for help while expecting a baby or help with the immediate needs of a new born or adopted baby if the claimant (or their partner) is receiving Income Support, Pension Credit, incomebased Jobseeker's Allowance, income-related Employment and Support Allowance, income-based Jobseeker's Allowance, Working Tax Credit where the disability or severe disability element is included in the award or Child Tax Credit payable at a rate higher than the family element. 10.18 The Sure Start Maternity Grant is payable for each child that is expected, born, adopted, the subject of a parental order (following a surrogate birth) or, in certain circumstances, the subject of a residence order. A payment can be claimed for an adopted baby or a baby the subject of a residence order only if the child is not more than 12 months old at the date of claim. See section 2 for further details on maternal/paternal benefits and grants. 10.19 Cold Weather Payments are intended to give extra help to vulnerable people towards additional heating costs as a result of a sustained period of very cold weather in their area. A payment of £8.50 is made from the Social Fund when the average temperature was recorded as, or forecast to be, 0 degrees Celsius or below over 7 consecutive days. People who receive Pension Credit are eligible, as are those who receive Income Support, income-related Employment and Support Allowance or income-based Jobseeker's Allowance and who have a child aged under 5 or a disabled child or whose benefit includes a pensioner or disability premium. There is no need to make a claim - payments are made automatically. Savings are not taken into account. 10.20

Winter Fuel Payments are annual tax-free payments made to eligible households to help with

winter fuel costs. Unlike Cold Weather Payments, entitlement is not dependent on the weather. Entitlement to a payment is based on being aged 60 or over and ordinarily a resident in Great Britain during a specified qualifying week. Savings are not taken into account. The vast majority of payments are made automatically without the need to claim. Payments are £200 for eligible households with someone aged 60-79 and £300 for eligible households with someone aged 80 or over. The Chancellor announced in Budget 2009 an additional payment for winter 2009/10. Eligible households with someone aged 60-79 will receive an additional £50 and eligible households with someone aged 80 or over will receive an additional £100 making their total payment for winter 2009/10 £250 and £400 respectively.

229

Section 10: Income Support

10.21 The Social Fund Funeral Payment scheme provides help to those with good reason for taking responsibility for funeral expenses but there are insufficient funds (apart from personal savings) available to meet for such a large expense. Help is available to people awarded Income Support, Pension Credit, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance or Working Tax Credit where the disability or severe disability element is included in the award, Child Tax Credit payable at a rate higher than the family element, Housing Benefit or Council Tax Benefit. The amount allowable covers the necessary cost of specified expenses including burial or cremation fees, plus up to £700 for any other funeral expenses such as the funeral director’s fees, the coffin or flowers. Where burial is chosen, the amount allowed includes for the necessary cost of purchasing a new burial plot with exclusive right of burial. Funeral Payments are recoverable from the estate of the deceased. Non-regulated provision 10.22 The Social Fund also provides three types of discretionary payments: -

Budgeting Loans;

-

Crisis Loans; and

-

Community Care Grants.

10.23 Budgeting Loans are available to people who have received Income Support, Pension Credit, income-based Jobseeker's Allowance, income-related Employment and Support Allowance or received payment on account of such benefits for each of the last 26 weeks (or lived with someone who has done so). One break of 28 days or less does not affect eligibility Budgeting Loans are interest free and intended to help spread the cost of a range of occasional lump sum expenses over a longer period. 10.24 The minimum amount that may be awarded is £100; the maximum Social Fund debt (including any Crisis Loan debt) that can be outstanding at any time is £1500. Budgeting Loans are repayable, usually by deduction from the customer’s social security benefit. The Decision Maker must be sure that the customer can afford to repay the loan. 10.25 If the applicant and partner have capital of more than £1,000, (or £2,000 if the applicant or partner is aged 60 or over), a BL is reduced by the amount of any capital over £1,000, (or £2,000 if the applicant or partner is aged 60 or over). 10.26 Crisis Loans are to meet expenses that arise in an emergency or as a consequence of a disaster. They must be the only means by which serious damage or serious risk to the applicant's (or dependant’s) health or safety can be avoided. Any capital readily available to the applicant is taken fully into account.

230

Section 10: Income Support

10.27 Crisis Loans are not restricted to people on Income Support or other social security benefits. Like Budgeting Loans they are repayable. 10.28 Community Care Grants are designed primarily to help people to remain in (or return to) the

community rather than enter (or stay in) institutional or residential care; and to set up home in the community as part of a planned programme of resettlement. Such payments may, however, also be made to ease exceptional pressures on families, to care for prisoners on release on temporary licence and to help with certain travelling expenses. Community Care Grants can only be made to people receiving Income Support, Pension Credit, income-based Jobseeker's Allowance or income-related Employment and Support Allowance or payment on account of one of them (or likely to receive it on discharge from institutional or residential care which is planned to occur in less than 6 weeks). These payments are not repayable. 10.29 If the applicant (or partner) has more than £500 capital the maximum Community Care Grant will be for the difference between the amount which would otherwise have been awarded and the excess capital over £500 (£1000 for those aged 60 or over).

231

Section 10: Income Support

B.

HISTORY

Supplementary Benefit

10.30 Supplementary Benefit (SB) was introduced on 28 November 1966. Previously financial help for people on low incomes was provided under National Assistance, which was introduced on 5 July 1948. Supplementary Benefit ceased on 10 April 1988 and was replaced by Income Support. 10.31 SB was an income related, non-contributory benefit. To be eligible, claimants had to be aged 16 or over, not in full-time education or full-time work, and with savings below a certain limit (see Table 10.6). Claimants whose 'resources' fell short of 'requirements' (both terms defined below) received the amount necessary to bring the claimant's resources up to his/her requirements (ie the level of 'requirements' minus the level of 'resources'). 10.32 SB was of two types: Supplementary Pension (for those over State Pension age (65 men, 60 women)) and Supplementary Allowance (for those below pension age). 10.33 SB claims were based on an 'assessment unit'. This aggregated the requirements and resources of a married couple, or a couple living together as man and wife and any dependent children living with them. (For SB purposes dependent children were either under 16 or between 16 and 19 and in full-time education). Claims for a couple (married or unmarried) could be made by either partner provided he/she satisfied certain conditions showing contact with the job market during the previous 6 months or reasons for being excluded from it. 10.34 Benefit could not be awarded to a claimant in remunerative full-time work (i.e. normally working more than 30 hours a week, or 35 hours for certain disabled people) or to anyone in full-time education (A young person still at school was treated as a dependant in the calculation of a family's requirements). Benefit was not paid in respect of anyone involved in a trade dispute, but could be paid in respect of the dependants of such a person. 10.35 From 5 July 1982 SB, (in respect of claimants and adult dependants) paid in lieu of Unemployment Benefit, was taxable - in the same way as Unemployment Benefit. Entitlement to other social security benefits 10.36 Those in receipt of SB were not normally able to claim FIS, as the hours of work conditions for the two benefits were, in most cases, mutually exclusive (though this was not the case for single parents working between 24 and 30 hours per week or certain disabled persons working between 30 and 35 hours 232

Section 10: Income Support

per week). However a person receiving Family Income Supplement could claim SB if he/ she became unemployed. SB and Housing Benefit Supplement recipients were automatically entitled to the in-kind benefits discussed in Section 12. Resources 10.37 These included both income and capital. A claimant's income consisted of total household income, subject to the following modifications: -

earnings. The following were deducted from earnings: income tax, national insurance contributions and payments to an occupational pension scheme; reasonable work expenses (including travel) unless reclaimed as expenses; reasonable payments to look after a child or disabled person while the claimant was at work; 15 pence towards the cost of each meal during working hours; and any Christmas bonus up to £10;

-

earnings disregard. From November 1980 the first £4 (previously £2) of the claimant's earnings - and of those of his/her partner - was disregarded. For lone parents, fifty per cent of earnings between £4 and £20 were also disregarded. Earnings of dependent children were disregarded - except where the child began full-time work after leaving school but before becoming a non-dependant. In this case his/her earnings were counted (subject to the £4 disregard) against the SB addition that would otherwise have been payable in respect of that child (but not against any other component of SB). There were special rules covering the treatment of earnings of seasonal workers, and part-time emergency services workers;

-

social security benefits and pensions were normally regarded as ‘resources’ although Death and Maternity Grants, Mobility Allowance, War Pensioners Mobility Supplement and Resettlement Benefit (payable following a reduction of benefit whilst in hospital) were ignored. Attendance Allowance was also ignored unless the claimant was in a residential care or nursing home. War Disablement, War Widows, Industrial Injuries and Industrial Widows Pensions were treated as ‘other income’ (see below);

-

occupational pensions, counted in full;

-

maintenance payments, whether made voluntarily or under a court order, counted in full;

-

sick pay from an employer counted in full;

-

income from capital. Any income from capital assets of £3,000 or less was disregarded - but see below; and

-

other income. In general, the first £4 of any other income was not counted. The excess was counted in full.

10.38 Assessment of capital resources was based on the total capital of the claimant and his/her dependants (the 'assessment unit'). The value of a claimant's home was disregarded, as was the first 233

Section 10: Income Support

£1,500 of the total surrender value of any life assurance policies. Subject to these and certain other specified disregards, possession of capital worth more than £3,000 removed all entitlement to SB. Where a child's capital brought total capital resources to over £3,000 SB entitlement was not precluded, but all normal and additional requirements in respect of that child were removed. Table 10.6 shows how these rules changed after November 1980. Requirements Normal requirements 10.39 The basic requirements (shown in Table 10.5) depended on family type and the number of children. They did not include requirements for housing costs or certain other additional requirements, such as for extra heating (see 'Additional Requirements' below). 10.40 The 'ordinary scale' columns show the main scale rates for normal weekly requirements; under the Social Security Act 1966, a standard sum known as the 'long term addition' (see Table 10.5) was added to the requirements of supplementary pensioners and of those under pensionable age - other than the unemployed - who had received SB continuously for two years or more. From 1 October 1973, the longterm addition was consolidated into the 'long-term rate': the qualifying conditions were unchanged. On 24 November 1980, the qualifying period was reduced to one year; from June 1983, claimants aged 60 or over qualified immediately for the long-term rate.

From November 1983 periods in receipt of long-term

Incapacity Benefits have also counted towards the qualifying period for the long-term rate.

From

September 1971 pensioners aged 80 or over received an extra 25p. Housing costs 10.41 Pre-April 1983; where the claimant was a householder who was responsible - or whose wife was responsible - for housing costs, a housing requirement was added. This was calculated by taking the weekly housing costs (rent, mortgage interest (but not capital repayments), rates, and an allowance for repairs and insurance) and deducting: -

charges for services that are already provided for in the SB scale rates (eg heating and lighting);

-

any proceeds from subletting;

-

any rent or rates rebates allowed; and

-

a reduction in respect of any non-dependant living in the household.

10.42 The resulting figure, or such part considered reasonable, constituted the housing requirement. In effect, this meant that SB recipients received 100 per cent rent and rates rebates - after deductions from

234

Section 10: Income Support

services not strictly considered part of the housing costs - unless it was only because of housing costs that the claimant qualified for SB. 10.43 From April 1983, help with rent and rates were provided through Housing Benefit (see Section 11). The majority of householders who qualified for SB received 100 per cent rebate/ allowances from the local authority. Where there were non-dependants living in the household or the rent included an amount for amenities such as heating/lighting etc, Housing Benefit was awarded at a reduced rate. 10.44 Where the claimant shared the house with non-dependants he or she might be regarded as receiving a contribution from each non-dependant towards his housing costs, irrespective of whether any such payment was actually made (see Table 10.7). Children aged under 16 were ignored and a couple, with or without children, counted as one non-dependant. No deduction was made if: -

an equivalent deduction was being made against the claimant's Housing Benefit;

-

the claimant, or his or her spouse or unmarried partner, was blind;

-

the non-dependant was providing needed domestic help for which an additional requirement might be claimed;

-

the non-dependant was not receiving benefit and his or her usual home were somewhere else;

-

the non-dependant was receiving a training allowance under the Youth Training Scheme;

-

the non-dependant was aged 16-17 years and receiving a Severe Disablement Allowance.

10.45 As Housing Benefit was considerably more generous for SB recipients; a person's resources after paying housing costs could have been below SB requirements although they were not entitled to SB. Housing Benefit supplement (paid by local authorities) was designed to remedy this. It was calculated as the difference between the rent and rates (net of Housing Benefit) and the amount by which resources exceed SB requirements (see the example in Section 11). 10.46 SB continued to provide help with water charges and, in the case of owner-occupiers, mortgage interest (but not capital repayments) and any ground rent, (but the Housing Benefit non-dependant deductions applied). Water charges might have been paid with Housing Benefit where the claimant was a tenant of a local authority that collects the water charges on behalf of the water authority; or a tenant of a private landlord who paid an inclusive rent; or in most cases in Scotland. 10.47 SB also helped with maintenance and insurance payable by an owner-occupier or a tenant obliged under his tenancy agreement to make such payments. A fixed amount per week applied (see Table 10.6) but if the actual cost of insurance was higher this might have been paid. 10.48 Any person aged 21 or over who lived as a member of another person's household received financial help for housing costs in addition to the non-householder scale rate (see Table 10.6 for rates). 235

Section 10: Income Support

Additional requirements 10.49

Additions to weekly benefits were paid in respect of certain specified additional expenses such as

extra heating where the claimant, his partner or a dependant was in poor health or where the accommodation was damp or difficult to heat. In practice, pensioner householders over the age of 65 (70 before November 1984), and households where there was at least one dependent child of 5 or under automatically received the heating addition (see Table 10.6 for rates). 10.50

Householders (or their partners) over the age of 85 automatically received a higher rate heating

addition (also shown in Table 10.6). Amounts of other awards (e.g. for special diets, domestic assistance and for blind people) were set out in the regulations and in many cases reflected the actual cost involved. For those in receipt of the long-term scale rate the total of these additions - excluding those for children or awarded on grounds of age or blindness (and heating up to November 1984) - was reduced by an amount termed the available scale margin since this was already accounted for in the long term rate. The 1987-88 available scale margin was £1.00 (50 pence before November 1984 - see Table 10.6)

236

Section 10: Income Support

Examples of Supplementary Benefit Example 10.2: December 1982 (Pre-Housing Benefit) Single pensioner aged 65-69, £32.85 per week state retirement pension, no other income

Rent = £5.00 Requirement = £37.70 Resources = £32.85 Shortfall = £4.85 Supplementary pension of £4.85 payable

(£32.70+ £5.00)

Example 10.3: From 6 April 1987, single householder aged 18-65, Part-time earnings £25 (travel expenses £3), rent £20, general rates £8, water charges £1.50

Requirements

=

Scale rate and water charges

Resources

=

Earnings – expenses

Earnings Disregard Resources taken into account Shortfall Supplementary benefit of £13.90 payable.

= = = = = = =

£30.40 + £1.50 £31.90 £25 - £3 £22 £4 £18 £13.90

On receipt of a certificate showing entitlement to SB, the local authority awarded 100 per cent rent rebate/allowance and rate rebate.

Example 10.4: From 6 April 1987, pensioner couple (both over 65), £63.25 state retirement Pension, rent and rates £31.50, Water charges £2.30.

Requirements

=

Long term scale rate Water charges Heating addition Available scale margin

= = = =

£61.85 £2.30 £2.20 £1.00 £65.35

=

pension

=

£63.25

=

£2.10

Total requirements Resources Shortfall Supplementary Benefit of £2.10 payable.

On receipt of a certificate showing entitlement to SB, the local authority awarded 100 per cent rent rebate/allowance and rate rebate.

237

Section 10: Income Support

Income Support

10.51

Income Support was introduced on 11 April 1988.

10.52

In April 1989, the Income Support levels implicitly included an amount in respect of the minimum

20 per cent contribution that recipients were expected to pay towards their Community Charge. In April 1993 the Community Charge was replaced by council tax and Income Support recipients were entitled to 100 per cent help with the new tax. Income Support rates were not reduced to take account of this change. 10.53

In 1994-95, an extra 0.4 per cent was added to ROSSI to provide help in advance towards VAT on

fuel. 10.54

As from 2 October 1995, new borrowers (those with loans taken out after 1 October 1995) receive

no help with mortgage interest for 9 months. For those with loans taken out before that point, no help is given with mortgage interest for 8 weeks, and at 50 per cent for the next 18 weeks. From this date, mortgage interest is calculated using a standard rate of interest – based on variable rates of mortgage interest charged by the main building societies. From November 2004, the standard rate of interest was based on the Bank of England Base Rate + 1.58 per cent 10.55

Prior to April 1997 lone parents received a Lone Parent Premium in addition to the Family

Premium.

From April 1997 the Lone Parent Premium was abolished but lone parents who were

continuously in receipt of Income Support were paid a Family Premium (lone parent rate). This cannot be paid in addition to any of the premiums mentioned in Table 10.3. From April 2004 the Family Premium (lone parent rate) was paid at the same rate as the Family Premium. 10.56

In April 2001, the capital limits for people aged 60 or over were increased – the lower capital limit

was increased from £3,000 to £6,000 and the upper capital limit was increased from £8,000 to £12,000. 10.57

Also in April 2001, a new Enhanced Disability Premium was introduced, which is not payable when

a Pensioner Premium, Enhanced Pensioner Premium or a Higher Pensioner Premium is payable. This is payable where the claimant or a member of the family is in receipt of the highest rate of care component of the Disability Living Allowance. Social Fund

10.58

The Social Fund succeeded Supplementary Benefit single payments and the old universal

Maternity and Death Grants. (See Chapter 3 for details on maternity benefits and grants). 238

Section 10: Income Support

10.59

For the Social Fund Funeral Payment, savings in excess of £500 (£1000 for those aged 60 or over)

used to be taken into account. On 8 October 2001 this capital rule was abolished. 10.60

In April 2006 the level at which capital starts to have an effect on the amount of Budgeting Loan

awards increased from £500 to £1000 (from £1000 to £2000 for those aged 60 or over).

239

Section 10: Income Support

C. HISTORICAL TABLES Post 1988 Table 10.4: Income Support £ per

1988-89 1989-90

Oct-89 1990-91 1991-92

Oct-91 1992-93

Oct-92

week Rates Couple one aged 18+ both under 18 Lone Parent aged 18+ under 18 (higher rate from 1991-92)

51.45

54.80

54.80

57.60

62.25

62.25

66.60

38.80

41.60

41.60

43.80

47.30

47.30

50.60

66.60 50.60

33.40

34.90

34.90

36.70

39.65

39.65

42.45

42.45

19.40

20.80

20.80

21.90

31.15

31.40

33.60

33.60

33.40

34.90

34.90

36.70

39.65

39.65

42.45

42.45

18-24

26.05

27.40

27.40

28.80

31.15

31.40

33.60

33.60

under 18 under 18 higher rate1

19.40

20.80

20.80

21.90

23.65

23.90

25.55

25.55

-

-

-

28.80

31.15

31.40

33.60

33.60

Dependant child: under 11

10.75

11.75

11.75

12.35

13.35

13.60

14.55

14.55

11-15

16.10

17.35

17.35

18.25

19.75

20.00

21.40

21.40

16-17

19.40

20.80

20.80

21.90

23.65

23.90

25.55

25.55

18

26.05

27.40

27.40

28.80

31.15

31.40

33.60

33.60

single

13.05

13.70

13.70

15.40

16.65

16.65

17.80

17.80

couple

18.60

19.50

19.50

22.10

23.90

23.90

25.55

25.55

single

24.75

26.20

26.20

28.20

31.25

31.25

32.55

32.55

couple

49.50

52.40

52.40

56.40

62.50

62.50

65.10

65.10

6.15

6.50

6.50

15.40

16.65

16.65

17.80

17.80

-

-

-

10.00

10.80

10.80

11.55

11.55

Single claimant: 25+

Additional Payments: Disability premium:2

Severe disability premium:

Disabled child premium Carer premium3 Pensioner premium (60-74)4: single

10.65

11.20

11.20

11.80

13.75

13.75

14.70

16.70

couple (both qualify)

16.25

17.05

17.05

17.95

20.90

20.90

22.35

25.35

Enhanced pensioner premium (75-79): single

-

13.70

14.40

15.55

15.55

16.65

18.65

couple (both qualify)

-

20.55

21.60

23.35

23.35

25.00

28.00

Higher pensioners premium (80+ or disabled): single

13.05

13.70

16.20

17.05

18.45

18.45

20.75

22.75

couple (both qualify)

18.60

19.50

23.00

24.25

26.20

26.20

29.55

32.55

Lone parent premium

3.70

3.90

3.90

4.10

4.45

4.45

4.75

4.75

Family premium

6.15

6.50

6.50

7.35

7.95

8.70

9.30

9.30

upper limit

6,000

6,000

6,000

8,000

8,000

8,000

8,000

8,0005

amount disregarded

3,000

3,000

3,000

3,000

3,000

3,000

3,000

3,0006

child's limit

3,000

3,000

3,000

3,000

3,000

3,000

3,000

3,000

Capital

240

Section 10: Income Support

Table 10.4: Income Support - continued £ per week

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

Rates Couple one aged 18+ both under 18 Lone Parent aged 18+ under 18 (higher rate) Single Claimant: 25+

69.00

71.70

73.00

75.20

77.15

79.00

80.65

52.40

54.55

55.55

57.20

58.70

60.10

61.35

44.00

45.70

46.50

47.90

49.15

50.35

51.40

34.80

36.15

36.80

37.90

38.90

39.85

40.70

44.00

45.70

46.50

47.90

49.15

50.35

51.40

18-24

34.80

36.15

36.80

37.90

38.90

39.85

40.70

under 18 under 18 higher rate1

26.45

27.50

28.00

28.85

29.60

30.30

30.95

34.80

36.15

36.80

37.90

38.90

39.85

40.70

Dependent Child: under 11

15.05

15.65

15.95

16.45

16.90

17.30

20.20

11-15

22.15

23.00

23.40

24.10

24.75

25.35

25.90

16-17

26.45

27.50

28.00

28.85

29.60

30.30

30.95

18

34.80

36.15

36.80

37.90

38.90

39.85

40.70

Additional Payments: Disability premium2: single

18.45

19.45

19.80

20.40

20.95

21.45

21.90

couple

26.45

27.80

28.30

29.15

29.90

30.60

31.25

Severe disability premium: single

33.70

34.30

35.05

36.40

37.15

38.50

39.75

couple

67.40

68.60

70.10

72.80

74.30

77.00

79.50

Disabled child premium Carer premium3

18.45

19.45

19.80

20.40

20.95

21.45

21.90

11.95

12.40

12.60

13.00

13.35

13.65

13.95

Pensioner premium (60-74)4: single

17.30

18.25

18.60

19.15

19.65

20.10

23.60

couple

26.25

27.55

28.05

28.90

29.65

30.35

35.95

Enhanced pensioner premium (75-79): single

19.30

20.35

20.70

21.30

21.85

22.35

25.90

couple

29.00

30.40

30.95

31.90

32.75

33.55

39.20

Higher pensioners premium (80+ or disabled): single

23.55

24.70

25.15

25.90

26.55

27.20

30.85

couple

33.70

35.30

35.95

37.05

38.00

38.90

44.65

Lone parent premium

4.90

5.10

5.20

5.20

-

-

Family premium

9.65

10.05

10.25

10.55

13.90

-

-

-

10.80 15.757

11.05

-

15.75

15.75

upper limit5

8,000

8,000

8,000

8,000

8,000

8,000

8,000

amount disregarded6

3,000

3,000

3,000

3,000

3,000

3,000

3,000

child's limit

3,000

3,000

3,000

3,000

3,000

3,000

3,000

Family premium - lone parent Capital

241

Section 10: Income Support

Table 10.4: Income Support - continued £ per week

2000-01

Oct-00

Apr-01

Oct-01

Apr-02

Oct-02

Apr-03

81.95 62.35 52.20 41.35 52.20 41.35 31.45 41.35

81.95 62.35 52.20 41.35 52.20 41.35 31.45 41.35

83.25 63.35 53.05 42.00 53.05 42.00 31.95 42.00

83.25 63.35 53.05 42.00 53.05 42.00 31.95 42.00

84.65 84.65 85.75 Depends on circumstances 53.95 53.95 54.65 42.70 42.70 43.25 53.95 53.95 54.65 42.70 42.70 43.25 32.50 32.50 32.90 42.70 42.70 43.25

26.60

30.95

31.45

32.95

33.50

37.00

38.50

31.75

31.75

32.25

33.75

34.30

37.80

38.50

22.25 31.75

22.25 31.75

22.60 32.25

22.60 32.25

23.00 32.80

23.00 32.80

23.30 33.25

40.20 80.40 22.25 14.15

40.20 80.40 22.25 14.15

41.55 83.10 30.00 24.40

41.55 83.10 30.00 24.40

42.25 84.50 35.50 24.80

42.25 84.50 35.50 24.80

42.95 85.90 41.30 25.10

26.25 40.00

26.25 40.00

39.10 57.30

39.10 57.30

44.20 65.15

44.20 65.15

47.45 70.05

28.65 43.40

28.65 43.40

39.10 57.30

39.10 57.30

44.20 65.15

44.20 65.15

47.45 70.05

33.85 49.10

33.85 49.10

39.10 57.30

39.10 57.30

44.20 65.15

44.20 65.15

47.45 70.05

14.25 15.90

14.25 15.90

14.50 15.90

14.50 15.90

14.75 15.90

14.75 15.90

15.75 15.90

8,000 3,000 3,000

8,000 3,000 3,000

8,000 9 3,000 3,000

9

8,000 9 3,000 3,000

9

8,000 9 3,000 3,000

9

8,000 9 3,000 3,000

9

8000 9 3000 3,000

Rates Couple one aged 18+ both under 18 Lone Parent aged 18+ under 18 (higher rate) Single Claimant: 25+ 18-24 under 18 1 under 18 higher rate Dependent Child: From birth to sept following 16th birthday From sept following 16th birthday to 2 day before 19th birthday Additional Payments: 3

Disability premium : single couple Severe disability premium: single couple Disabled child premium 4 Carer premium 5 Pensioner premium (60-74) : single couple Enhanced pensioner premium (75-79): single couple Higher pensioners premium (80+ or disabled): single couple 6 Lone parent premium Family premium Family premium - lone parent Capital 7

upper limit 8 amount disregarded child's limit 1

Living away from home in certain circumstances.

2

To day before their 20th Birthday from April 2006.

3

For details of the Enhanced Disability Premium, which was introduced in April 2001, see paragraph 9.8.

4

Introduced in October 1990. Rate doubled for couples when both qualify.

5

Before October 1989 age range was 60-70.

6

Lone Parent Premium abolished from April 1997.

7

£16,000 for those permanently in residential care or nursing homes.

8

£10,000 for those permanently in residential care or nursing homes. From April 2001, people aged over 60 have increased capital limits of £12,000 and £6,000

9

242

9

Section 10: Income Support

Table 10.4: Income Support - continued £ per week

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

87.30 88.15 90.10 Depends on circumstances 55.65 56.20 57.45 44.05 44.50 45.50 55.65 56.20 57.45 44.05 44.50 45.50 33.50 33.85 34.60 44.05 44.50 45.50

92.80 59.15 46.85 59.15 46.85 35.65 46.85

94.95 47.95 60.15 47.95 60.50 47.95 47.95 47.95

100.95 50.95 64.30 50.95 64.30 50.95 50.95 n/a

42.27

43.88

45.58

47.45

52.29

56.11

42.27

43.88

45.58

47.45

52.29

56.11

23.70 33.85

23.95 34.20

24.50 34.95

25.25 36.00

25.85 36.85

27.50 39.15

44.15 88.30 42.49 25.55

45.50 91.00 43.89 25.80

46.75 93.50 45.08 26.35

48.45 96.90 46.69 27.15

50.35 100.70 48.72 27.75

52.85 105.70 51.24 29.50

73.65

78.90

83.95

88.90

94.40

97.50

73.65

78.90

83.95

88.90

94.40

97.50

73.65

78.90

83.95

88.90

94.90

97.50

15.95 15.95

16.10 16.10

16.25 16.25

16.43 16.43

16.75 16.75

17.30 17.30

9

8000 3000 3,000

16,000 6,000 3,000

16,000 6,000 3,000

16,000 6,000 3,000

16,000 6,000 3,000

Rates Couple one aged 18+ both under 18 Lone Parent aged 18+ under 18 (higher rate) Single Claimant: 25+ 18-24 under 18 1 under 18 higher rate Dependent Child: From birth to sept following 16th birthday From sept following 16th birthday to 2 day before 19th birthday Additional Payments: 3

Disability premium : single couple Severe disability premium: single couple Disabled child premium 4 Carer premium 5 Pensioner premium (60-74) : single couple Enhanced pensioner premium (75-79): single couple Higher pensioners premium (80+ or disabled): single couple 6 Lone parent premium Family premium Family premium - lone parent Capital 7

upper limit 8 amount disregarded child's limit

8000 9 3000 3,000

1

Living away from home in certain circumstances.

2

To day before their 20th Birthday from April 2006.

3

For details of the Enhanced Disability Premium, which was introduced in April 2001, see paragraph 9.8.

4

Introduced in October 1990. Rate doubled for couples when both qualify.

5

Before October 1989 age range was 60-70.

6

Lone Parent Premium abolished from April 1997.

7

£16,000 for those permanently in residential care or nursing homes.

8

£10,000 for those permanently in residential care or nursing homes. From April 2001, people aged over 60 have increased capital limits of £12,000 and £6,000

9

243

Section 10: Income Support

D HISTORICAL TABLES Pre 1988 Table 10.5: Supplementary Benefit and National Assistance: scale rate £ per week

Single householder

Married couple

Ordinary

Long

Ordinary

scale

term 1 addition

scale

Dependent Child

Single non-householder

Long scale term

Long

Over 20

18-20

16-17

term 1 additon

addition

13-15

11-12

2

5-10

Under 5

05/07/48

1.20

-

2.00

-

1.00

0.88

0.75

-

0.53

0.53

0.45

0.38

12/06/50

1.30

-

2.18

-

1.10

0.95

0.80

-

0.60

0.60

0.50

0.40

03/09/51

1.50

-

2.50

-

1.30

1.10

0.93

-

0.68

0.68

0.58

0.48

16/06/52

1.75

-

2.95

-

1.55

1.30

1.08

-

0.80

0.80

0.68

0.55

07/02/55

1.88

-

3.15

-

1.68

1.38

1.13

-

0.85

0.85

0.73

0.60

23/01/56

2.00

-

3.35

-

1.80

1.45

1.18

-

0.90

0.90

0.78

0.65

27/01/58

2.25

-

3.80

-

2.05

1.58

1.30

-

1.00

1.00

0.85

0.73

07/09/59

2.50

-

4.25

-

2.30

1.80

1.50

-

1.15

1.15

0.95

0.80

03/04/61

2.68

-

4.50

-

2.48

1.90

1.60

-

1.20

1.20

1.00

0.85

24/09/62

2.88

-

4.78

-

2.58

2.00

1.70

-

1.28

1.28

1.05

0.90

27/05/63

3.18

-

5.23

-

2.75

2.15

1.85

-

1.40

1.40

1.15

0.98

29/03/65

3.80

-

6.28

-

3.38

2.58

2.23

-

1.68

1.68

1.35

1.13

28/11/66

4.05

0.45

6.65

0.45

3.45

2.75

2.35

0.45

1.75

1.75

1.40

1.18

30/10/67

4.30

0.45

7.05

0.45

3.55

2.90

2.50

0.45

1.85

1.85

1.50

1.25

07/10/68

4.55

0.50

7.45

0.50

3.70

3.05

2.65

0.50

2.05

1.95

1.60

1.35

03/11/69

4.80

0.50

7.85

0.50

3.85

3.20

2.80

0.50

2.20

2.05

1.65

1.40

02/11/70

5.20

0.50

8.50

0.50

4.15

3.50

3.05

0.50

2.40

2.20

1.80

1.50

20/09/71

5.80

0.50

9.45

0.50

4.60

4.05

3.60

0.50

3.00

2.45

2.00

1.70

02/10/72

6.55

0.60

10.65

0.60

5.20

5.20

4.05

0.60

3.40

2.75

2.25

1.90

18 or over

16-17

Ordinary

Long

Ordinary

scale

term

scale

addition

Long term addition

01/10/73

7.15

8.15

11.65

12.85

5.70

6.60

4.40

-

3.70

3.00

2.45

2.05

22/07/74

8.40

10.40

13.65

16.35

6.70

8.40

5.15

-

4.35

3.55

2.90

2.40

07/04/75

9.60

12.00

15.65

18.85

7.65

9.65

5.90

-

4.95

4.05

3.30

2.75

17/11/75

10.90

13.70

17.75

21.55

8.70

11.00

6.70

-

5.60

4.60

3.75

3.10

15/11/76

12.70

15.70

20.65

24.85

10.15

12.60

7.80

-

6.50

5.35

4.35

3.60

14/11/77

14.50

17.90

23.55

28.35

11.60

14.35

8.90

-

7.40

6.10

4.95

4.10

13/11/78

15.55

19.90

25.25

31.55

12.45

15.95

9.55

-

7.95

6.55

5.30

4.40

12/11/79

18.30

23.70

29.70

37.65

14.65

18.95

11.25

-

9.35

7.70

6.25

5.20

11-15

under 11

24/11/80

21.30

27.15

34.60

43.45

17.05

21.70

13.10

16.65

10.90

7.30

23/11/81

23.25

29.60

37.75

47.35

18.60

23.65

14.30

18.15

11.90

7.90

22/11/82

25.70

32.70

41.70

52.30

20.55

26.15

15.80

20.05

13.15

8.75

21/11/83

26.80

34.10

43.50

54.55

21.45

27.25

16.50

20.90

13.70

9.15

26/11/84

28.05

35.70

45.55

57.10

22.45

28.55

17.30

21.90

14.35

9.60

25/11/85

29.50

37.50

47.85

60.00

23.60

30.00

18.20

23.00

15.10

10.10

28/07/86

29.80

37.90

48.40

60.65

23.85

30.35

18.40

23.25

15.30

10.20

06/04/87 30.40 38.65 49.35 61.85 24.35 30.95 18.75 23.70 15.60 10.40 1 Under the Ministry of Social Security Act 1966, the "Long term addition" was added to the requirements of those (other than the unemployed) who had received SB for a continuous period of 2 years or more. When, on 1 October 1973, the long-term scale was introduced, the same qualifying conditions applied. Dependant additions for children over 15 were at the same rate as the ordinary scale for a single non-householder of the

2

dependant's age.

244

Section 10: Income Support

Table 10.6: Capital resources and rates for Supplementary Benefit calculation Savings Limits of Maintenance (over 21) Householder Householder limits disregard and Householder heating higher rate on surrender insurance scale rate addition (85+) value of life rate heating assurance addition policies £ £ £ (weekly) £ (weekly) £ (weekly) £ (weekly) 24/11/80 2,000 ALL 1.25 1.70 1.40 3.40 23/11/81 2,000 TAKEN INTO 1.50 2.15 1.65 4.05 22/11/82 2,500 ACCOUNT 1.65 2.55 1.90 4.65 21/11/83 3,000 1,500 1.70 3.10 2.05 5.05 26/11/84 3,000 1,500 1.80 3.30 2.10 5.20 25/11/85 3,000 1,500 1.85 3.90 2.20 5.55 28/07/86 3,000 1,500 1.85 3.90 2.20 5.55 06/04/87 3,000 1,500 1.95 4.05 2.20 5.55

Available scale margin

£ (weekly) 0.50 0.50 0.50 0.50 1.00 1.00 1.00 1.00

Table 10.7: Non-dependant deductions for Supplementary Benefit (SB)1 £ per week 16-17 18-20 21-pensionable age pensionable age and over 16 and over and receiving supplementary allowance 18-20 in receipt of SB 21-pensionable age in receipt of SB

1

Nov-81 Nov-82 2.55 5.40 5.40 5.40 2.55 2.55 2.55

Nov-82 Apr-83 3.10 6.55 6.55 6.55 3.10 3.10 3.10

Deducted from the claimant's total housing requirements

245

Apr-83 Nov-84 3.95 4.70 2.20 2.20 2.20

Nov-84 Nov-85 2.35 6.60 6.60 2.35 2.35 3.95 2.35

Nov-85 Jul-86 2.80 7.80 7.80 2.80 2.80 2.80 2.80

Jul-86 Apr-87 2.80 7.80 7.80 2.80 2.80 2.80 2.80

Apr-87 Apr-88 2.90 8.05 8.05 2.90 2.90 2.90 2.90

Section 10: Income Support

246

Section 11: Housing Benefits Section 11: Housing and Council Tax Benefits Contents Page A: Current system Housing Benefit Housing Benefit – how it is calculated Council tax Council Tax Benefit Benefit entitlement and liability ‘Second adult’ rebates Non-dependant deductions Main features of Council Tax Benefit Boarders and sub-tenants Minimum benefit rule Administration

249 252 254 254 254 255 256 256 257 257 257

Tables Table 11.1: Housing and Council Tax benefits key figures Table 11.2: Housing Benefit deductions Table 11.3: Council Tax Benefit deductions Table 11.4: Council Tax Benefit deductions

249 250 255 256

B: History System before 1983 Unified Housing Benefits Rent rebates/ allowances, rent rebates and ‘standard’ Housing Benefit Calculation of entitlement to standard Housing Benefit Housing Benefit supplement Housing Benefit from 1998 Capital ceilings in Housing Benefit Community Charge Benefit Council tax

259 260 261 263 265 266 268 268 270

Tables Table 11.5: The maximum deducted in certificated cases in respect of fuel charges Table 11.6: Student Housing Benefit rent deductions

260 262

C: Historical tables Table 11.7: Housing Benefit needs allowances and earnings disregards Table 11.8: Non-dependant deductions from rent rebate allowance Table 11.9: Housing Benefit tapers

247

271 271 272

Section 11: Housing Benefits

248

Section 11: Housing Benefits

A. CURRENT SYSTEM Table 11.1: Housing and Council Tax Benefits key figures Provisional Outturn

Outturn 2002-03

2003-04

2004-05

Average number of beneficiaries over the financial year Housing Benefit - Rent Rebate - Rent allowance Council Tax Benefit Annual expenditure Housing Benefit - Rent Rebate - Rent allowance Council Tax Benefit

2005-06

Forecast

2006-07

2007-08

2008-09

2009-10

1,674 2,347 5,080

1,567 2,466 5,066

1,474 2,654 5,141

1,519 2,901 5,437

5,371 9,469 3,943

5,452 10,280 4,023

5,427 11,754 4,230

5,816 13,816 4,648

Thousands 1,993 1,814 4,625

1,824 1,988 4,693

1,808 2,132 4,915

1,753 2,233 5,029 £Millions

5,405 7,231 2,834

5,027 7,314 3,223

5,200 7,957 3,557

5,263 8,666 3,774

Source: Department for Work and Pensions

Housing Benefit 11.1

People on Income Support, income-based Jobseeker's Allowance, income-related Employment and

Support Allowance (from October 2008) or the guarantee element of Pension Credit with responsibility for rent qualify for maximum Housing Benefit. Other people with income above Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance or the guarantee element of Pension Credit levels may also qualify. Their entitlement depends on the claimant's age and status, the number and age of dependent children, the level of rent payable (and eligible for benefit), and on the claimant's and dependants' capital and income. Full-time students are not eligible for Housing Benefit, with a few exceptions (e.g. disabled students, and student lone parents).

Part-time students, and partners of

students are eligible to claim Housing Benefit. 11.2

Housing Benefit is either a rebate (deduction from rent payable) for council tenants or an allowance

(cash payment) for tenants of private and housing association landlords. Maximum entitlement is the full amount of 'eligible rent', defined below. 11.3

Claimants in receipt of Income Support, income-based Jobseeker’s Allowance, income-related

Employment and Support Allowance (from October 2008) or the guarantee element of Pension Credit receive maximum benefit, which is 100 per cent of the eligible rent less deductions to reflect a contribution made by non-dependants to housing costs. Most tenants in the private rented sector either making a new claim for benefit or already receiving benefit and change address after 7 April 2008 will have their Housing Benefit paid under the Local Housing Allowance (LHA) rules. 11.4

LHA is a flat rate allowance based on the size of the household and the area in which a person lives.

Payment will normally be to the tenant, who will then pay the landlord. LHA rents are set according to Broad Rental Market Areas (BRMAs), which, as their name suggests, relate to housing market areas. Rent Officers

249

Section 11: Housing Benefits will set individual LHA rates for each BRMA. These are published by the local authority so that landlords and prospective LHA customers can be clear about the maximum amount of rent that LHA will cover. 11.5

Prospective tenants will be able to shop around with their allowance. If they find a property they like

with a rent that exceeds their LHA they will need, as they do now, to make up the difference themselves. But if they find somewhere to live with a rent below their allowance, they will be able to keep the difference up to a maximum of £15.00. 11.6

Those tenants in the private rented sector already receiving benefit on 7 April 2008 will continue to

have their eligible rent limited to either the claim related rent (CRR) or the local reference rent (LRR), which represents the general level of rents in the vicinity, neighbourhood or locality for the appropriate size of household. For most single people aged under 25 in the private rented sector the eligible rent is restricted to the single room rent (SRR), which represents the general level of local rents for a single room with shared use of a living room, bathroom, toilet, and kitchen facilities. Where Housing Benefit is restricted under the CRR, LRR or SRR, local authorities have discretion to pay more from a separate fund, which is subject to an annual overall cash limit, where they consider that the claimant is in need of further financial assistance. 11.7

These limits do not apply to tenants in housing association properties or to those who began claiming

before 2 January 1996. For housing association claimants the eligible rent can only be restricted if the accommodation is either unreasonably expensive or overlarge for the claimant’s needs. From April 2003, Housing Benefit expenditure on lower level support costs was transferred to the “Supporting People” Fund, administered by local authorities. 11.8

The Housing Benefit scheme makes deductions for non-dependants on the basis that it is reasonable

to expect that adult non-dependants sharing the claimant's household make a contribution to the household's costs. A four-tier structure of deductions applies, which is based on the level of the non-dependant's gross income whether or not he/she is in remunerative work. From October 2003, claimants (or the claimant’s partners if there is one) aged 65 and over may have the deduction deferred for 26 weeks, in certain circumstances. The Housing Benefit deductions from April 2009 are shown in Table 11.2. Table 11.2: Housing Benefit deductions Deduction £7.40 £17.00 £23.35 £38.20 £43.50 £47.75

Gross weekly income bands from April 2009 Under £120 and not in remunerative work £177.99 - £120.00 £178.00 - £230.99 £231.00 - £305.99 £306.00 - £381.99 £382.00 or more

Note: Over 18, in work and not receiving Pension Credit

11.9

Certain groups are exempt from deductions: no deduction is made if the claimant or their partner is

blind, or gets Attendance Allowance (AA) or care component of the Disability Living Allowance (DLA); no deduction is made if the non-dependant is on Youth Training (YT) scheme, a full-time student during a period

250

Section 11: Housing Benefits of study, a full-time student during vacation period who is not in remunerative work, a patient, a prisoner, or if they are under 25 and get Income Support or income-based Jobseeker's Allowance, or if they are receiving Pension Credit. Where a non-dependant is in receipt of income-related Employment & Support Allowance (since October 2008), no deduction will be made until they satisfy their work capability assessment at which point the 25+ personal allowance rate becomes payable regardless of the person’s age. The deduction will be the lowest rate. 11.10

Claimants who are not on Income Support or income-based Jobseeker's Allowance, income-related

Employment and Support Allowance or the guarantee element of Pension Credit are subject to a test that compares their weekly income with their personal allowances and needs (known as applicable amounts). At net incomes less than or equal to the applicable amounts, the claimant receives maximum Housing Benefit. At net incomes greater than applicable amounts, Housing Benefit is reduced by 65 per cent of the 'excess income' - this is known as the Housing Benefit taper. 11.11 Applicable amounts where the claimant (and partner) are aged under 60 are calculated on the same basis as for Income Support or income-based Jobseeker's Allowance (see Section 10, part A) except for the Family Premium (Lone Parent), which is set at a higher level in Housing Benefit. If the claimant (or partner) is aged over 60 but under 65, the applicable amounts are calculated on the same basis as for Pension Credit. If the claimant (or partner) is aged 65 or more, the applicable amounts have been increased to reflect the maximum savings credit element of Pension Credit. 11.12

Earnings disregards range from £5 to £25 per week. £20 is disregarded for people who qualify for the

disability premium, carer premium, a work-related activity component or a support component (payable to certain Housing Benefit recipients also claiming Employment and Support Allowance) and for those undertaking some special jobs (e.g. part-time fire-fighters, auxiliary coastguards). Otherwise, £5 of a single person's earnings is disregarded, or £10 of the earnings of a couple. The earnings disregard for lone parents is £25 per week. Those people who are eligible for Working Tax Credit (WTC) have an extra disregard from earnings of £16.85. Additionally, there can be a childcare costs earnings disregard of up to £175 per week of earnings per family when childcare charges are paid for one child, or up to £300 per week when charges are paid for two or more children – this applies to those who are eligible for WTC and who use childcare that meets certain conditions. Budget 2008 announced that from October 2009 a child benefit disregard would be introduced in housing and council tax benefit. 11.13

People who are not receiving the guarantee element of Pension Credit and who have more than

£16,000 of savings are not entitled to Housing Benefit. If the claimant (and partner) is aged less than 60, income of £1 per week is assumed for each £250 (or part thereof) of savings above £6,000. If the claimant (or partner) is aged 60 or over, income of £1 per week is assumed for each £500 (or part thereof) of savings above £6,000.

From November 2009, the capital threshold at which assumed income from capital is

calculated will be increased from £6,000 to £10,000 in Pension Credit and pension age Housing Benefit and Council Tax Benefit.

251

Section 11: Housing Benefits

Housing Benefit - how it is calculated 11.14 The basic formula for the calculation of Housing Benefit is: HB

=

R - (65% x (I - A))

Where: HB R I A

= = = =

Housing Benefit entitlement Eligible rent Net income for HB purposes Applicable amount.

The amount of benefit for people above Income Support or Pension Credit levels is determined by the taper, by which benefit is reduced by 65p for every £1 of income above the applicable amount.

252

Section 11: Housing Benefits

Example 11.1a: Housing Benefit 2009/10

Married couple, both aged under 60 where the husband earns £140 net per week working 28 hours a week, with two children aged 13 and 16, paying rent of £60 per week. Applicable amount: Couple's Allowance Child aged 13 Child aged 16 Family Premium Total applicable amount

100.95 56.11 56.11 17.30 230.47

(A)

140.00 10.00 130.00 33.20 123.06 16.85 269.41

(I)

Income: Net earnings - disregard = Child Benefit Working Tax Credits - disregard Total income for HB Excess of income over applicable amount:

38.94

Housing Benefit: Eligible rent Max 100% of eligible rent less 65% of excess income Total Housing Benefit

60.00 60.00 25.31 34.69

(I-A)

(65% x I-A)

Example 11.1b: Housing Benefit 2009/10

Single person aged 70 with a weekly income of £150, of which £110 is from State Retirement Pension, £30 is from a private pension and £10 is assumed income from capital, paying rent of £50. Applicable amount: Total applicable amount

150.40 150.40

(A)

110.00 30.00 10.00 150.00

(I)

Income: State Retirement Pension Private Pension Assumed income from capital Total income for HB Excess of income over applicable amount:

0.40

Housing Benefit: Eligible rent Max 100% of eligible rent less 65% of excess income

50.00 50.00 0.26

Total Housing Benefit

49.74

253

(I-A)

(65% x I-A)

Section 11: Housing Benefits Council tax

11.15

The tax is based on property values and assumes that two adults occupy the property. Sole residents

are entitled to a 25 per cent discount. 11.16 -

The main provisions of council tax are: council tax is payable for chargeable dwellings, which includes most domestic properties, occupied houseboats and mobile homes;

-

the residents of the property (owner-occupiers or tenants) are normally liable if the property is their sole or main residence. A billing authority will determine which property should be treated as sole or main residence. In certain cases, such as hostels, liability for payment falls on the owner instead of the residents;

-

discounts of 25 per cent are available for single person households. Certain groups such as students, student nurses, apprentices and YT trainees are disregarded when counting the number of adults in a household. These groups are defined in the Local Government Finance Act 1992;

-

rebates of up to 100 per cent are available for people on low incomes. People with disabilities qualify for rebates at higher levels of income than other people;

-

councillors in arrears of council tax are barred from voting on financial matters;

-

the rules for valuing dwellings ensure that disabled people do not pay more on account of certain special adaptations to their home; and

-

student halls of residence and other dwellings where all the adult residents are students or student nurses on the Project 2000 Scheme are exempt from council tax.

Council Tax Benefit

11.17

Council Tax Benefit (CTB) is the means by which people on low incomes are helped to discharge their

local tax liability. 11.18

Billing and levying authorities, which rebate council tax bills accordingly, administer the CTB system. It

broadly follows the rules of the reformed system of income-related benefits, and maintains the policy of structural alignment across all the income-related benefits. Benefit entitlement and liability 11.19

Entitlement to CTB is restricted to those people who are personally liable to pay council tax. Benefit

entitlement is restricted to the liable person's sole or main residence. A liable person, as determined by rules specified in the Local Government Finance Act 1992, is generally entitled to benefit if:

254

Section 11: Housing Benefits -

he or she is on Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, the guarantee element of Pension Credit or is on a low income; or

-

certain other persons sharing his or her dwelling are on Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Pension Credit or have low incomes.

11.20

All liable persons are entitled to claim benefit, with the exception of most student householders. Full-

time students in vulnerable groups (e.g. disabled students, single parents and students with dependent children) are eligible to claim benefit. Part-time students and partners of students are also eligible to claim benefit. Full time students can claim second adult rebate (see below). 11.21

Maximum benefit for a liable person on a low income is 100 per cent of his or her council tax liability,

net of any discounts and of any transitional relief to which he or she might be entitled and less deductions to reflect a contribution made by non-dependants to housing costs. Maximum benefit can be awarded to people on Income Support, income-based Jobseeker's Allowance, income-related Employment and Support Allowance, the guarantee element of Pension Credit or on equivalent levels of income. Benefit entitlement for persons with income above Income Support, income-based Jobseeker's Allowance, income-related Employment and Support Allowance or the guarantee element of Pension Credit levels is calculated using the same rules for applicable amounts, earnings, income and capital as are used for Housing Benefit. Maximum CTB is reduced by 20 per cent of the excess income over the applicable amount - known as the CTB taper. ‘Second adult’ rebates 11.22

In addition to the ‘status discounts’ that are awarded to single person households, there is a maximum

rebate of up to 25 per cent of the bill (or up to 100 per cent for student households) that may be available to a liable individual, sharing his or her dwelling on a non-commercial basis with a person or persons on low incomes. Students are eligible to claim a second adult rebate (SAR). 11.23

In response to the concerns of the Local Authority Associations to minimise the administrative

complexity of the new scheme, rebates for second adults are assessed on a similar basis to non-dependant deductions. A maximum 25 per cent rebate may be awarded in respect of a second adult or adults on Income Support, income-based Jobseeker's Allowance, income-related Employment and Support Allowance or Pension Credit. In certain circumstances, if the Second Adult receives either IS,JSA(IB),ESA(IR) or Pension Credit and lives with a full time student householder a maximum rebate of upto a 100 per cent may be awarded. Lower levels of rebate apply in respect of second adults with gross incomes above prescribed levels. The rebates are as shown in table 11.3 (below).

255

Section 11: Housing Benefits Table 11.3: Housing Benefit deductions Income level Second adults with combined income less than £175 a week Second adults with combined income between £175 and £227.99 a week Second adults with combined income of £228 a week or more

Rebate 15 per cent rebate 7½ per cent rebate No rebate

Non-dependant deductions CTB makes deductions for non-dependants on the basis that it is reasonable that ‘non-dependant’ adults sharing the liable person's dwelling should make some contribution towards the council tax bill. Therefore, maximum benefit is reduced by flat-rate non-dependant deductions broadly along the lines of the arrangements that apply to Housing Benefit, (including the 26 week deferral for certain claimants/ partners 65 and over). However, unlike Housing Benefit, there are no deductions made in respect of non-dependants of any age on Income Support, income-based Jobseeker's Allowance, income-related Employment and Support Allowance, or Pension Credit, or other groups such as students and the severely mentally impaired who are disregarded for the purposes of discount under Schedule 1 of the Local Government Finance Act. The deductions from April 2009 are shown in Table 11.4. Table 11.4: Council Tax Benefit deductions Deduction £2.30 £4.60 £5.80 £6.95

Gross weekly income bands from April 2009 Under £178.00 £178.00 - £305.99 £306.00 - £381.99 £382.00 or over

Main features of Council Tax Benefit 11.24 -

The main features of CTB include: applicable amounts: the personal allowances awarded to claimants, the components awarded to Employment and Support Allowance claimants and the premiums awarded to pensioners, disabled people and their carers, families, children and to lone parents;

-

earnings: the way in which a claimant's earnings are assessed under the scheme: earnings disregards of, for example, £5 a week for single people, £10 a week for couples, and £25 for lone parents, are also left unchanged. There is an extra disregard worth £16.85 for those people who are eligible for WTC. Additionally, there can be a childcare costs earnings disregard of up to £175.00 per week of earnings per family when childcare charges are paid for one child, or up to £300 per week when charges are paid for two or more children – this applies to those who are eligible for WTC and who use childcare that meets certain conditions;

-

income: like the other income-related benefits, the CTB scheme for people aged less than 60 takes into account all other sources of income, unless they are disregarded specifically. Like Pension Credit, CTB for people aged 60 or over, takes into account only items which are listed as income. Contributory benefits, such as Retirement Pensions, contributory Employment and Support

256

Section 11: Housing Benefits Allowance and Incapacity Benefits, are taken into account when assessing claims for CTB, Attendance Allowance and Disability Living Allowance are disregarded completely. The existing statutory disregard of £10 a week for War Widows' and War Disablement Pensions has been retained. Councils have also retained their discretionary powers to disregard up to the full amount of any War Widow’s, War Widower’s or War Disablement Pension; The same disregards apply to Guarantee Income Payments under the Armed Forces and Reserves Compensation Scheme; -

capital: like the other income-related benefits, the claimant's capital is taken into account by means of tariff income. Unless the claimant (or partner) is receiving the guarantee element of Pension Credit, there is no entitlement to CTB where a claimant has capital of more than £16,000. If the claimant (and partner) is aged under 60, tariff income of £1 per week is taken into account for every £250 of capital, or part thereof, above the lower limit of £6,000, up to £16,000. If the claimant or partner is aged 60 or over, tariff income of £1 per week is taken into account for every £500 of capital, or part thereof, above the lower limit of £6,000 up to £16,000;

-

benefit claims: benefits have to be claimed before they can be awarded. Couples make a single claim for benefits. Benefit claims from couples are assessed from their shared income and capital, taking account of any disregards. Personal allowances for couples, which are common to other income-related benefits, are used to assess their entitlement to benefit; and

-

benefit uprating: the personal allowances and premiums are considered for uprating each year together with, and on the same basis as, all the other income-related benefits.

Boarders and sub-tenants 11.25

Some people will not be personally liable for council tax but will be making a contribution to this tax

through an inclusive rent paid to the liable person under a contractual rent agreement. This includes boarders and sub-tenants. Housing Benefit is awarded on the inclusive rent/council tax payment, in order to help boarders and lodgers on low incomes to meet their contribution towards their landlord's council tax liability. Minimum benefit rule 11.26

There is no minimum benefit rule for CTB.

Administration 11.27 Local authorities are responsible for the day-to-day administration of CTB, including the assessment of claims, and publicity, for which the Local Government Finance Act provides them with appropriate powers. Local authorities receive a subsidy towards their administration costs.

257

Section 11: Housing Benefits

Example 11.2a: Council Tax Benefit 2009/10

Married couple, both under 60 husband earning £160 net per week working 36 hours a week, with two children aged under 16. Weekly council tax liability of £20.00 Applicable amount: Couple's allowance Child under 16 Child under 16 Family Premium Total

100.95 56.11 56.11 17.30 230.47

(A)

33.20 160.00 -10.00 112.05 - 16.85 278.40

(I)

Income:

Child Benefit net earnings less disregard Working Tax Credits less disregard Total Excess of income over applicable amount:

47.93

Council Tax Benefit: Council tax liability less 20% of excess income Total Council Tax Benefit

20.00 9.58 10.42

(I-A)

Example 11.2b: Council Tax Benefit 2009/10

Single person aged 70, weekly income of £150, which is composed of £110 State Retirement Pension, £30 private pension and £10 assumed income from capital. Weekly council tax liability of £15.00 Applicable amount:

150.40

(A)

110.00 30.00 10.00 150.00

(I)

Income:

State Retirement Pension Private pension Assumed income from capital Total Excess of income over applicable amount:

0.40

Council Tax Benefit: Council tax liability less 20% of excess income (I-A) Total Council Tax Benefit

15.00 0.08 14.92

258

(I-A)

Section 11: Housing Benefits

B. HISTORY System before 1983

11.28

Until 1983 people on low income could receive assistance with housing costs through National

Assistance (from 1948 to 1966), Supplementary Benefit (from 1966) and through rent rebates, allowances and rate rebates. 11.29

In this period housing costs were a requirement in calculating National Assistance or Supplementary

Benefit. Assistance with housing costs covered actual rates plus rent (or mortgage interest payments for owner occupiers), water charges and an allowance for repairs and insurance.

In some circumstances

payments were reduced (for example to take account of non-dependants’ contribution towards housing costs (see Section 10 for further details)).

Those people whose 'resources' for National Assistance or

Supplementary Benefit purposes were below requirements before adding in housing costs, were effectively paid 100 per cent of allowed housing costs. People for whom requirements excluding housing costs were above resources (and were otherwise eligible to apply for National Assistance or claim Supplementary Benefit) received less than 100 per cent of their allowed housing costs. 11.30

Some local authorities gave rent rebates to council house tenants, without central guidance,

throughout the period 1948 to 1972. By 1972, 75 per cent of authorities were running some form of rent rebate scheme. In 1972, a national rent rebate and allowance scheme was introduced to standardise the system of rent rebates between authorities and to extend assistance to private tenants. 11.31

Rate rebates were also at the discretion of local authorities until 1966, when a national scheme was

introduced. This was replaced by a new national scheme (described below) in 1974. 11.32

The existence of two separate schemes led to a number of problems. Definitional differences

produced unnecessary complexity. Arguably the most serious problem faced people who qualified for Supplementary Benefit only because of their rent and general rates. Such people could either claim Supplementary Benefit or rent rebates/allowances and rate rebates. Which of the two gave the higher benefit depended on the claimant's precise circumstances and varied as rates of benefit changed. It is thought that the complexities of the schemes led many people to make the wrong choice. This became known as the ‘better off’ problem.

259

Section 11: Housing Benefits Unified Housing Benefits

11.33

Unified Housing Benefits harmonised some of the rules used in the two schemes. It also overcame

the ‘better off’ problem by removing rent and general rates from the Supplementary Benefit assessment, and allowing all those who still qualified for Supplementary Benefit to receive 100 per cent assistance towards rent and rates via ‘Certificated Housing Benefit’. In this way, it prevented people from qualifying for Supplementary Benefit only because of their rent and general rates. The people who no longer qualified for Supplementary Benefit received help towards their rent and rates via ‘Standard’ Housing Benefit, which was similar to the old system of rent rebates/ allowances and rate rebates. Housing Benefit Supplement was introduced to ensure that those who received assistance with housing costs through Supplementary Benefit did not lose because of the change. 11.34

Housing Benefit was introduced in two stages. In November 1982 Supplementary Benefit claimants

who were local authority tenants and entitled to 100 per cent of rent and rates were transferred to 'certificated' Housing Benefit under which they would continue to receive 100 per cent of rent and rates. In April 1983 other claimants entitled to 100 per cent of rent and rates (or 100 per cent less non-dependant deductions) were also transferred to ‘Certificated Housing Benefit’. At the same time ‘Standard’ Housing Benefit was introduced (see below). Certificated Housing Benefit was automatically payable to claimants who received Supplementary Benefit. It covered 100 per cent of their eligible rent and/ or rates less deductions in respect of non-dependants. 11.35 Eligible rent equalled actual rent, less any amounts included in the rent for: -

rates (these were covered by rate rebates); heating, hot water, cooking and lighting subject to maximum deductions shown in table 11.5; water charges; board; service charges, other than inescapable ones; and rent paid by a sub-tenant or lodger.

Table 11.5 The maximum deducted in certificated cases in respect of fuel charges1 £ per week Nov-80 Nov-81 Nov-82 Nov-83 Nov-84 Nov-85 Jul-86

1

Heating 4.35 5.10 5.60 6.05 6.25 6.55 6.70

Hot water 0.50 0.60 0.65 0.70 0.75 0.80 0.80

Cooking 0.50 0.60 0.65 0.70 0.75 0.80 0.80

Lighting 0.35 0.40 0.45 0.50 0.50 0.50 0.50

Any fixed fuel charge in excess of the specified amounts was met by Housing Benefit.

11.36

Eligible rates were the rates payable for the accommodation, less any rates paid by a tenant or sub-

tenant of the claimant. They did not include water or sewerage charges, except in Scotland.

260

Section 11: Housing Benefits 11.37

Eligible rent and rates could be further restricted if the dwelling was unnecessarily large or expensive,

and it was deemed 'reasonable' for the claimant to move to alternative cheaper accommodation. 11.38

Non-dependant deductions were amounts deducted from Housing Benefit in respect of adult non-

dependants, such as grown-up children or parents, living with the claimant. These are shown in Table 11.7. 11.39

Housing Benefit gave no assistance with mortgage payments (interest or capital) or with water

charges. Help with mortgage interest payments and water charges was available only to people who qualified for Supplementary Benefit.

Example 11.3: Certificated Housing Benefit (from 6 April 1987)

Single pensioner on Supplementary Pension, whose 30-year-old son in full-time work lived with her £ per week Rent (including £10 heating charge) Eligible rent 35-6.70 (maximum heating deduction) Non-dependant deduction

35.00 28.30 -8.05

Rent rebate/allowance

20.25

Eligible rates Less non-dependant deduction

6.00 -2.70

Rate rebate

3.30

Total Housing Benefit

23.55

Rent rebates/ allowances, rate rebates and ‘standard’ Housing Benefit

11.40

The introduction of Housing Benefit in April 1983 did not change the mechanics of the calculation of

rent rebates/ allowances and rate rebates but brought them together in one system. The following discussion therefore applies to rent rebates/allowances since July 1972 and to rate rebates since April 1974 (although before April 1983 the rebates/allowances were subject to a maximum which has never applied to standard Housing Benefit). 11.41

Standard Housing Benefit depended on gross income, eligible rent and/or rates, a needs allowance

(reflecting family size) and whether there were any non-dependants living with the claimant. Subject to changes in circumstances, benefit was awarded for a fixed period (normally 12 months for pensioners and 7 months for most other claimants), at the end of which time a new application was invited. 11.42

Income was calculated on the basis of gross weekly total income (i.e. earnings, pensions, benefits,

investment income etc). For these purposes weekly earnings were normally averaged over 5 weeks, and

261

Section 11: Housing Benefits monthly earnings over two months. Certain items of income were disregarded - there was an earnings disregard for claimant’s earnings (from November 1979), while spouses' earnings attracted a limited disregard from 1972. Table 11.6 gives the annual amounts of earnings disregards. 11.43

The ‘needs allowance’ was calculated by taking the appropriate Supplementary Benefit long-term

scale rate, plus 40 per cent of the national average council house rent, plus 40 per cent of the national average domestic rate, plus the national average water and sewerage charges, plus additions for work expenses, tax and national insurance. Table 11.6 shows changes in the needs allowance over time. 11.44

Eligible rent and rates were calculated in the same way as for certificated cases, except that actual

charges for heating, hot water etc were deducted from eligible rent, even when these exceeded the maxima set for certificated cases. 11.45

For grant-aided students, a deduction was made from eligible rents when assessing entitlements to

student Housing Benefit, because student grants include an element for accommodation. Different deduction rates applied to student attending courses in London from 1983. The deductions are shown in Table 11.6. Table 11.6: Student Housing Benefit rent deductions £ per week London 24 November 1980 8.75 23 November 1981 10.00 22 November 1982 10.85 1 April 1983 18.65 21 November 1983 19.45 26 November 1984 20.20 25 November 1985 20.80 1 1 September 1986 17.70 1 September 1987 17.80 1

Other 8.75 10.00 10.85 14.10 14.70 15.30 15.75 13.60 13.60

Housing Benefit regulations with regard to the eligibility and entitlement of students were

changed with effect from the academic years 1986-87 and 1987-88.

11.46 Non-dependant deductions were the same as for certificated cases. (See Table 11.7.)

262

Section 11: Housing Benefits Calculation of entitlement to standard Housing Benefit

11.47

To calculate the amount of Housing Benefit payable in each case, the relevant needs allowance was

compared to total gross income. If they were the same, benefit was awarded at 60 per cent of eligible rent and/or rates. If income was higher than the needs allowance, the benefit was reduced by a fixed percentage (known as the ‘upper taper’ or ‘taper deduction’) of the excess income. However if income was below the needs allowance the benefit was increased by a fixed percentage (known as the ‘lower taper’ or ‘taper addition’) of the shortfall. The values of the tapers are shown in Table 11.8. There were different tapers for rent and rates and, from April 1983, the lower taper on both rent and rates was set at an enhanced level for pensioners. If a rebate or allowance was less than a minimum amount it was not paid. The examples below show how the system worked from 6 April 1987.

Example 11.4 (i): Single parent, 2 dependent children

£ per week Income £110 earnings less £17.30 disregard Child Benefit One Parent Benefit

92.70 14.50 4.70 111.90

Needs allowance Single parent 1st child 2nd child

72.15 14.75 14.75 101.65

Income above needs allowance Eligible rent Eligible rates

20.00 5.00

Rent rebate allowance = £20 x 60 per cent less (£111.90 - 101.65) x 33 per cent

12.00 -3.38 8.62

Rate rebate = £5 x 60 per cent less (£111.90 - 101.65) x 13 per cent

3.00 -1.33 1.67

Total Standard Housing Benefit

10.29

11.48 The system between 1983 and 1988 can be summarised as follows.

263

Section 11: Housing Benefits

I.

If income = needs allowance Rent rebate/allowance Rate rebate

II.

= =

60 per cent eligible rent 60 per cent eligible rates

If income > needs allowance (upper taper): Rent rebate/allowance

=

Rate rebate

=

60 per cent eligible rent minus 331 per cent of (income minus needs allowance) 60 per cent eligible rates minus 132 per cent of (income minus needs allowance)

A full list of the upper tapers is given in Table 11.8 III

If income < needs allowance (lower taper) Rent rebate/allowance

=

Rate rebate

=

60 per cent eligible rent + 25 per cent3 of (needs allowance minus income) 60 per cent eligible rates + 8 per cent4 of (needs allowance minus income)

1

Applied only from April 1987 to March 1988. Applied only from November 1985 to March 1988. 3 50 per cent in pensioner cases. 4 20 per cent in pensioner cases. 2

Example 11.4 (ii): Pensioner couple

£ per week Income: State Retirement Pension

63.25

Needs allowance Pensioner addition Total needs allowance

72.15 0.85 73.00

Needs allowance was above income Eligible rent Eligible rates

18.00 5.00

Rent rebate = £18.00 x 60 per cent plus £(73.00 - 63.25) x 50 per cent

10.80 4.88 15.68

Rate rebate = £5.00 x 60 per cent plus £(73.00 - 63.25) x 20 per cent

3.00 1.95 4.95

Total Standard Housing Benefit

20.63

264

Section 11: Housing Benefits Housing Benefit supplement

11.49

The introduction of Housing Benefit resulted in a number of people who had previously qualified for

Supplementary Benefit becoming ineligible (because it was only rent and general rates which caused their requirements to be greater than their resources). Some of these would have become worse-off by having to claim assistance with housing costs via standard Housing Benefit (i.e. those who after payment of eligible rent and rates - net of standard Housing Benefit - were left with residual income below Supplementary Benefit requirements).

Housing Benefit Supplement (HBS) was introduced to compensate these losers.

It was

calculated as the size of the shortfall: HBS = = = = 11.50

Requirements - Residual Income Requirements - (Income - Eligible rent and rates + standard HB) (Requirements - Income) + (Eligible rent and rates - standard HB) Net housing costs - excess income

Although HBS was calculated by local authorities and paid with standard Housing Benefit it was a

special payment of Supplementary Benefit and therefore gave automatic entitlement to the ‘passported benefits’ discussed in Section 12. The example below illustrates how HBS was calculated.

Example 11.4 (iii): (pre-1988)

For the pensioner couple in Example (ii), if the couple's SB requirement was £61.85 and their income £63.25 then they had an 'excess income' of £1.40 and would not have received SB. They may, however, have qualified for HBS: £ per week Eligible rent and rates less Standard Housing Benefit Net housing costs

23.00 -20.63 2.37

less excess income

-1.40

Housing Benefit Supplement

0.97

265

Section 11: Housing Benefits Housing Benefit from 1988

11.51

A new Housing Benefit system was introduced on 1 April 1988. A main objective of the change was

simplification. This was achieved, principally by aligning the financial criteria with those for the Family Credit and Income Support systems. 11.52

Transitional protection existed from the start of the 1988 scheme until April 1995. This was to ensure

that people in certain vulnerable groups - pensioners, lone parents, widows, people qualifying for disability premium and those receiving Industrial Injuries benefits - did not lose more than £2.50 a week. The protection was never intended to be permanent and was reduced (downrated) each year until April 1995 when potential remaining payments were computed and recipients were paid lump sums based on estimated future entitlements. 11.53

The following is an example of the combined rates/ rent Housing Benefit scheme introduced in 1988.

11.54

Until March 1990, Housing Benefit covered both rent and rates (and for the year 1 April 1989 to 31

Example 11.4 (iv): (1988) Married couple, husband earning £120 net per week, with two children ages 13 and 16, paying rent of £45 per week and rates of £8 per week. £ per week Applicable Amount Couple's allowance 54.80 Child aged 13 17.35 Child aged 16 20.80 Family Premium 6.50 Total 99.45 Income

Net Earnings Less disregard Earnings for HB Child Benefit Family Credit Total HB income

120.00 -10.00 110.00 14.50 17.21 141.71

Excess of income over applicable amount

42.26

Rent rebate/allowance Eligible rent Maximum 100% of eligible rent Less 65% of excess income Total

45.00 45.00 -27.47 17.53

Rate Rebate Eligible rates Maximum 80% Less 20% of excess income Total (tapered excess income exceeds eligible rates)

8.00 6.40 -8.45 0.00

Total Housing Benefit

17.53

March 1990, Community Charge Rebates in Scotland). Since April 1990, with the introduction of Community

266

Section 11: Housing Benefits Charge and subsequently council tax (see below), Housing Benefit has provided help only with rent, and is either a rebate (deduction from rent payable) for council tenants or an allowance (cash payment) for tenants of private landlords. 11.55

Full-time students ceased to be eligible for Housing Benefit from the academic year 1990-91, with a

few exceptions (e.g. disabled students and student lone parents). 11.56

The earnings disregard for lone parents was increased from £15 to £25 per week in October 1990.

11.57

The four-tier structure of deductions was introduced in April 1992, based on the level of non-

dependant’s gross income whether or not she/ he is in remunerative work. The current deductions are shown in Table 11.2. 11.58

Eligible rent was limited to either the CRR or the LRR, which represents the general level of rents in

the vicinity, neighbourhood or locality for the appropriate size of property, from 2 January 1996. These limits do not apply to tenants in housing association properties or to those who began claiming before this date. For housing association properties the eligible rent can only be restricted if the accommodation is either unreasonably expensive or overlarge for the claimant’s needs. However, from 18 August 1997, special rules allowed Housing Benefit to continue to meet reasonable charges for personal support in certain supported accommodation. Where HB had previously met ineligible charges for support, local authorities could, up to April 2000, apply for continuing help under a Compensation Scheme. New rules were introduced from 1 April 2000, which extended the scope of the previous arrangements to include support changes in both new provision and certain private sector provision – known as the Transitional Housing Benefit Scheme. From April 2003 Housing Benefit expenditure on lower level support costs was transferred to the ‘Supporting People’ Fund, to be administered by local authorities. 11.59

When Family Credit was replaced with the Working Families’ Tax Credit (see Section 2), an additional

earnings disregard was introduced for Housing Benefit, equal to the size of the 30-hour premium, which applied to those who worked 30 hours a week or more and had children or who were disabled. This disregard was extended to those who were eligible for Working Tax Credit (i.e. who worked at least 16 hours) from 2004-05.

Capital ceilings in Housing Benefit

267

Section 11: Housing Benefits 11.60

People with savings that are higher than the capital ceiling are not entitled to HB. The original capital

ceiling was £6,000; the figure was revised to £8,000 from 30 May 1988; and to £16,000 from April 1990. Community Charge Benefit

11.61

In Scotland the Community Charge was introduced on 1 April 1989. In England and Wales the

charge was introduced on 1 April 1990. The Community Charge replaced domestic rates as a source of revenue for local authorities. 11.62

Until March 1990, help with rates was usually in the form of a reduced rates bill, or rebate. Maximum

entitlement was 80 per cent of ‘eligible rates’. This was because the applicable amounts for Housing Benefit and Income Support included an element allowing for 20 per cent of the national average rates bill. 11.63

The Community Charge Benefit scheme was introduced throughout Great Britain on 1 April 1990 to

assist with Community Charge payments. The Council Tax replaced the Community Charge in April 1993 and consequently Council Tax Benefit replaced Community Charge Benefit at the same time. 11.64

Anyone liable to pay a full personal Community Charge or full collective Community Charge

contributions could claim Community Charge Benefit. Registered students, who were exempt from paying 80 per cent of the Community Charge, could not claim Community Charge Benefit. If a student had a partner who had to pay the full Community Charge, either the student or the partner was able to claim Community Charge Benefit for the partner. 11.65

The maximum Community Charge Benefit was 80 per cent of the Community Charge liability.

Claimants who received full Income Support got maximum Community Charge Benefit. 11.66

For Claimants who were not receiving Income Support, the amount of Community Charge Benefit

payable depended on four things: -

the amount of savings;

-

the amount of net weekly income;

-

personal circumstances (for example, the claimant's age, the number and ages of any children, or whether or not they are disabled); and

-

the amount of Community Charge payable.

11.67 The procedure used by the local authority to assess benefit entitlement was similar to the procedure used to assess entitlement to Housing Benefit: -

net weekly income (including any assumed income from savings) is compared with the appropriate 'applicable amount';

268

Section 11: Housing Benefits if net weekly income is the same as, or less than the 'applicable amount', maximum Community

-

Charge Benefit is payable. If the net weekly income is greater than the 'applicable amount', the local authority calculates 15 per cent of this 'excess income' figure; -

the resulting amount is then deducted from the maximum Community Charge Benefit figure; and

-

the result is the Community Charge Benefit payable.

11.68 There was no minimum benefit in Community Charge Benefit. 11.69 In the case of couples, one partner had to claim on behalf of both. This could be either partner. The couple's two Community Charge liabilities were aggregated. Capital and net weekly income were assessed jointly, and the 'applicable amount' for the couple was used. The benefit entitlement for the couple was divided between the two partners in proportion to their liability. (This normally meant that benefit was divided equally.) 11.70

Benefit was normally paid to claimants in the form of a reduction in the amount of personal

Community Charge they had to pay, though there were other arrangements for payment where this was not feasible.

Benefit awarded to those liable for collective Community Charge contributions was paid either

directly to the claimants, or by voucher or, where the claimant agreed, directly to the landlord. 11.71

Most administrative arrangements for assessing, paying and enforcing rules governing CCB were

virtually the same as those for Housing Benefit. The calculation of capital, net weekly income and applicable amounts are as those for Housing Benefit. 11.72 An example of Housing Benefit and Community Charge Benefit (as at April 1992) is given below.

269

Section 11: Housing Benefits

Example 11.5: Housing Benefit and Community Charge Benefit (as at April 1992)

Married couple, husband earning £130 net per week, with two children aged 13 and 16, paying rent of £48 per week. Community Charge liability £282 per person (average in England in 1992). £ per week Applicable Amount: Couple's Allowance Child Aged 13 Child Aged 16 Family Premium Total

66.60 21.40 25.55 9.30 122.85

Income:

Net Earnings Less disregard Earnings for HB/CCB Child Benefit Family Credit Total

130.00 10.00 120.00 17.45 35.32 172.77

Excess of income over applicable amount

49.92

Rent rebate/allowance Eligible Rent Maximum 100% of eligible rent Less 65% of excess income Total

48.00 48.00 32.45 15.55

Community Charge Benefit Community Charge liability £282 per year per person Weekly liability per person Maximum 80% of liability per person Maximum CCB for claim (2 adults) less 15% of excess income Total

5.41 4.33 8.66 -7.49 1.17

Council tax

11.73

Schedule 1 of the Local Government Finance Act 1992 replace the Community Charge with council

tax from 1 April 1993. 11.74

Council Tax Benefit (CTB) replaced Community Charge Benefit from April 1993 as the means by

which people on low incomes are helped to discharge their local tax liability.

270

Section 11: Housing Benefits

C. HISTORICAL TABLES Table 11.7: Housing Benefit needs allowances and earnings disregards £ per Single Single Single Couple Couple Pensioner Dependent Principal week person parent disabled one both addition child earner's or couple Person disabled disabled addition disregard 27/07/72 10.50 14.75 11.75 16.00 16.75 2.75 30/03/73 14.00 18.25 15.25 19.50 20.25 2.75 04/09/73 15.50 20.75 16.75 22.00 22.75 3.00 02/09/74 17.75 24.25 19.25 25.75 26.65 3.55 31/03/75 19.35 26.75 20.85 28.25 29.15 4.05 30/09/75 21.05 29.45 22.95 31.35 32.45 4.60 30/09/76 23.05 32.75 24.95 34.65 35.75 5.35 30/09/77 25.25 36.25 27.85 38.85 40.35 6.10 30/09/78 27.25 39.45 30.15 42.35 44.00 6.55 12/11/79 31.05 45.55 34.60 49.10 50.80 7.70 5.00 07/11/80 34.90 51.70 38.90 55.70 57.65 9.60 9.60 23/11/81 37.35 55.60 41.65 59.90 62.00 10.35 15.25 22/11/82 41.40 61.00 46.15 65.75 68.00 0.75 11.40 18.00 21/11/83 43.05 63.50 48.00 68.45 70.80 0.75 11.90 17.45 26/11/84 45.10 66.50 50.30 71.70 74.15 0.80 12.85 17.00 25/11/85 47.70 70.20 53.20 75.70 78.25 0.85 14.50 17.30 28/07/86 48.10 70.85 53.65 76.40 79.00 0.85 14.60 17.30 06/04/87 48.90 72.15 54.50 77.75 80.45 0.85 14.75 17.30

Table 11.8: Non-dependant deductions from rent rebate allowance £ per week Aged 16-17 Aged 18-20 Aged 21 to not in receipt not in receipt pensionable age 1 2 2 of SB of SB not in receipt of SB Rent Rate Rent Rate Rent Rate Rebate Rebate Rebate Rebate Rebate Rebate Nov 80 - Nov 81 2.15 0.75 3.25 1.10 Nov 81 - Nov 82 2.35 0.80 3.50 1.20 Nov 82 - Apr 83 3.30 1.25 4.30 1.60 Apr 83 - Apr 84 3.95 1.60 4.70 1.85 Apr 84 - Nov 84 6.15 2.05 6.15 2.05 Nov 84 - Nov 85 2.35 0.95 6.60 2.20 6.60 2.20 Nov 85 - Jul 86 2.80 1.10 7.80 2.60 7.80 2.60 28th July 1986 2.80 1.10 7.80 2.60 7.80 2.60 6th April 1987 2.90 1.15 8.05 2.70 8.05 2.70

Over 21 in receipt of SB or pensionable age Rent Rate Rebate Rebate 1.30 0.45 1.45 0.50 1.90 0.75 2.20 0.90 2.20 0.90 2.35 0.95 2.80 1.10 2.80 1.10 2.90 1.10

Under 21 in receipt of SB Rent Rate Rebate Rebate 1.30 0.45 1.45 0.50 1.90 0.75 2.20 0.90 -

1

Nil for those in receipt of Severe Disablement Allowance.

2

Did not apply to dependants in receipt of Unemployment Benefit, Sickness Benefit, Maternity Allowance or Child Benefit

for more than 56 days, for whom "over 21 in receipt of SB" rates apply.

271

Partner's earnings disregard 2.50 2.50 2.50 2.50 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00

Section 11: Housing Benefits

Table 11.9: Housing Benefit tapers Per cent

Jul 1972 - Apr 1974 Apr 1974 - Nov 1982 Nov 1982 - Apr 1983 Apr 1983 - Nov 1984 Nov 1984 - Nov 1985 Nov 1985 - Apr 1987 Apr 1987

Rent 25 25 25 25 25 25 25

Lower Taper Rates 8 8 8 8 8 8

Pensioners Rent Rates 25 25 8 25 8 50 20 50 20 50 20 50 20

272

Upper Taper Rent 17 17 21 26 29 29 33

Rates 6 7 9 9 13 13

Section 12: In-kind benefits

Section 12: In-kind benefits Contents Page A. Current system Introduction Free school meals Healthy Start Prescription charges Dental charges Optical costs Sight tests Optical appliances Wig and fabric supports charges Healthcare Travel Costs Scheme

275 276 276 277 278 279 279 280 280 280

Tables Table 12.1: NHS charges for 2007-08 and 2008-09

276

B. History Introduction Free school meals The Welfare Food Scheme and Healthy Start Prescription charges Dental charges Optical costs Wig and fabric supports charges Healthcare Travel Costs Scheme

282 282 283 284 284 284 285 285

C. Historical tables Table 12.2: Historic dental NHS charges Table 12.3: Historic prescription charges and prepayment certificate fees

273

286 287

Section 12: In-kind benefits

274

Section 12: In-kind benefits

A.

CURRENT SYSTEM

Introduction 12.1 The 'in-kind' benefits discussed in this section can be broken down into three categories: -

free school meals are available only to families who are considered as 'non-working' families, i.e. where the claimant (s) work for less than 16 hours per week;

-

Healthy Start vitamins and vouchers to spend on milk, fresh fruit and vegetables or infant formula are available to pregnant women or families with children under 4 years old receiving Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, or Child Tax Credit (without Working Tax Credit unless the run-on only is in payment) combined with a low family income. This scheme also supports any pregnant woman under 18 years old;

-

help with health costs is available to people getting Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Pension Credit guarantee element and, in addition, those people entitled to or named on an NHS Tax Credit Exemption Certificate. Information about the extensive arrangements for providing help with health costs are described in Leaflet HC11.

This leaflet is available from Jobcentre Plus Offices, NHS hospitals and on the

Department of Health’s website at: www.dh.gov.uk/helpwithhealthcosts. 12.2

Help with NHS prescription and dental charges, optical costs and travel to receive NHS treatment

under the care of a NHS doctor or dentist is also available on grounds of low income under the NHS Low Income Scheme. Claims are assessed on a similar basis to that used for Income Support by comparing a person's income and requirements. Net weekly income (i.e. resources) is broadly as defined for Income Support purposes (see Section 10). The calculation of requirements (needs) is also broadly similar to that used for Income Support, plus eligible housing costs net of any Housing Benefit received, plus council tax payments net of all discounts and Council Tax Benefit. Capital totalling £6,000 or less will be ignored. Any capital between £6,000 and £16,000 is assumed to attract a ‘tariff’ income of £1 for each whole or part of £250. No help is available to people with capital of more than £16,000 or £23,000 for someone who lives permanently in a care home. 12.3 In England and Scotland, claimants whose incomes exceed their assessed weekly requirements by 50 per cent of the prescription charge or less are entitled to full help with all NHS charges and are sent a certificate HC2. Claimants whose resources are above this level may be entitled to limited help with health costs and are sent a certificate HC3. This shows how much they are expected to pay towards their health costs. They have to pay prescription charges. (Except in Wales where the prescription charge has been abolished.)

275

Section 12: In-kind benefits

12.4

Current and recent NHS charges for England are shown in Table 12.1.

Table 12.1: NHS charges for 2008-09 and 2009-10 Charge, £ From 1 April 2008 From 1 April 2009 Item Prescription charge 12 month PPC 4 month PPC (3 month from 01/07/08) Surgical brassiere Abdominal or spinal support Stock modacrylic wig Partial human hair wig Full bespoke human hair wig Maximum dental charge

12.5

7.10 102.50 27.85 24.00 36.30 59.20 156.60 229.05 198.00

7.20 104.00 28.25 24.35 36.80 60.00 158.90 232.45 198.00

There are some other ways of qualifying for the individual benefits, which are described below.

Free school meals 12.6

Individual local authorities (LAs) or, where a budgetary element for school lunches is delegated to

them, a school's governing body set the charge for school meals. Pupils whose parents are in receipt of: Income Support; Income Based Jobseekers Allowance; an income-related Employment and Support Allowance; support under part VI of the Immigration and Asylum Act 1999; Child Tax Credit, provided they are not entitled to Working Tax Credit1 and have an annual income (as assessed by HM Revenue and Customs) that does not exceed £16,049 (6 April 09 - 5 April 2010); the Guarantee element of State Pension Credit, are eligible to receive free school meals. Children who receive Income Support or Income Based Jobseekers Allowance in their own right are also eligible to receive free school meals. These rules apply to England. Healthy Start 12.7

Healthy Start operates across the UK and provides nutritional support as well as encouragement

for breastfeeding and a healthy diet to qualifying low-income and disadvantaged pregnant women and families with children under 4 years old. 12.8

Pregnant women and families with children under 4 are eligible for support from Healthy Start if

they are in receipt of one or more of the current qualifying benefits or tax credits. For 2009/10 these are Income Support, Income Based Jobseekers Allowance, income-related Employment and Support Allowance, or Child Tax Credit (without Working Tax Credit unless the run-on only is in payment) and an 1

From 1 May 2009 where a parent is entitled to Working Tax Credit during the four-week period immediately after their employment ceases, or after they start to work less than 16 hours per week, their children are entitled to free school lunches

276

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annual family income at the time of the tax credits award of £16,040 or less. Pregnant women under 18 years old are also eligible until the baby’s birth even if they are not getting any of the qualifying tax credits or benefits. They must, however, meet the other qualifying criteria in order to continue receiving support afterwards. 12.9

Those eligible for help from the scheme must apply for it using a short application form that is

included in the Healthy Start application leaflet (HS01). This leaflet is available via a number of GP surgeries and child health clinics and may also be stocked by Jobcentre Plus offices and other premises. Copies can also be ordered by telephone from the Healthy Start Issuing Unit on 0845 697 6823 (or in bulk for the NHS and other organisations from the Department of Health’s orderline on 0300 123 1002). A website – www.healthystart.nhs.uk – provides additional information about the scheme. 12.10

The form must be completed by the applicant and then countersigned by a registered midwife,

nurse or medical practitioner – usually their local midwife or health visitor – who will offer advice on healthy eating and signpost relevant local services when signing the form.

Forms are then sent freepost to the

Healthy Start Issuing Unit which verifies eligibility against information held in the tax credits and benefits system. 12.11

The Healthy Start Issuing Unit issues Healthy Start vouchers 4-weekly by post to participating

women and families. Each voucher is worth £3.10 and may be spent on or put towards the cost of liquid cow’s milk, fresh fruit and vegetables, or cow’s milk based infant formula. Babies under one year old (or within one year of their Expected Date of Delivery if born early) receive two vouchers per week. Pregnant women and other children under 4 years old receive one voucher a week. The vouchers can be used in one of around 30,000 individual retail outlets across the UK that are registered to participate. Pregnant women and children receiving vouchers, and women with a child under one year old receiving vouchers, may also claim free Healthy Start vitamin supplements via the NHS without a prescription.

These

supplements meet in full the Government’s recommendations for vitamin supplementation during pregnancy, breastfeeding and early childhood. Prescription charges 12.12

The NHS prescription charge from 1 April 2009 is £7.20 per item in England. Prescription

charges have been abolished in Wales and the charge is different in Scotland (£4) and Northern Ireland (£3).

Prescription Prepayment certificates (PPCs) are available for a fixed fee.

These exempt the

purchaser from any further NHS prescription charges for a specified period. Three-month prepayment certificates from 1 April 2009 in England cost £28.25; and 12-month prepayment certificates are £104. Charges for PPCs in Northern Ireland and Scotland are different. The 12-month PPC is £25 in NI and £38 in Scotland. NI and Scotland still have the 4month certificate (costing £13 in Scotland and £9 in NI), this

277

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was replaced in England by the 3 month certificate on 1 July 2007. In England 12 month, PPCs can now be purchased by direct debit payments. 12.13 -

The following categories of people are exempt from charges:

people registered with a GP in Wales, or resident in Wales but have a GP in England and have an accompanying entitlement card;

-

children aged under 16;

-

young people aged 16, 17 or 18 years of age who are in full-time education;

-

people aged 60 and over;

-

pregnant women and women who have given birth within the last twelve months (including a child registerable as still born) who have a maternity exemption certificate;

-

people suffering from certain specified medical conditions who have a medical exemption certificate (From 1 April 2009, anyone receiving ongoing treatment for cancer, including the effects of cancer or the effects of current or previous cancer treatment are entitled to apply for a medical exemption certificate);

-

war pensioners for treatment of their accepted disablement, who have a war pension exemption certificate;

-

people and their partners getting Income Support, income-based Jobseeker’s Allowance, incomerelated Employment and Support Allowance, Pension Credit guarantee credit and people who are entitled to or named on an NHS Tax Credit exemption certificate; and

-

people entitled to full help under NHS Low Income Scheme and named on an NHS charges certificate HC2.

Dental charges 12.14

The system of dental charges was greatly simplified for England from 1 April 2006. The new

charge system replaced over 400 individual items of treatment charges with three standard charges. The amount will depend on the treatment required to keep teeth and gums healthy. This will be one of the three charges below (at charge rates applicable from 1 April 2009): -

£16.50 – This charge will include an examination, diagnosis and preventive care. If necessary, this will include X-rays, scale and polish, and planning for further treatment. Urgent and out of hours care will also cost £16.50.

OR -

£45.60 – This charge includes all necessary treatment covered by the £16.50 charge; Plus additional treatment such as fillings, root canal treatment or extractions.

OR

278

Section 12: In-kind benefits

-

£198 –This charge includes all necessary treatment covered by the £16.50 and £45.60 charges Plus more complex procedures such as crowns, dentures or bridges.

-

There will only be one charge even if more than one visit is required to complete a course of treatment.

12.15

Current and historical figures for the amount of the charge for routine treatment such as fillings,

together with the maximum charge for any treatment are shown in Table 12.2. The following categories are exempt if, when accepted for treatment, they are: -

expectant mothers or women who have borne a child in the past 12 months;

-

children and young people under 18; and

-

young people aged 18 who are in full-time education;

12.16

The following categories are entitled to charge remission if, when accepted for treatment or when

the charge is made, they are: -

people or partners getting Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Pension Credit guarantee element and people who are entitled to or named on an NHS Tax Credit exemption certificate;

-

people entitled to full help under the NHS Low Income Scheme and named on an NHS charges certificate HC2;

-

people who are named on an NHS charges certificate HC3 may be eligible for limited help; and

-

war pensioners for treatment of their accepted disablement, who have a war pension exemption certificate may be able to claim back some or all of the cost from The Veterans Agency, Norcross, Blackpool FY5 3WP. They should send their receipt.

Outpatients attending hospital for dental treatment are not subject to any charges for treatment. However, they may be charged for the supply of dentures or bridges unless they are in one of the groups described above. This is subject to a charge of £198 from 1 April 2009. Optical costs Sight tests 12.16 Only certain groups of people are entitled to free NHS sight tests. They are: children under 16; young people aged 16, 17 and 18 in full time education; people aged 60 and over; people and their partners getting Income Support, income-based Jobseeker's Allowance, income-related Employment and Support Allowance, those entitled to, or named on, a valid NHS Tax Credit Exemption Certificate, people entitled to full help under the NHS Low Income Scheme; people who need certain complex lenses; people who are registered blind or partially sighted; people who have diagnosed diabetes or glaucoma and people who are

279

Section 12: In-kind benefits

aged 40 or over and are the parent, brother, sister, or child of diagnosed glaucoma sufferer, and patients of the Hospital Eye Service. Optical appliances 12.17 NHS glasses have been replaced by a scheme providing a voucher towards the cost of glasses. These are given to children under 16, young people aged 16, 17 and 18 in full time education, people on Income Support, income-based Jobseeker's Allowance, income-related Employment and Support Allowance, those entitled to, or named on, a valid NHS Tax Credit Exemption Certificate, people entitled to full help under the NHS Low Income Scheme, and people needing complex lenses. From 1 April 2009, the voucher is worth between £36.20 and £200.10 depending on type and optical prescription. People entitled to limited help under the NHS Low Income Scheme may have the value of their voucher reduced. 12.18 War pensioners who require sight tests or glasses as a result of their accepted disablement and who are not already entitled to help under current NHS arrangements may be able to claim back some or all of the cost from The Veterans Agency, Norcross, Blackpool FY5 3WP.

They should send their optical

prescription and receipt for their glasses and/or the receipt for their sight test. Wig and fabric supports charges 12.19 The following categories are exempt: -

in-patients at the date of supply;

-

children aged under 16;

-

young people aged 16, 17 and 18 in full-time education;

-

war pensioners if the wig or fabric support is for the treatment of accepted disablement and they hold a war pensioners exemption certificate;

-

people and their partners getting Income Support, income-based Jobseeker's Allowance, incomerelated Employment and Support Allowance, Pension Credit guarantee credit, and people who are entitled to or named on an NHS Tax Credit exemption certificate; and

-

people entitled to help under the NHS Low Income Scheme. They may be named on an NHS charges certificate HC2 for full help or an NHS charges certificate HC3 for limited help.

Healthcare Travel Costs Scheme (HTCS) 12.20 The Healthcare Travel Costs Scheme provides financial assistance to those patients who do not have a medical need for ambulance transport, but who nevertheless, require assistance in meeting the cost of travel to non-primary medical or non-primary dental NHS services under the care of a consultant or through referral by a doctor or dentist, regardless of setting in the UK.

280

Section 12: In-kind benefits

12.21 The Healthcare Travel Costs Scheme is part of the NHS Low Income Scheme and operates under the provisions of the National Health Service (Travelling Expenses and Remission of Charges) Regulations 2003, No 2382. These are regulations made under powers conferred by section 83A of the National Health Service Act 1977. 12.22 The Scheme is designed to enable patients on low incomes or qualifying benefits to be reimbursed in part or in full for fares incurred in travel for NHS treatment under the care of a consultant or through referral by a doctor or dentist, by the cheapest means of travel available and appropriate to the patient. All NHS Trusts and Primary Care Trusts must provide full or partial reimbursement for patient travel costs to appointments for the patient and, where medically necessary, an escort, under the Healthcare Travel Costs Scheme, for those who are eligible. Individuals, and their dependants, in receipt of Income Support, income-based Jobseeker's Allowance, income-related Employment and Support Allowance, Pension Credit guarantee element and people who are entitled to or named on an NHS Tax Credit exemption certificate are entitled to help under the Healthcare Travel Cost Scheme. Others may be entitled to full or limited help under the NHS Low Income Scheme. The Healthcare Travel Costs Scheme is only available to patients and, where deemed medically necessary, an escort; it is not available to visitors.

281

Section 12: In-kind benefits

B.

HISTORY

Introduction 12.24 FIS recipients were ‘passported’ on to the 'in-kind' benefits discussed in this section until 1988: When Family Credit replaced FIS in April 1988, the ‘passport’ to free school meals, welfare milk and vitamins was replaced by cash help included in child credit rates. Free school meals 12.25 Immediately after the war the charge for meals and the provision of free school meals was left to the discretion of each local education authority, (subject to ministerial approval). Free meals were given to the children of those considered to be on low incomes as determined by 'income scales' drawn up by each local education authority. As a result scales, and hence provision of free school meals, differed widely between LEAs. 12.26 In 1950 a uniform national charge was introduced. The provision of free school meals remained at the discretion of the LEA until July 1964 when the separate income scales were superseded by the national remission scale. This ensured that the same definition of low income was used in each area. The national remission scale was uprated by various governments with particularly large increases in 1971 (at the same time as a 33 per cent increase in the price of school meals) and 1977. The 1969 Provision of Milk and Meals Regulations (as amended) gave entitlement to free school meals for the children of parents in receipt of Supplementary Benefit and Family Income Supplement. The uniform national charge for school meals was abolished on 14 April 1980. 12.27 The type of support provided to families by the Government differs depending on whether the family are considered as 'working' or 'non-working'. Income Support, Income Based Job Seekers Allowance, and support under part VI of the Immigration and Asylum Act 1999, are paid only to families who are considered as 'non-working' families, i.e. where the claimant (s) work for less than 16 hours per week.

The

Government's Working Tax Credit provides additional financial support to all 'working families' that have low incomes. The Government believe that free school meals should be available to 'non-working' families, who are considered most in need of this additional help. 12.28 Latest provisional figures from the Schools Census released by DCSF show that in 2009 5.9per cent of Nursery and Primary School pupils, 13.4per cent of Secondary school pupils, and 32.1per cent of Special School pupils are known to be eligible for free school meals.

282

Section 12: In-kind benefits

The Welfare Food Scheme and Healthy Start 12.29 A Welfare Food Scheme was first introduced in 1940 to ensure that all expectant mothers and young children were properly nourished in wartime conditions. The scheme was retained after the war on the advice of the then Standing Committee on Nutritional Problems and continued to exist until November 2006, when its means tested elements were replaced throughout the UK by a new scheme called Healthy Start.

Healthy Start had already been introduced on a small scale in Devon and Cornwall in November

2005 12.30. At the time it was replaced, weekly tokens provided through the Welfare Food Scheme could be exchanged for 7 pints of ordinary liquid milk or 900g of one of 10 named varieties or infant formula. They were issued only to pregnant women and young children in families on Income Support, Income Based Jobseeker’s Allowance or Child Tax Credit (without Working Tax Credit) combined with an annual family income of £14,155 or less.

Healthy Start adopted these qualifying criteria and expanded them to include

any pregnant woman under 18 years old until the end of her pregnancy. 12.31 On 6 April 2008, pregnant women and children under 4 in families in receipt of Working Tax Credit run-on became eligible to access Healthy Start. On 27 October 2008, those in families getting income – related Employment and Support Allowance also became eligible. 12.32 Healthy Start vouchers were each worth £2.80 towards the cost of milk, fruit, vegetables or infant formula when the scheme was introduced. On 6 April 2008 this was increased to £3.00 per voucher in light of price rises and trends in the benefits system and on 6 April 2009 it was increased again to £3.10 per voucher. The value of vouchers is reviewed annually and increased if appropriate. The income threshold applying to families qualifying through receipt of Child Tax Credits has also increased annually in line with increases in the first threshold for receipt of Child Tax Credit only. 12.33 Healthy Start is designed to offer effective nutritional support and encouragement for breastfeeding and healthy eating to those families most in need of it, in a way that is consistent with today’s public health priorities and modern delivery mechanisms.

The policy decision to introduce Healthy Start as a

replacement for the Welfare Food Scheme was taken after a review carried out by the Committee on the Medical Aspects of Food and Nutrition (COMA). It concluded that a number of changes could be made to the Welfare Food Scheme to improve its effectiveness – in particular that the range of food should be broadened.

Proposals for reform were tested through public consultation in 2002, and the scheme itself

was introduced in two phases, beginning with its implementation in Devon and Cornwall only for one year beginning November 2005. The phased approach gave opportunity for early qualitative evaluation of the new scheme’s impact on beneficiaries, health professionals and retailers.

283

Section 12: In-kind benefits

Prescription charges 12.32 No charge was made for NHS prescriptions until 1 June 1952. Between 1 December 1956 and 1 February 1965 prescription charges rose from 5p to 10p per item. On 1 February 1965, the charges were abolished. They were reintroduced on 10 June 1968, at 12½p for each drug or appliance supplied. A charge has been made ever since at the rates shown in Table12.3. The prepayment certificates were introduced in November 1968. 12.33 Until 8 April 1987, children under 15 (not 16) were exempt from prescription charges, as were women aged 65 and over (not 60 and over). On 1 January 1982 the automatic exemption was extended to include women who had had a child who was still born. Young people aged 16, 17 or 18 receiving full-time education were not exempt until 1 April 1988. Men aged 60 or over became exempt on 20 October 1995. Dental charges 12.34 Dental charges were first introduced in 1951. Current and historical charges for routine treatment, together with the maximum charge for any treatment, are shown in Table 12.2. Optical costs 12.35 Since 1 July 1986 NHS glasses have been replaced by a scheme providing a voucher towards the cost of glasses. 12.36 Since 1 April 1989, only certain groups of people have been entitled to free eye tests. 12.37 With effect from 1 April 1999 eligibility for free NHS sight tests was restored to everyone aged 60 or over, regardless of income or predisposition to eye disease. 12.38 Until 1 July 1986 the arrangements for exemption and remission set out in paragraph 12.15 applied to the supply, repair or replacement of glasses. But only one kind of NHS frame was available free. If any other NHS frame was chosen the cost above £2.05 had to be paid. 12.39 Children under the age of 16 years or young people aged 16 or over but under 19 undergoing fulltime education were entitled to standard NHS lenses in a children's standard NHS frame free of charge. Children aged 10 or over were entitled to standard NHS lenses with any other NHS frame on payment of a charge for the frame only. Children and young people were also entitled to free repair or replacement (to the same prescription) of such glasses.

284

Section 12: In-kind benefits

Wigs and fabric support charges 12.40 Charges for wigs, elastic hosiery and fabric supports were introduced in 1971, and have been increased generally in line with inflation each year. Healthcare Travel Costs Scheme 12.41 The Hospital Travel Costs Scheme was set up in its present form in 1988 as part of the NHS Low Income Scheme, to provide financial assistance to those patients who do not have a medical need for hospital patient transport, but who nevertheless, require assistance in meeting the cost of travel to hospital for NHS treatment under the care of a consultant. 12.42 The Scheme was extended in 2008 to include referrals to non-primary medical and non-primary dental NHS services made by GPs and dentists. The scheme, renamed the Healthcare Travel Costs Scheme, continues to be part of the NHS Low Income Scheme and operates under the provisions of the National Health Service (Travel Expenses and Remission of Charges) Regulations 2003, No 2382. These are regulations made under powers conferred by section 83A of the National Health Service Act 1977. 12.43 Prior to 1988, the scheme operated under the National Health Service (Expenses in Attending Hospitals) Regulations 1950, No 1222. These are regulations made under powers conferred by section 3 of the National Health Service Act 1946(a).

285

Section 12: In-kind benefits

C. HISTORICAL TABLES Table 12.2: Historic dental NHS charges Routine treatment 10/05/1951 22/05/1952 16/05/1961 01/05/1968 11/08/1969 01/04/1971 01/01/1976 01/04/1977 16/07/1979 01/04/1980 01/04/1981 01/04/1982 01/04/1983 01/04/1984 01/04/1985 01/04/1986 01/04/1987 01/04/1988 01/04/1989 01/04/1990 01/04/1991 01/04/1992 01/04/1993 01/04/1994 01/04/1995 01/04/1996 01/04/1997 01/04/1998 01/04/1999 01/04/2000 01/04/2001 01/04/2002 01/04/2003 01/04/2004 01/04/2005 01/04/2006 01/04/2007 01/04/2008 01/04/2009

4.25 Full cost up to 1.00 Full cost up to 1.00 Full cost up to 1.50 Full cost up to 1.50 Half the cost up to 10.00 Full cost up to 3.50 Full cost up to 5.00 Full cost up to 7.00 Full cost up to 8.00 Full cost up to 9.00 Full cost up to 13.00 Full cost up to 13.50 Full cost up to 14.50 Full cost up to 17.00 and 40 per cent of exc ess Full cost up to 17.00 and 40 per cent of exc ess Full cost up to 17.00 and 40 per cent of exc ess 75% of the c ost of treatment 75% of the c ost of treatment 75% of the c ost of treatment 75% of the c ost of treatment 75% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment 80% of the c ost of treatment Band 2 charge 42.40 Band 2 charge 43.60 Band 2 charge 44.60 Band 2 charge 45.60

286

Maximum charge for any treatment 4.25 4.25 5.00 5.00 6.25 10.00 12.00 30.00 36.00 54.00 60.00 90.00 95.00 110.00 115.00 115.00 115.00 150.00 150.00 150.00 200.00 225.00 250.00 275.00 300.00 325.00 330.00 348.00 348.00 354.00 360.00 366.00 372.00 378.00 384.00 189.00 194.00 198.00 198.00

Section 12: In-kind benefits

Table 12.3: Historic prescription charges and prepayment certificate fees

01/06/1952 01/12/1956 01/03/1961 01/02/1965 10/06/1968 01/11/1968 01/04/1971 16/07/1979

Prescription charge (per item unless stated) 0.050 1 0.050 0.100 Charge abolished 0.125 0.125 0.200 0.450

01/04/1980 01/12/1980 01/04/1982 01/04/1983 01/04/1984 01/04/1985 01/04/1986 01/04/1987 01/04/1988 01/04/1989 01/04/1990 01/04/1991 01/04/1992 01/04/1993 01/04/1994 01/04/1995 01/04/1996 01/04/1997 01/04/1998 01/04/1999 01/04/2000 01/04/2001 01/04/2002 01/04/2003 01/04/2004 01/04/2005 01/04/2006 01/04/2007

0.70 1.00 1.30 1.40 1.60 2.00 2.20 2.40 2.60 2.80 3.05 3.40 3.75 4.25 4.75 5.25 5.50 5.65 5.80 5.90 6.00 6.10 6.20 6.30 6.40 6.50 6.65 6.85

01/07/2008 01/04/2008 01/04/2009

1

7.10 7.20

Prepayment certificate fee 6 months 1 year

1.50 2.00 4.50 4 months 4.50 5.50 7.00 7.50 8.50 11.00 12.00 12.50 13.50 14.50 15.80 17.60 19.40 22.00 24.60 27.20 28.50 29.30 30.10 30.10 31.40 31.50 32.40 32.90 33.40 33.90 34.65 35.85 3 months 26.85 3 months 27.85 28.25

Charge per form.

287

2.75 3.50 8.00 1 year 12.00 15.00 20.00 21.50 24.00 30.50 33.50 35.00 37.50 40.00 43.50 48.50 53.50 60.60 67.70 74.80 78.40 80.50 82.70 84.60 86.20 87.60 89.00 90.40 91.80 93.20 95.30 98.70

1 year 102.50 104.00

Section 12: In-kind benefits

288

Section 13: Other non-contributory benefits

Section 13: Other non-contributory benefits Contents

Page

A: Current system Attendance Allowance Carer’s Allowance Severe Disablement Allowance Disability Living Allowance Statutory Sick Pay Liability for SSP Relationship with state Employment Support Allowance Relationship with other state benefits Qualifying conditions for SSP When SSP is paid Payment of SSP When SSP is not payable Reimbursement Industrial Injuries Disablement benefit

291 292 292 293 294 294 294 294 295 295 295 295 296 296

Tables Table 13.1: Some key figures Table 13.2: Rates of Industrial Injuries Disablement Benefit

291 297

B: History Attendance Allowance Carer’s Allowance (previously Invalid Care Allowance) Severe Disablement Allowance Non-contributory invalidity pension Mobility Allowance Disability Living Allowance

298 298 298 299 299 299

C: Historical tables Table 13.3: Rates of Severe Disablement Allowance Table 13.4: Rates of non-contributory invalidity pension Table 13.5: Statutory Sick Pay Table 13.6: Rates of Disability Benefit

289

300 300 301 302

Section 13: Other non-contributory benefits

290

Section 13: Other non-contributory benefits

A. Current system Table 13.1: Some key figures 2004-05

Outturn 2005-06 2006-07

Average number of beneficiaries over the financial year Attendance Allowance Carer's Allowance (previously Invalid Care Allowance) Severe Disablement Allowance Disability Living Allowance Statutory Sick Pay

Industrial Injuries Disablement Benefit Annual expenditure Attendance Allowance Carer's Allowance (previously Invalid Care Allowance) Severe Disablement Allowance Disability Living Allowance Statutory Sick Pay

Industrial Injuries Disablement Benefit

2007-08

Forecast 2008-09 2009-10

1,400 429 301 2,681 n/a 267

1,445 448 288 2,756 n/a 266

Thousands 1,489 1,529 458 471 275 263 2,830 2,918 n/a n/a 265 259

1,567 482 251 3,015 n/a 256

1,601 505 239 3,114 n/a 253

3,674 1,096 918 8,079 43 750

3,924 1,149 900 8,618 40 746

£Millions 4,149 4,444 1,181 1,280 904 898 9,155 9,867 45 48 750 759

4,739 1,367 887 10,527 49 781

5,093 1,499 888 11,394 51 806

Source: Department for Work and Pensions.

Attendance Allowance 13.1

Attendance Allowance is a non-contributory, non-means tested and non-taxable benefit payable to

disabled people aged over 65 who have needed help with personal care for at least six months. However, under special rules, people who are not expected to live longer than six months because of a progressive disease qualify automatically for the higher rate of benefit without having to serve this qualifying period. See Table 13.5 for current and historical rates. 13.2

To qualify for benefit a person must satisfy at least one of the following conditions. They must

either, throughout the day, require frequent attention in connection with their bodily functions, or require continual supervision in order to avoid substantial danger to themselves or others. Or, at night, require from another person either prolonged or repeated attention in connection with their bodily functions or, in order to avoid substantial danger to themselves or others, require another person to be awake for a prolonged period or at frequent intervals for the purpose of watching over them. Or they must have someone with them when on dialysis. 13.3

Payment of Attendance Allowance ceases after 28 days in hospital, unless the person is either a

private patient paying for their accommodation and treatment or paid under special rules and in a hospice. Separate spells in hospital are linked together and count as one continuous spell if the gaps between them are 28 days or less. 13.4

Payment of Attendance Allowance ceases after 28 days if a person goes into a care home and

receives funding from the local authority or other public body. 291

Section 13: Other non-contributory benefits

13.5

There are two rates of Attendance Allowance: a higher rate for people requiring day and night care;

and a lower rate for people needing either day or night care. 13.6

From April 1992, Disability Living Allowance replaced and extended the help previously given by

Attendance Allowance to people under age 65. Carer’s Allowance 13.7

Carer’s Allowance is non-contributory and taxable. Before 1 April 2003, it was called Invalid Care

Allowance. Current and historical rates are shown in Table 13.5. It is payable to those aged 16 or over who are not in full-time education, and who regularly spend at least 35 hours a week caring for a severely disabled person receiving the highest or middle rate care component of Disability Living Allowance, or Attendance Allowance (or Constant Attendance Allowance, at or above the normal maximum rate, paid with Industrial Disablement Benefit or War Disablement Pension). Entitlement is not affected by earnings of £95 a week or less after allowable expenses, but payment is reduced or extinguished where the claimant receives other benefits such as Employment and Support Allowance, Incapacity Benefit, contributory Jobseeker's Allowance, State Pension, Widows' Pension and Maternity Allowance. The allowance is taken fully into account when assessing entitlement to Employment and Support Allowance, Income Support and all other income-related benefits and to Pension Credit, and a carer premium or extra amount, currently £29.50 a week, added back. The rules allow for carers to have breaks in care without the carer losing benefit. Severe Disablement Allowance 13.8

Current and historical rates of Severe Disablement Allowance (SDA) are shown in Table 13.2.

SDA ceased to be available to new claimants from 2001. Existing recipients continue to receive the benefit for as long as they satisfy the conditions of entitlement for the benefit, which are: -

a person must continue to meet the threshold of incapacity and evidence of this is normally provided in the form of a statement from the claimant's doctor or by meeting the incapacity threshold under the Personal Capability Assessment.

In addition, someone whose period of

incapacity began after their 20th birthday must also continue to be assessed as 80 per cent disabled; -

people who are in receipt of certain benefits, such as those receiving the highest rate care component of Disability Living Allowance, or people who are registered blind, are automatically accepted as satisfying the disablement condition.

Otherwise a medical examination by an

approved health care professional may be necessary in order to re-assess the degree of disablement; and -

age related additions are currently £15.65 (for people who became incapable of work before age 40), £9.10 (for people who became incapable of work between ages 40 and 49) and £5.35 (for 292

Section 13: Other non-contributory benefits

people becoming incapable of work between ages 50 and 59). The tax-free allowance is paid regardless of unearned income or resources apart from overlapping with certain other benefits. Disability Living Allowance 13.9

Disability Living Allowance (DLA) is non-contributory, non-means tested and non-taxable. Current

and historical rates are shown in Table 13.5. It is payable to severely disabled people who have mobility and/or care needs that arise before the age of 65. It has two components: one for mobility needs, payable at two rates, and one for care needs, payable at three rates. 13.10

The care component is payable to people aged months and over who: require attention with

three functions for a significant portion of the day; are aged over 16 and would be unable to prepare a main cooked meal; require frequent attention with bodily functions throughout the day; require continual supervision throughout the day, or prolonged or repeated attention at night; or require someone to watch over them at night; or they must have someone with them when on dialysis. For those aged 16 and below, care requirements must be substantially in excess of the normal requirements of persons of the same age. The care component has three rates: the highest rate for people requiring day and night care, supervision or watching over; the middle rate for those requiring frequent attention or continual supervision throughout the day, or prolonged or repeated attention at night; and a lower rate for people who are aged 16 or over and are unable to prepare a cooked main meal or need help with their personal care for a significant portion of the day. 13.11

The mobility component is payable to people who: are unable or virtually unable to walk; have

had both legs amputated; were born without legs or feet; are assessed to be both 100 per cent disabled because of loss of eyesight and not less than 80 per cent disabled because of deafness and they need someone with them when outdoors; are severely mentally impaired and display severe behavioural problems and qualify for the highest rate of the care component; or who can walk but need someone to provide them with guidance or supervision for most of the time when outdoors in unfamiliar areas. The mobility component has two rates: the lower rate is paid to those aged 5 and over who can walk but need guidance or supervision on unfamiliar routes and the higher rate to those aged 3 and over who are unable or virtually unable to walk or are disabled in the other ways described above. 13.12

The allowance has a qualifying period of three months for which they have had these care or

supervision needs and/or walking difficulties and a prospective test of six months for which they are likely to continue. Under special rules, people who are not expected to live for six months because of a progressive disease qualify automatically for the highest rate of the care component and do not have to serve the qualifying period.

The allowance is not affected by the claimant's income or capital and is normally

unaffected by the receipt of other social security benefits.

293

Section 13: Other non-contributory benefits

13.13

Both care and mobility components cease after 28 days for adults and 84 days for children in

hospital, unless the person is either a private patient paying for their accommodation and treatment or paid under special rules and in a hospice. Separate spells in hospital are linked together and count as one continuous spell if the gaps between them are 28 days or less. 13.14

The mobility component stays in payment when a person is in a care home. The care component

is payable to people in a care home during the first 28 days when the care component is already in payment. The care component will stay be in payment after this 28 day period for people living in a care home for which they are paying the whole cost. Statutory Sick Pay 13.15

Current and historical rates of Statutory Sick Pay (SSP) are shown in Table 13.4.

Liability for SSP 13.16

The SSP scheme is administered and paid for by employers, who have a statutory liability to pay

SSP for up to a maximum of 28 weeks. SSP is the minimum employers are required by law to pay their employees where they are incapable of work under their contract of service for four or more days in a row and they satisfy the qualifying conditions for payment. An employee is a person whose earnings attract a liability for employer’s National Insurance. 13.17

The employer's liability to pay SSP ends when the employee is no longer sick, or when he has had

28 weeks SSP in that period of incapacity for work, whichever is the earlier. Relationship with state Employment and Support Allowance 13.18

So long as the employer's liability to pay SSP remains, the employee cannot get Employment and

Support Allowance (ESA). If liability ends, the employee can claim ESA.

Claimants must satisfy

contribution and income conditions for ESA. Similarly, if ESA is payable, Statutory Sick Pay is not. 13.19

The Employment and Support Allowance replaced Incapacity Benefit for all new customers from 27

October 2008. Relationship with other state benefits 13.20

The payment of other State Benefits does not affect SSP entitlement. Employees getting SSP may

claim Income Support, Housing Benefit and Council Tax Benefit under the usual rules.

294

Section 13: Other non-contributory benefits

Qualifying conditions for SSP 13.22 To qualify for SSP, the employee must: -

have been off sick for four or more days in a row. All days count for this including weekends and bank holidays and any days they do not normally work. This is called a Period of Incapacity for Work; and

-

have average earnings of equal to or more than the Lower Earnings Limit for NI contributions purposes. This is currently £95 per week for 2009/10 tax year. Married women and widows who pay the reduced rate Class 1 National Insurance contributions may also qualify for SSP.

13.23 Average weekly earnings are calculated on gross earnings paid in the eight weeks before the period of illness began and includes all earnings on which the employee is liable to pay national insurance contributions. This includes overtime, commission, and bonus payments as well as any payments of Statutory Adoption Pay, Statutory Paternity Pay, Statutory Sick Pay and Statutory Maternity Pay. When SSP is paid 13.24 SSP is not payable for the first three qualifying days in a period of entitlement; these are known as waiting days. Qualifying days are usually the days on which the employee is required to work under his contract of service. SSP is paid only for qualifying days. 13.25 Periods of incapacity for work with the same employer link together if they are separated by eight weeks (56 calendar days) or less. Payment of SSP 13.26 SSP is paid at the same to time as normal wages and is taxable under normal PAYE procedures and liable to National Insurance Contributions. The weekly rate of SSP is currently £79.15. When SSP is not payable 13.27 SSP cannot be paid if the employee: -

has received Employment and Support Allowance, Incapacity Benefit Severe Disablement Allowance in the previous 57 days;

-

falls sick within 104 weeks of starting work and falls under the Welfare to Work provisions. This means that they received Employment and Support Allowance, Incapacity Benefits or Severe Disablement Allowance for at least 26 weeks;

-

is in the disqualifying period. This will be for periods of entitlement to MA/SMP; 295

Section 13: Other non-contributory benefits

-

is off sick for a pregnancy-related illness within four weeks of the start of their expected week of childbirth;

-

is in the disqualifying period. This will be for a period of 18 where there is no entitlement to MA/SMP; -

is detained in legal custody;

-

has average weekly earnings below the Lower Earnings Limit;

-

has had linked periods of sickness that have spanned a period of three years;

-

is away from work because of a trade dispute.

Reimbursement 13.28 Partial reimbursement of SSP costs may be available in circumstances where the employer experiences an abnormally high level of staff sickness. The Percentage Threshold Scheme allows any employer to recover the amount of SSP paid in a tax month that exceeds 13 per cent of their gross (i.e. employer and employee) National Insurance Contributions liabilities in the same tax month. Industrial Injuries Disablement Benefit 13.29

The industrial injuries scheme provides a range of benefits designed to compensate for

disablement resulting from an industrial accident or from a prescribed disease due to the nature of a person’s employment. The self-employed are not covered by this scheme. The benefit is payable irrespective of the age of the claimant. 13.30

The Industrial Injuries Disablement Benefit is payable 15 weeks (90 days) after the date of the

accident or onset of the disease and may be payable for a limited period or for life. A person must be at least 14 per cent disabled (except for certain respiratory diseases) in order to qualify for this benefit. The amount paid depends on the assessed percentage level of disablement. Table 13.2 below provide a guide of amounts paid. The benefit is payable whether the person works or not, and can be paid in addition to other benefits, such as ESA, IB and DLA.

296

Section 13: Other non-contributory benefits

Table 13.2: Rates of Industrial Injuries Disablement Benefit £ per week Assessed level of Aged over 18 or under 18 Aged under 18 with no disablement with dependant dependants 100% 143.60 88.05 90% 129.24 79.25 80% 114.88 70.44 70% 100.52 61.64 60% 86.16 52.83 50% 71.80 44.03 40% 57.44 35.22 30% 43.08 26.42 20% 28.72 17.61

13.31 -

It may also be possible to claim the following: reduced earnings allowance for those who are unable to return to their regular work or work of the same standard and who had their accident (or whose disease started) before 1 October 1990;

-

constant attendance allowance for those with a disablement of 100 per cent who need constant care. There are four rates of allowance depending on how much care the person needs, and this overlaps with AA and the care component of DLA;

-

exceptionally severe disablement allowance for those who are entitled to constant care attendance allowance at one of the higher rates and who need constant care permanently.

13.32

Further information can be found in http://www.dwp.gov.uk/advisers/db1/

297

Section 13: Other non-contributory benefits

B. HISTORY Attendance Allowance 13.33

Attendance Allowance was introduced in 1971 for people from age two. In 1990, it was extended to

children under two. Since October 1990, people who are not expected to live longer than six months because of an illness qualify automatically for the higher rate of benefit without having to serve the qualifying period. From 1992 it was restricted to those aged over 65, with the introduction of DLA for younger people. Carer’s Allowance (previously Invalid Care Allowance) 13.34

Invalid Care Allowance was introduced in 1976 for men and single women caring for a relative,

extended in 1981 to carers of non-relatives, and then to married women in 1986. From 1990 to 1993, the earnings limits increased from £12 to £50 a week; in 2001, it was increased to £72 and linked to the national insurance Lower Earnings Level. However, there is no longer a link with the Lower earnings Limit. The earnings limit currently stands at £95 a week. From 28 October 2002, the age limit of 65 for claiming was removed and entitlement extended for up to eight weeks after the death of the disabled person. In April 2003, the name was changed to Carer’s Allowance and Child Dependency increase abolished for new claims (as it was replaced by the Child Tax Credit). Severe Disablement Allowance 13.35

Severe Disablement Allowance (SDA) replaced both non-contributory invalidity pension (NCIP)

[see below] and housewives' non-contributory invalidity pension (HNCIP) from 29 November 1984 (see Table 13.3 for rates of NCIP). 13.36

Age related allowances, paid tax–free regardless of unearned income or resources apart from

overlapping with certain other benefits, were first introduced in December 1990. 13.37

The Personal Capability Assessment replaced the all work test on 3 April 2000.

13.38

SDA has not been available to new claimants from 6 April 2001. From that point, disabled people,

whose period of incapacity begins before the age of 20 (or 25 if in education or training before the age of 20), may be able to receive IB without having to satisfy the national insurance contribution (NICs) conditions. SDA recipients aged below 20 at the cut-off point transferred on to Incapacity Benefit at the long-term rate in April 2002. Existing recipients continue to receive the benefit for as long as they satisfy the conditions of entitlement for the benefit (see current system for details).

298

Section 13: Other non-contributory benefits

Non-contributory invalidity pension 13.39

Paid to those of working age who were not able to work for at least 28 weeks because of sickness

or other incapacity, and did not have enough NI contributions to establish claim to Invalidity Benefit. Introduced in November 1975. Married women could claim only if they were also incapable of doing normal housework (from November 1977). The pension was paid regardless of the person's other income or resources apart from overlapping with certain other benefits. This was replaced by Severe Disablement Allowance from November 1984. Mobility Allowance 13.40

The Mobility Allowance was replaced by the DLA (mobility component) in April 1992.

13.41 The Mobility Allowance was non-contributory, not means-tested and (since April 1982) tax-free. Paid to severely disabled people between the ages of 5 and 65 who were unable, or virtually unable, to walk because of physical disability and who were likely to remain so for at least 12 months. Anyone who established entitlement before the age of 65 and continued to fulfil the conditions for receipt could keep the allowance until the age of 80. (Before November 1989, the age limit had been 75). The allowance was paid in addition to other benefits for sickness, invalidity or disablement and was not affected by the claimant's other income or capital. Disability Living Allowance 13.42 DLA was introduced in April 1992. It completely replaced Mobility Allowance and also Attendance Allowance for people under age 65. It has two components: one for mobility needs, at two rates, and one for care needs, at three rates, equivalent to the old Mobility Allowance and Attendance Allowance but with the addition of new lower rates for less severely disabled people who could not qualify previously. 13.43 In 1996, the mobility component was restricted to the first four weeks of hospitalisation (12 weeks for children), in line with the care component and Attendance Allowance. In 1997, people approaching 65 who think they may qualify for DLA have to make a claim before their 65th birthday. In 2001, the higher-rate mobility component was extended to three and four year olds.

299

Section 13: Other non-contributory benefits

C. HISTORICAL TABLES Table 13.3: Rates of Severe Disablement Allowance £ per week 11/1985 07/1986 04/1987 04/1988 04/1989 04/1990 12/1990 04/1991 04/1992 04/1993 04/1994 04/1995 04/1996 04/1997 04/1998 04/1999 04/2000 04/2001 04/2002 04/2003 04/2004 04/2005 04/2006 04/2007 04/2008 04/2009

Personal benefit 23.00 23.25 23.75 24.75 26.20 28.20 28.20 31.25 32.55 33.70 34.80 35.55 36.95 37.75 39.10 40.35 40.80 42.15 42.85 43.60 44.80 46.20 47.45 49.15 51.05 57.45

Increases if incapacity began: before aged aged age 40 40-49 50-59

10.00 11.10 11.55 11.95 12.15 12.40 12.90 13.15 13.60 14.05 14.20 14.65 14.90 15.15 15.55 16.05 16.50 17.10 17.75 15.65

6.20 6.90 7.20 7.50 7.60 7.80 8.10 8.30 8.60 8.90 9.00 9.35 9.50 9.70 10.00 10.30 10.60 11.00 11.40 9.10

3.10 3.45 3.60 3.75 3.80 3.90 4.05 4.15 4.30 4.45 4.50 4.65 4.75 4.85 5.00 5.15 5.30 5.50 5.70 5.35

Table 13.4: Rates of non-contributory invalidity pension £ per week Personal Increase for: benefit adult each dependent child 1 6.30 11/1978 11.70 7.05 11/1979 14.00 8.40 7.10 11/1980 16.30 9.80 7.50 11/1981 17.75 10.65 7.70 11/1982 19.70 11.80 7.95 11/1983 20.45 12.25 7.60 1 £5.35 from 2 April 1979 to 14 November 1979

300

adult dependent 13.75 13.90 14.20 14.80 15.65 16.85 16.85 18.70 19.45 20.15 20.70 21.15 21.95 22.40 23.20 23.95 24.20 25.00 25.45 25.80 26.65 27.50 28.85 29.25 30.40 31.90

Increase for: first each other child child 8.05 8.05 8.05 8.05 8.05 8.05 8.40 8.40 8.95 8.95 9.65 9.65 9.65 9.65 10.70 10.70 9.75 10.85 9.80 10.95 9.80 11.00 9.85 11.05 9.90 11.15 9.90 11.20 9.90 11.30 9.90 11.35 9.85 11.35 9.70 11.35 9.65 11.35 9.55 11.35 9.55 11.35 9.40 11.35 9.25 11.35 9.00 11.35 8.75 11.35 8.20 11.35

Section 13: Other non-contributory benefits

Table 13.5: Statutory Sick Pay £ per Average Weekly Earnings week Lower rate Middle rate Higher rate 1 at least 06/04/1983 32.50 - 48.49 48.50 - 64.99 65.00 06/04/1984 34.00 - 50.49 50.50 - 67.99 68.00 06/04/1985 35.50 - 52.99 53.00 - 70.99 71.00 06/04/1986 38.00 - 55.49 55.50 - 74.49 74.50 06/04/1987 39.00 - 76.49 76.50 06/04/1988 41.00 - 79.49 79.50 06/04/1989 43.00 - 83.99 84.00 06/04/1990 46.00 - 124.99 125.00 06/04/1991 52.00 - 184.99 185.00 06/04/1992 54.00 - 189.99 190.00 06/04/1993 56.00 - 194.99 195.00 06/04/1994 56.00 - 199.99 200.00 06/04/1995 58.00 06/04/1996 61.00 06/04/1997 62.00 06/04/1998 64.00 06/04/1999 66.00 06/04/2000 67.00 06/04/2001 72.00 06/04/2002 75.00 06/04/2003 77.00 06/04/2004 79.00 06/04/2005 82.00 06/04/2006 84.00 06/04/2007 87.00 06/04/2008 90.00 06/04/2009 95.00

1

Amount of SSP paid Lower rate Middle rate Higher rate 27.20 28.55 30.00 31.60 32.85 34.25 36.25 39.25 43.50 45.30 46.95 47.80 -

33.75 35.45 37.20 39.20 -

-

-

From 1995 there is a flat rate for all employees earning above the LEL for NICs.

301

40.25 42.25 44.35 46.75 47.20 49.20 52.10 52.50 52.50 52.50 52.50 52.50 52.50 54.55 55.70 57.70 59.55 60.20 62.20 63.25 64.35 66.15 68.20 70.05 72.55 75.40 79.15

Section 13: Other non-contributory benefits

Table 13.6: Rates of Disability Benefit £ per week

Attendance Allowance higher lower rate rate

11/1978 11/1979 11/1980 11/1981 11/1982 11/1983 11/1984 11/1985 07/1986 04/1987 04/1988 04/1989 04/1990 04/1991

15.60 18.60 21.65 23.65 26.25 27.20 28.60 30.60 30.95 31.60 32.95 34.90 37.55 41.65

10.40 12.40 14.45 15.75 17.50 18.15 19.10 20.45 20.65 22.10 22.00 23.30 25.05 27.80

04/1992 04/1993 04/1994 04/1995 04/1996 04/1997 04/1998 04/1999 04/2000 04/2001 04/2002 04/2003 04/2004 04/2005 04/2006 04/2007 04/2008 04/2009

43.55 44.90 45.70 46.70 48.50 49.50 51.30 52.95 53.55 55.30 56.25 57.20 58.80 60.60 62.25 64.50 67.00 70.35

28.95 30.00 30.55 31.20 32.40 33.10 34.30 35.40 35.80 37.00 37.65 38.30 39.95 40.55 41.65 43.15 44.85 47.10

1

Carers Allowance standard Increase for: rate dependent each adult child 2 6.35 11.70 7.05 14.00 8.40 7.10 16.30 9.80 7.50 17.75 10.65 7.70 19.70 11.80 7.95 20.45 12.25 7.60 21.50 12.85 7.65 23.00 13.75 8.05 23.25 13.90 8.05 23.75 14.20 8.05 24.75 14.80 8.40 26.20 15.65 8.95 28.20 16.85 9.65 31.25 18.70 10.70 Eldest Additional child children

32.55 33.70 34.50 35.25 36.60 37.35 38.70 39.95 40.40 41.75 42.45 43.15 44.35 45.70 46.95 48.65 50.55 53.10

19.45 20.15 20.65 21.10 21.90 22.35 23.15 23.90 24.15 24.95 25.35 25.80 26.50 27.30 28.05 29.05 30.20 31.70

1

From 1 April 2003 - previously Invalid Care Allowance.

2

£5.35 from 2 April 1979 to 11 November 1979. From 5 July 1978.

3

9.75 9.80 9.80 9.85 9.90 9.90 9.90 9.90 9.85 9.70 9.65 9.55 9.55 9.40 9.25 9.00 8.75 8.20

302

10.85 10.95 11.00 11.05 11.15 11.20 11.30 11.35 11.05 11.35 11.35 11.35 11.35 11.35 11.35 11.35 11.35 11.35

Mobility Allowance

3

10.00 12.00 14.50 16.50 18.30 19.00 20.00 21.40 21.65 22.10 23.05 24.40 26.25 29.10 Disability living allowance Care component Mobility Component Highest Middle Lowest Higher Lower 43.35 44.90 45.70 46.70 48.50 49.50 51.30 52.95 53.55 55.30 56.25 57.20 58.80 60.60 62.25 64.50 67.00 70.35

28.95 30.00 30.55 31.20 32.40 33.10 34.30 35.40 35.80 37.00 37.65 38.30 39.95 40.55 41.65 43.15 44.85 47.10

11.55 11.95 12.15 12.40 12.90 13.15 13.60 14.05 14.20 14.65 14.90 15.15 15.55 16.05 16.50 17.10 17.75 18.65

30.30 31.40 31.95 32.65 33.90 34.60 35.85 37.00 37.40 38.65 39.30 39.95 41.05 42.30 43.45 45.00 46.75 49.10

11.55 11.95 12.15 12.40 12.90 13.15 13.60 14.05 14.20 14.65 14.90 15.15 15.55 16.05 16.50 17.10 17.75 18.65

Section 14: Time series

Section 14: Time series Contents

Page

Description of tables Supplementary Benefit and Income Support Unemployment support Retirement Pension Tax thresholds Value of child support Burden of taxation on specimen families Number of taxpayers and income tax liabilities

305 305 305 305 306 306 306

Tables Table 14.1: Table 14.2: Table 14.3: Table 14.4: Table 14.5:

Supplementary Benefit / Income Support Unemployment Benefit / Jobseeker’s Allowance Retirement Pension: standard rate (under 80s) Income tax thresholds Value of child support for a married couple on male average earnings with two children Table 14.6: Single person income tax and NICs Table 14.7: One-earner married couple, with no children, income tax and NICs Table 14.8: One-earner married couple, with two children, direct tax burden Table 14.9: Two-earner married couple, with no children, income tax and NICs Table 14.10: Direct tax burden on one-earner married couple with two children Table 14.11: Number of tax payers and income tax liabilities

303

307 308 309 310 311 312 315 318 323 327 328

Section 14: Time series

304

Section 14: Time series

Description of tables 14.1

Many of the tables below are constructed using series for mean male earnings, based on figures

from the New Earnings Survey, and, since its introduction, the Annual Survey of Hours and Earnings, retail prices’ inflation and the GDP deflator. The specimen household tables (Tables 14.6 to 14.9) use multiples of median all-employees earnings, for which reliable estimates only go back to 1983-84. Supplementary Benefit and Income Support 14.2

Table 14.1 gives financial year averages for Supplementary Benefit at the ordinary scale rate. From

1989-90 the rates quoted are Income Support for couples aged 18+ and single people aged 25+. In constant price terms1 the level of support has declined slightly since the mid-1990s, but, as a proportion of average earnings, there has been a marked decline since the late 1970s. Further details on Supplementary Benefit and Income Support are shown in Section 10. Unemployment support 14.3

Table 14.2 shows the levels of Unemployment Benefit (UB) and Jobseeker's Allowance (JSA) for a

single person on their own insurance and a married couple claiming on the husband's insurance. The figures for each financial year are shown in current prices, constant prices and as a percentage of average earnings. UB and JSA have fallen slightly in constant prices since the mid-1990s. As a proportion of average earnings, there has been a decline. Further details on UB and JSA are shown in Section 7. Retirement Pension 14.4

Table 14.3 shows the levels of Retirement Pension for a single person on their own insurance and

a married couple claiming on the husband's insurance. The figures for each financial year are shown in current prices, constant prices and as a percentage of average earnings. It shows pensions trending upwards through the 1970s and early 1980s in constant price terms. After a dip in the late 1980s, real terms levels were stable through much of the 1990s before trending upwards again, but as a proportion of average earnings, there has been a decline. Further details on pensions are shown in Section 8. Tax thresholds 14.5

Table 14.4 shows the level of earnings at which tax becomes payable for a single person and a

married man with two children with no other tax allowances or reliefs apart from the standard personal and child allowances. There has been a general downwards trend of thresholds as a percentage of average 1

The GDP deflator is used to produce the constant price series

305

Section 14: Time series

earnings. This is particularly true for those with children, where thresholds fell from over 50 per cent of average earnings in the early 1970s to under 30 per cent at the beginning of the 1990s and currently stand at under 20 per cent. Value of child support 14.6

As discussed in Sections 1 and 3, the form of child support has changed over the period. Until

1977-78, Child Tax Allowances and Family Allowances were the main method of support. In 1977, Child Benefit replaced Family Allowance and Child Tax Allowances were phased out, finally being abolished in April 1979. 14.7

Additional child support was available for low-income families via the benefit system.

Family

Income Supplement, introduced in 1971, provided support for families where at least one adult was in full time work. The more generous Family Credit replaced this in 1988. This additional child support was transferred to the tax system and enhanced in October 1999 with the introduction of the Working Families’ Tax Credit. In April 2003 Working Tax Credit and Child Tax Credit replaced Working Families Tax Credit (see Section 2 for more details). 14.8 Table 14.5 shows the value of child support for a family with two children on male mean earnings over the last 30 years. This type of family would not have qualified for the additional child support for lowincome families described in the previous paragraph. After the abolition of Family Allowance and Child Tax Allowances in 1979, the figures in this table represent Child Benefit alone until 2001-02.

The figures for

2001-02 and 2002-03 include the Children’s Tax Credit, which replaced the Married Couple’s Allowance and which was an additional tax allowance at a flat rate of 10 per cent for families with children. This was available, in full, for all families where the top earner’s gross income was below the higher tax rate threshold. The 2003-04 and subsequent figures include Child Tax Credit. Burden of taxation on specimen families 14.9

Tables 14.6 to 14.9 present measures of the burden of taxes and national insurance contributions

(NICs) for specimen families on various multiples of median all-employees earnings. Tax payments and NICs are shown in cash terms and as a percentage of gross income. Table 14.10 shows a longer time series of the tax burden on a single earner couple with two children on male mean earnings. It also gives the median all-employees earnings figures back to 1983-84 for comparison. Number of taxpayers and income tax liabilities

14.10

The final table shows numbers and types of taxpayers going back to the late 1970s.

306

Section 14: Time series

Table 14.1: Supplementary Benefit / Income Support Single person ordinary scale Current Constant As a % of 1 prices 2009-10 male £ per prices average week £ per week earnings 1970-71 5.00 56.73 16.2 1971-72 5.50 57.29 16.2 1972-73 6.20 59.51 16.1 1973-74 6.90 61.77 15.9 1974-75 8.00 59.87 15.1 1975-76 10.20 60.85 15.6 1976-77 11.60 60.93 15.7 1977-78 13.40 61.91 16.6 1978-79 14.90 62.02 16.1 1979-80 16.70 59.47 15.3 1980-81 19.40 58.38 14.8 1981-82 22.00 60.39 15.1 1982-83 24.20 62.12 15.4 1983-84 26.10 64.02 15.3 1984-85 27.30 63.57 14.8 1985-86 28.60 63.05 14.4 1986-87 29.70 63.44 13.9 1987-88 30.40 61.41 13.0 1988-89 33.40 63.19 13.0 2 1989-90 34.90 61.63 12.5 1990-91 36.70 60.08 12.0 1991-92 39.70 61.36 12.1 1992-93 42.50 63.72 12.2 1993-94 44.00 64.21 12.3 1994-95 45.70 65.66 12.4 1995-96 46.50 64.93 12.2 1996-97 47.90 64.50 12.0 1997-98 49.20 64.56 11.5 1998-99 50.40 64.75 11.3 1999-00 51.40 64.77 11.1 2000-01 52.20 64.92 10.8 2001-02 53.05 64.54 10.4 2002-03 53.95 63.59 10.2 2003-04 54.65 62.63 10.0 2004-05 55.65 62.08 10.0 2005-06 56.20 61.44 9.7 2006-07 57.45 61.13 9.6 2007-08 59.15 61.24 9.6 2008-09 60.50 61.11 9.4 2009-10 64.30 64.30 9.7 1

Married couple ordinary scale Current Constant As a % of 1 prices 2009-10 male £ per Prices average week £ per week earnings 8.10 91.90 26.3 9.00 93.74 26.5 10.10 96.95 26.3 11.20 100.27 25.8 13.10 98.04 24.8 16.60 99.03 25.3 18.90 99.28 25.5 21.80 100.72 27.0 24.20 100.74 26.1 27.10 96.50 24.8 31.50 94.79 24.0 37.80 103.76 25.9 39.20 100.62 24.9 42.40 104.01 24.8 44.30 103.15 23.9 46.40 102.29 23.4 48.20 102.95 22.5 49.40 99.80 21.1 51.50 97.43 20.1 54.80 96.78 19.6 57.60 94.29 18.8 62.30 96.28 19.0 66.60 99.85 19.2 69.00 100.69 19.2 71.70 103.02 19.4 73.00 101.94 19.2 75.20 101.26 18.9 77.20 101.30 18.1 79.00 101.50 17.7 80.65 101.62 17.4 81.95 101.92 16.9 83.25 101.28 16.3 84.65 99.77 15.9 85.75 98.27 15.8 87.30 97.39 15.6 88.15 96.37 15.2 90.10 95.87 15.0 92.80 96.07 15.0 94.95 95.90 14.8 100.95 100.95 15.3

Calculated by weighting each rate in force in the financial year by the number of weeks it was in force for. For

example, from 1980-81 to 1985-86 this meant 33 weeks at the original rate and 19 weeks at the subsequent rate. 2 From 1989-90 the rates quoted are Income Support for couples aged 18+ and single people aged 25+.

307

Section 14: Time series

Table 14.2: Unemployment Benefit/ Jobseeker's Allowance Single person on own insurance

1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 2 1996-97 2 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 1

Current 1 prices £ per week 5.00 5.54 6.38 7.05 8.22 10.25 11.75 13.59 15.10 16.81 19.24 21.33 23.41 25.75 27.53 29.18 30.69 31.45 32.75 34.70 37.35 41.40 43.10 44.65 45.45 46.45 48.25 47.90 49.15 50.35 51.40 52.20 53.05 53.95 54.65 55.65 56.20 57.45 59.15 60.50 64.30

Constant 2009-10 prices £ per week 56.73 57.70 61.24 63.11 61.52 61.15 61.72 62.79 62.86 59.86 57.90 58.55 60.09 63.17 64.10 64.33 65.55 63.54 61.96 61.28 61.14 63.98 64.62 65.16 65.30 64.86 64.97 64.50 64.49 64.69 64.77 64.92 64.54 63.59 62.63 62.08 61.44 61.13 61.24 61.11 64.30

As a % of male average earnings 16.2 16.3 16.6 16.2 15.5 15.6 15.9 16.8 16.3 15.4 14.6 14.6 14.9 15.1 14.9 14.7 14.4 13.5 12.8 12.4 12.2 12.6 12.4 12.4 12.3 12.2 12.1 12.0 11.5 11.3 11.1 10.8 10.4 10.2 10.0 10.0 9.7 9.6 9.6 9.4 9.7

Married couple on husband's insurance Current Constant As a % 1 prices 2009-10 of male £ per Prices average week £ per week earnings 8.10 91.90 26.3 8.96 93.33 26.4 10.30 98.87 26.8 11.40 102.06 26.3 13.28 99.39 25.1 16.63 99.21 25.4 19.12 100.44 25.8 22.02 101.74 27.3 24.45 101.78 26.3 27.21 96.89 24.9 31.14 93.70 23.7 34.50 94.70 23.6 37.88 97.23 24.1 41.66 102.19 24.4 44.53 103.69 24.1 47.19 104.03 23.8 49.62 105.98 23.2 50.85 102.73 21.8 52.95 100.17 20.7 56.10 99.07 20.0 60.40 98.87 19.7 66.95 103.47 20.4 69.70 104.50 20.0 72.20 105.36 20.1 73.50 105.60 19.9 75.10 104.87 19.7 78.00 105.03 19.6 75.20 101.26 18.9 77.15 101.23 18.1 79.00 101.50 17.7 80.65 101.62 17.4 81.95 101.92 16.9 83.25 101.28 16.3 84.65 99.77 15.9 85.75 98.27 15.8 87.30 97.39 15.6 88.15 96.37 15.2 90.10 95.87 15.0 92.80 96.07 15.0 94.95 95.90 14.8 100.95 100.95 15.3

Calculated by weighting each rate in force in the financial year by the number of weeks it was in force for. For example,

from 1980-81 to 1985-86 this meant 33 weeks at the original rate and 19 weeks at the subsequent rate. 2

Jobseeker's Allowance replaced Unemployment Benefit on 7 October 1996. The first 1996-97 figure in this table gives the

Unemployment Benefit rate, the second the Jobseeker's Allowance rate.

308

Section 14: Time series

Table 14.3: Retirement Pension: standard rate (under 80s) Single person on own insurance

1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 1

Current 1 prices £ per week 5.00 5.54 6.36 7.27 9.35 12.25 14.07 16.15 18.27 20.96 24.71 28.05 30.79 33.29 34.69 36.71 38.57 39.50 41.15 43.60 46.90 52.00 54.15 56.10 57.60 58.85 61.15 62.45 64.70 66.75 67.50 72.50 75.50 77.45 79.60 82.05 84.25 87.30 90.70 95.25

Constant 2009-10 prices £ per week 56.73 57.70 61.05 65.08 69.97 73.08 73.91 74.62 76.05 74.64 74.35 77.00 79.03 81.66 80.77 80.93 82.38 79.80 77.85 77.00 76.77 80.36 81.18 81.87 82.76 82.18 82.34 81.94 83.13 84.11 83.95 88.20 88.99 88.75 88.80 89.70 89.65 90.38 91.61 95.25

As a % of male average earnings 16.2 16.3 16.6 16.8 17.7 18.7 19.0 20.0 19.7 19.2 18.8 19.2 19.6 19.5 18.8 18.5 18.0 16.9 16.1 15.6 15.3 15.8 15.6 15.6 15.6 15.4 15.4 14.6 14.5 14.4 13.9 14.2 14.2 14.2 14.2 14.1 14.1 14.1 14.2 14.4

Married couple on husband's insurance Current Constant 1 prices 2009-10 £ per Prices week £ per week 8.10 91.90 8.96 93.33 10.28 98.68 11.73 105.01 14.99 112.18 19.54 116.57 22.47 118.03 25.85 119.43 29.30 121.97 33.55 119.47 39.55 119.01 44.88 123.20 49.25 126.42 52.36 128.44 55.52 129.28 58.76 129.54 61.74 131.87 63.25 127.78 65.90 124.67 69.80 123.27 75.10 122.94 83.25 128.66 86.70 129.98 89.80 131.04 92.10 132.33 94.10 131.40 97.75 131.63 99.80 130.95 103.40 132.85 106.70 134.45 107.90 134.20 115.90 141.01 120.70 142.26 123.80 141.87 127.25 141.96 131.20 143.43 134.75 143.39 139.60 144.52 145.05 146.50 152.30 152.30

Calculated by weighting each rate in force in the financial year by the number of weeks it was in force for. For

example, from 1980-81 to 1985-86 this meant 33 weeks at the original rate and 19 weeks at the subsequent rate.

309

As a % of male average earnings 26.3 26.4 26.8 27.0 28.3 29.8 30.3 32.0 31.6 30.7 30.1 30.8 31.3 30.6 30.0 29.6 28.9 27.1 25.7 24.9 24.5 25.3 24.9 25.0 25.0 24.7 24.6 23.4 23.2 23.1 22.2 22.7 22.7 22.8 22.8 22.6 22.5 22.6 22.7 23.0

Section 14: Time series

Table 14.4: Income tax thresholds

Current 1 prices £ per annum

Single person Constant 2009-10 prices £ per annum

Married man 2 children Current Constant As a % of 1 prices 2009-10 annual male £ per Prices average annum £ per annum earnings

As a % of annual male average earnings

1970-71

418

4,742

26.1

894

10,143

55.8

1971-72

418

4,354

23.7

996

10,374

56.5

1972-73

591

5,673

29.6

1,170

11,231

58.6

1973-74

595

5,327

26.4

1,175

10,519

52.1 48.9

1974-75

625

4,677

22.7

1,345

10,066

1975-76

675

4,027

19.8

1,435

8,561

42.1

1976-77

735

3,861

19.1

1,685

8,851

43.7

1977-78

945

4,366

22.5

1,821

8,413

43.4

1978-79

985

4,100

20.4

1,735

7,222

36.0

1979-80

1,165

4,149

20.5

1,815

6,463

31.9

1980-81

1,375

4,138

20.1

2,145

6,455

31.4

1981-82

1,375

3,774

18.1

2,145

5,888

28.3

1982-83

1,565

4,017

19.1

2,445

6,276

29.9

1983-84

1,785

4,379

20.1

2,795

6,856

31.4

1984-85

2,005

4,669

20.8

3,155

7,346

32.8

1985-86

2,205

4,861

21.4

3,455

7,617

33.5

1986-87

2,335

4,987

21.0

3,655

7,807

32.9

1987-88

2,425

4,899

20.0

3,795

7,667

31.2

1988-89

2,605

4,928

19.5

4,095

7,747

30.7

1989-90

2,785

4,918

19.1

4,375

7,726

30.1

1990-91

3,005

4,919

18.9

4,725

7,735

29.7

1991-92

3,295

5,092

19.3

5,015

7,751

29.3

1992-93

3,445

5,165

19.1

5,165

7,744

28.6

1993-94

3,445

5,027

18.4

5,165

7,537

27.7

1994-95 2 1995-96

3,445

4,950

17.9

5,165

7,421

26.9

3,525

4,922

17.8

4,815

6,724

24.3

1996-97

2

3,765

5,070

18.2

5,108

6,878

24.7

1997-98

2

4,045

5,308

18.2

5,418

7,109

24.4

1998-99

2

4,195

5,390

18.1

5,620

7,221

24.2

1999-00

3

4,335

5,462

18.0

6,039

7,609

25.1

2000-01

4

4,385

5,454

17.4

4,385

5,454

17.4

2001-02

5

4,535

5,517

17.1

7,925

9,642

29.8

2002-03

5

4,615

5,439

16.7

8,067

9,508

29.2

2003-04

6

4,615

5,289

16.3

4,615

5,289

16.3

2004-05

4,745

5,294

16.3

4,745

5,294

16.3

2005-06 2006-07 2007-08 2008-09 2009-10

4,895 5,035 5,225 6,035 6,475

5,351 5,358 5,409 6,095 6,475

16.2 16.2 16.2 18.1 18.8

4,895 5,035 5,225 6,035 6,475

5,351 5,358 5,409 6,095 6,475

16.2 16.2 16.2 18.1 18.8

1

These are the levels of earnings at which liability to tax arises. Prior to 1973-74 they therefore take account of the

availability of earned income relief. 2 In 1995-96 the tax threshold for a married man went down because the increase in the personal allowance was less than the reduction in the value of the MCA. (From 1995-96 the MCA was only available at 15% so the effective tax threshold is calculated as 3525 +(15/20 x 1720) = 4815.) For 1999-2000 the MCA was only available at 10% and the 10p rate affected the threshold.

3 4

MCA was abolished for people under 65 from April 2000. The results for a married man are the same as a single

person for 2000-01. 5 The 2001-02 and 2002-03 figures include Children's Tax Credit. 6

Children's Tax Credit was abolished in April 2003 and replaced with the Child Tax Credit. Child Tax Credit is a

direct payment rather than a tax relief, and is therefore not included in the figures.

310

Section 14: Time series

Table 14.5: Value of child support for a married couple on male average earnings with two children1 Current prices £ per week

Constant 2009-10 Prices £ per week

As a % of male average earnings

1973-74

2.59

23.19

6.0

1974-75

3.32

24.85

6.3

1975-76

3.86

23.03

5.9

1976-77

4.66

24.48

6.3

1977-78

4.72

21.81

5.8

1978-79

6.41

26.68

6.9

1979-80

8.00

28.49

7.3

1980-81

8.55

25.73

6.5

1981-82

9.87

27.09

6.8

1982-83

10.94

28.08

7.0

1983-84

12.18

29.88

7.1

1984-85

13.26

30.88

7.2

1985-86

13.81

30.44

7.0

1986-87

14.14

30.20

6.6

1987-88

14.50

29.29

6.2

1988-89

14.50

27.43

5.7

1989-90

14.50

25.61

5.2

1990-91

14.50

23.74

4.7

1991-92

16.13

24.93

4.9

1992-93

17.45

26.16

5.0

1993-94

18.10

26.41

5.0

1994-95

18.45

26.51

5.0

1995-96

18.85

26.32

4.9

1996-97

19.60

26.39

4.9

1997-98

20.05

26.31

4.7

1998-99

20.75

26.66

4.7

1999-00

24.00

30.24

5.2

2000-01

25.00

31.09

5.2

2001-02

2

35.85

43.62

7.0

2002-03

2

36.47

42.98

6.9

2003-04

3

37.23

42.66

6.8

2004-05

3

38.05

42.45

6.8

38.90 39.65 40.65 41.85 43.70

42.53 42.19 42.08 42.27 43.70

6.7 6.6 6.6 6.5 6.6

2005-06 2006-07 2007-08 2008-09 2009-10 1

Both children are assumed to be under the age of 11 for child tax allowance purposes.

2

Includes Children's Tax Credit. Includes Child Tax Credit .

3

311

Section 14: Time series

14.6: Single person income tax and NICs £ per week

50% 1983-84 Gross income Income tax NICs Income tax and NICs 1984-85 Gross income Income tax NICs Income tax and NICs 1985-86 Gross income Income tax NICs Income tax and NICs 1986-87 Gross income Income tax NICs Income tax and NICs 1987-88 Gross income Income tax NICs Income tax and NICs 1988-89 Gross income Income tax NICs Income tax and NICs 1989-90 Gross income Income tax NICs Income tax and NICs 1990-91 Gross income Income tax NICs Income tax and NICs 1991-92 Gross income Income tax NICs Income tax and NICs 1992-93 Gross income Income tax NICs Income tax and NICs 1993-94 Gross income Income tax NICs Income tax and NICs

As a percentage of gross earnings

Multiples of median earnings 75% 100% 150%

200%

50%

Multiples of median earnings 75% 100% 150%

200%

68.63 10.29 6.18 16.47

102.94 20.58 9.26 29.85

137.25 30.88 12.35 43.23

205.88 51.46 18.53 69.99

274.50 72.05 21.15 93.20

15.0 9.0 24.0

20.0 9.0 29.0

22.5 9.0 31.5

25.0 9.0 34.0

26.2 7.7 34.0

73.70 10.54 6.63 17.18

110.55 21.60 9.95 31.55

147.40 32.65 13.27 45.92

221.10 54.76 19.90 74.66

294.80 76.87 22.50 99.37

14.3 9.0 23.3

19.5 9.0 28.5

22.2 9.0 31.2

24.8 9.0 33.8

26.1 7.6 33.7

79.04 10.99 6.32 17.31

118.56 22.85 10.67 33.52

158.09 34.70 14.23 48.93

237.13 58.42 21.34 79.76

316.17 82.13 23.85 105.98

13.9 8.0 21.9

19.3 9.0 28.3

22.0 9.0 31.0

24.6 9.0 33.6

26.0 7.5 33.5

84.68 11.54 5.93 17.46

127.02 23.81 11.43 35.25

169.36 36.09 15.24 51.33

254.04 60.65 22.86 83.51

338.72 85.21 25.65 110.86

13.6 7.0 20.6

18.7 9.0 27.7

21.3 9.0 30.3

23.9 9.0 32.9

25.2 7.6 32.7

91.62 12.15 6.41 18.56

137.43 24.51 12.37 36.88

183.24 36.88 16.49 53.37

274.85 61.62 24.74 86.36

366.47 86.36 26.55 112.91

13.3 7.0 20.3

17.8 9.0 26.8

20.1 9.0 29.1

22.4 9.0 31.4

23.6 7.2 30.8

100.18 12.52 7.01 19.53

150.27 25.04 13.52 38.57

200.36 37.57 18.03 55.60

300.54 62.61 27.05 89.66

400.72 87.66 27.45 115.11

12.5 7.0 19.5

16.7 9.0 25.7

18.7 9.0 27.7

20.8 9.0 29.8

21.9 6.9 28.7

109.67 14.03 7.27 21.30

164.50 27.73 13.30 41.03

219.33 41.44 18.23 59.68

329.00 68.86 27.75 96.60

438.66 96.28 27.75 124.02

12.8 6.6 19.4

16.9 8.1 24.9

18.9 8.3 27.2

20.9 8.4 29.4

21.9 6.3 28.3

119.10 15.33 7.50 22.83

178.64 30.21 12.86 43.07

238.19 45.10 18.22 63.32

357.29 74.87 28.28 103.15

476.38 107.73 28.28 136.01

12.9 6.3 19.2

16.9 7.2 24.1

18.9 7.6 26.6

21.0 7.9 28.9

22.6 5.9 28.5

127.92 16.14 7.87 24.01

191.87 32.13 13.63 45.76

255.83 48.12 19.38 67.50

383.75 80.09 30.90 110.99

511.66 112.07 31.46 143.53

12.6 6.2 18.8

16.7 7.1 23.8

18.8 7.6 26.4

20.9 8.1 28.9

21.9 6.1 28.1

134.54 15.15 8.33 23.48

201.81 31.97 14.38 46.35

269.08 48.78 20.44 69.22

403.61 82.42 32.55 114.96

538.15 118.47 32.67 151.14

11.3 6.2 17.5

15.8 7.1 23.0

18.1 7.6 25.7

20.4 8.1 28.5

22.0 6.1 28.1

138.64 15.69 8.56 24.25

207.96 33.02 14.80 47.82

277.28 50.35 21.04 71.39

415.92 85.01 33.51 118.53

554.56 124.55 33.88 158.43

11.3 6.2 17.5

15.9 7.1 23.0

18.2 7.6 25.7

20.4 8.1 28.5

22.5 6.1 28.6

312

Section 14: Time series

14.6: Single person income tax and NICs (continued) £ per week

50% 1994-95 Gross income Income tax NICs Income tax and NICs 1995-96 Gross income Income tax NICs Income tax and NICs 1996-97 Gross income Income tax

As a percentage of gross earnings

Multiples of median earnings 75% 100% 150%

200%

50%

Multiples of median earnings 75% 100% 150%

200%

143.00 16.30 9.74 26.04

214.49 34.18 16.89 51.07

285.99 52.05 24.04 76.09

428.99 87.80 38.34 126.14

571.98 131.04 38.44 169.48

11.4 6.8 18.2

15.9 7.9 23.8

18.2 8.4 26.6

20.5 8.9 29.4

22.9 6.7 29.6

148.00 16.98 10.16 27.14

222.00 35.48 17.56 53.03

296.00 53.97 24.96 78.93

443.99 90.97 39.36 130.33

591.99 136.51 39.36 175.87

11.5 6.9 18.3

16.0 7.9 23.9

18.2 8.4 26.7

20.5 8.9 29.4

23.1 6.6 29.7

153.98 16.58

230.97 35.06

307.96 53.53

461.94 90.49

615.92 135.94

10.8

15.2

17.4

19.6

22.1

NICs

10.52

18.22

25.92

40.62

40.62

6.8

7.9

8.4

8.8

6.6

Income tax and NICs

27.10

53.27

79.45

131.11

176.56

17.6

23.1

25.8

28.4

28.7

21.9

1997-98 Gross income

163.85

245.78

327.70

491.55

655.40

Income tax

17.43

36.27

55.11

92.80

143.35

10.6

14.8

16.8

18.9

NICs

11.43

19.62

27.81

41.54

41.54

7.0

8.0

8.5

8.5

6.3

Income tax and NICs

28.85

55.89

82.92

134.34

184.89

17.6

22.7

25.3

27.3

28.2

21.9

1998-99 Gross income

170.10

255.15

340.20

510.30

680.40

Income tax

18.09

37.65

57.21

96.33

148.81

10.6

14.8

16.8

18.9

NICs

11.89

20.40

28.90

43.38

43.38

7.0

8.0

8.5

8.5

6.4

Income tax and NICs

29.98

58.04

86.11

139.71

192.19

17.6

22.7

25.3

27.4

28.2

176.15 17.59 11.02 28.61

264.23 37.85 19.82 57.67

352.30 58.10 28.63 86.73

528.45 98.62 43.40 142.02

704.60 153.21 43.40 196.61

10.0 6.3 16.2

14.3 7.5 21.8

16.5 8.1 24.6

18.7 8.2 26.9

21.7 6.2 27.9

183.75 18.37

275.63 38.58

367.50 58.79

551.25 99.22

735.00 158.45

10.0

14.0

16.0

18.0

21.6

NICs

10.78

19.96

29.15

45.90

45.90

5.9

7.2

7.9

8.3

6.2

Income tax and NICs

29.15

58.54

87.94

145.12

204.35

15.9

21.2

23.9

26.3

27.8

22.1

1999-00 Gross income Income tax NICs Income tax and NICs 2000-01 Gross income Income tax

2001-02 Gross income

196.70

295.05

393.40

590.10

786.80

Income tax

19.75

41.39

63.02

106.30

173.73

10.0

14.0

16.0

18.0

NICs

10.97

20.81

30.64

48.80

48.80

5.6

7.1

7.8

8.3

6.2

Income tax and NICs

30.72

62.19

93.66

155.10

222.53

15.6

21.1

23.8

26.3

28.3

22.0

2002-03 Gross income

198.75

298.13

397.50

596.25

795.00

Income tax

19.77

41.63

63.49

107.22

174.57

9.9

14.0

16.0

18.0

NICs

10.98

20.91

30.85

49.60

49.60

5.5

7.0

7.8

8.3

6.2

Income tax and NICs

30.75

62.54

94.34

156.82

224.17

15.5

21.0

23.7

26.3

28.2

205.90

308.85

411.80

617.70

823.60

Income tax

21.25

43.90

66.55

111.85

183.84

10.3

14.2

16.2

18.1

22.3

NICs

12.86

24.18

35.51

55.89

57.95

6.2

7.8

8.6

9.0

7.0

Income tax and NICs

34.11

68.08

102.06

167.74

241.79

16.6

22.0

24.8

27.2

29.4

2003-04 Gross income

313

Section 14: Time series

14.6: Single person income tax and NICs (continued) £ per week

As a percentage of gross earnings

Multiples of median earnings

Multiples of median earnings

50%

75%

100%

150%

200%

50%

75%

100%

150%

200%

22.4

2004-05 Gross income

212.70

319.05

425.40

638.10

850.80

Income tax

22.06

45.45

68.85

115.65

190.47

10.4

14.2

16.2

18.1

NICs

13.39

25.09

36.78

57.37

59.50

6.3

7.9

8.6

9.0

7.0

Income tax and NICs

35.45

70.54

105.63

173.02

249.97

16.7

22.1

24.8

27.1

29.4

22.4

2005-06 Gross income

219.58

329.36

439.15

658.73

878.30

Income tax

22.77

46.93

71.08

119.39

196.69

10.4

14.2

16.2

18.1

NICs

13.81

25.89

37.97

59.25

61.44

6.3

7.9

8.6

9.0

7.0

Income tax and NICs

36.59

72.82

109.05

178.63

258.13

16.7

22.1

24.8

27.1

29.4

2006-07 Gross income

225.95

338.93

451.90

677.85

903.80

Income tax

23.45

48.30

73.15

122.86

202.56

10.4

14.3

16.2

18.1

22.4

NICs

14.18

26.61

39.04

60.61

62.87

6.3

7.9

8.6

8.9

7.0

Income tax and NICs

37.63

74.91

112.19

183.47

265.43

16.7

22.1

24.8

27.1

29.4

22.3

2007-08 Gross income

233.85

350.78

467.70

701.55

935.40

Income tax

24.20

49.92

75.64

127.09

209.05

10.3

14.2

16.2

18.1

NICs

14.72

27.59

40.45

63.02

65.35

6.3

7.9

8.6

9.0

7.0

Income tax and NICs

38.92

77.50

116.09

190.10

274.41

16.6

22.1

24.8

27.1

29.3

20.7

2008-09 Gross income

242.00

363.00

484.00

726.00

968.00

Income tax

25.19

49.39

73.59

121.99

200.01

10.4

13.6

15.2

16.8

NICs

15.07

28.38

41.69

68.31

75.13

6.2

7.8

8.6

9.4

7.8

Income tax and NICs

40.26

77.77

115.28

190.30

275.14

16.6

21.4

23.8

26.2

28.4

20.6

2009-10 Gross income

250.00

375.00

500.00

750.00

1000.00

Income tax

25.10

50.10

75.10

125.10

206.35

10.0

13.4

15.0

16.7

NICs

15.40

29.15

42.90

70.40

82.30

6.2

7.8

8.6

9.4

8.2

Income tax and NICs

40.50

79.25

118.00

195.50

288.65

16.2

21.1

23.6

26.1

28.9

314

Section 14: Time series

Table 14.7: One-earner married couple, with no children, income tax and NICs £ per week

50% 1983-84 Gross income Income tax NICs Income tax and NICs 1984-85 Gross income Income tax NICs Income tax and NICs 1985-86 Gross income Income tax NICs Income tax and NICs 1986-87 Gross income Income tax NICs Income tax and NICs 1987-88 Gross income Income tax NICs Income tax and NICs 1988-89 Gross income Income tax NICs Income tax and NICs 1989-90 Gross income Income tax NICs Income tax and NICs 1990-91 Gross income Income tax NICs Income tax and NICs 1991-92 Gross income Income tax NICs Income tax and NICs 1992-93 Gross income Income tax NICs Income tax and NICs 1993-94 Gross income Income tax NICs Income tax and NICs

As a percentage of gross earnings

Multiples of median earnings 75% 100% 150% 200%

50%

Multiples of median earnings 75% 100% 150% 200%

68.63 4.46 6.18 10.64

102.94 14.76 9.26 24.02

137.25 25.05 12.35 37.40

205.88 45.64 18.53 64.17

274.50 66.23 21.15 87.38

6.5 9.0 15.5

14.3 9.0 23.3

18.3 9.0 27.3

22.2 9.0 31.2

24.1 7.7 31.8

73.70 3.91 6.63 10.54

110.55 14.96 9.95 24.91

147.40 26.02 13.27 39.28

221.10 48.13 19.90 68.03

294.80 70.24 22.50 92.74

5.3 9.0 14.3

13.5 9.0 22.5

17.7 9.0 26.7

21.8 9.0 30.8

23.8 7.6 31.5

79.04 3.78 6.32 10.10

118.56 15.64 10.67 26.31

158.09 27.49 14.23 41.72

237.13 51.21 21.34 72.55

316.17 74.92 23.85 98.77

4.8 8.0 12.8

13.2 9.0 22.2

17.4 9.0 26.4

21.6 9.0 30.6

23.7 7.5 31.2

84.68 4.17 5.93 10.10

127.02 16.45 11.43 27.88

169.36 28.73 15.24 43.97

254.04 53.29 22.86 76.15

338.72 77.85 25.65 103.50

4.9 7.0 11.9

13.0 9.0 22.0

17.0 9.0 26.0

21.0 9.0 30.0

23.0 7.6 30.6

91.62 5.03 6.41 11.45

137.43 17.40 12.37 29.77

183.24 29.77 16.49 46.26

274.85 54.51 24.74 79.24

366.47 79.24 26.55 105.79

5.5 7.0 12.5

12.7 9.0 21.7

16.2 9.0 25.2

19.8 9.0 28.8

21.6 7.2 28.9

100.18 5.36 7.01 12.37

150.27 17.88 13.52 31.40

200.36 30.40 18.03 48.43

300.54 55.45 27.05 82.50

400.72 80.49 27.45 107.94

5.3 7.0 12.3

11.9 9.0 20.9

15.2 9.0 24.2

18.4 9.0 27.4

20.1 6.9 26.9

109.67 6.38 7.27 13.65

164.50 20.09 13.30 33.39

219.33 33.80 18.23 52.03

329.00 61.22 27.75 88.96

438.66 88.63 27.75 116.38

5.8 6.6 12.4

12.2 8.1 20.3

15.4 8.3 23.7

18.6 8.4 27.0

20.2 6.3 26.5

119.10 7.06 7.50 14.56

178.64 21.94 12.86 34.80

238.19 36.83 18.22 55.05

357.29 66.60 28.28 94.88

476.38 96.38 28.28 124.66

5.9 6.3 12.2

12.3 7.2 19.5

15.5 7.6 23.1

18.6 7.9 26.6

20.2 5.9 26.2

127.92 7.87 7.87 15.74

191.87 23.86 13.63 37.49

255.83 39.85 19.38 59.23

383.75 71.83 30.90 102.72

511.66 103.80 31.46 135.26

6.2 6.2 12.3

12.4 7.1 19.5

15.6 7.6 23.2

18.7 8.1 26.8

20.3 6.1 26.4

134.54 7.04 8.33 15.37

201.81 23.70 14.38 38.08

269.08 40.51 20.44 60.95

403.61 74.15 32.55 106.69

538.15 107.78 32.67 140.45

5.2 6.2 11.4

11.7 7.1 18.9

15.1 7.6 22.7

18.4 8.1 26.4

20.0 6.1 26.1

138.64 7.86 8.56 16.42

207.96 24.75 14.80 39.55

277.28 42.08 21.04 63.12

415.92 76.74 33.51 110.26

554.56 111.40 33.88 145.28

5.7 6.2 11.8

11.9 7.1 19.0

15.2 7.6 22.8

18.5 8.1 26.5

20.1 6.1 26.2

315

Section 14: Time series

Table 14.7: One-earner married couple, with no children, income tax and NICs (continued) £ per week

50% 1994-95 Gross income Income tax NICs Income tax and NICs 1995-96 Gross income Income tax NICs Income tax and NICs 1996-97 Gross income Income tax NICs Income tax and NICs 1997-98 Gross income Income tax NICs Income tax and NICs 1998-99 Gross income Income tax NICs Income tax and NICs 1999-00 Gross income Income tax NICs Income tax and NICs

As a percentage of gross earnings

Multiples of median earnings 75% 100% 150% 200%

50%

Multiples of median earnings 75% 100% 150% 200%

143.00 9.69 9.74 19.43

214.49 27.56 16.89 44.45

285.99 45.44 24.04 69.47

428.99 81.18 38.34 119.52

571.98 124.43 38.44 162.87

6.8 6.8 13.6

12.8 7.9 20.7

15.9 8.4 24.3

18.9 8.9 27.9

21.8 6.7 28.5

148.00 12.01 10.16 22.17

222.00 30.51 17.56 48.07

296.00 49.01 24.96 73.97

443.99 86.01 39.36 125.37

591.99 131.55 39.36 170.91

8.1 6.9 15.0

13.7 7.9 21.7

16.6 8.4 25.0

19.4 8.9 28.2

22.2 6.6 28.9

153.98 11.41 10.52 21.93

230.97 29.89 18.22 48.11

307.96 48.37 25.92 74.29

461.94 85.33 40.62 125.95

615.92 130.78 40.62 171.40

7.4 6.8 14.2

12.9 7.9 20.8

15.7 8.4 24.1

18.5 8.8 27.3

21.2 6.6 27.8

163.85 12.15 11.43 23.57

245.78 30.99 19.62 50.61

327.70 49.84 27.81 77.65

491.55 87.52 41.54 129.06

655.40 138.07 41.54 179.61

7.4 7.0 14.4

12.6 8.0 20.6

15.2 8.5 23.7

17.8 8.5 26.3

21.1 6.3 27.4

170.10 12.61 11.89 24.50

255.15 32.17 20.40 52.56

340.20 51.73 28.90 80.63

510.30 90.85 43.38 134.23

680.40 143.33 43.38 186.71

7.4 7.0 14.4

12.6 8.0 20.6

15.2 8.5 23.7

17.8 8.5 26.3

21.1 6.4 27.4

176.15 13.80 11.02 24.82

264.23 34.06 19.82 53.88

352.30 54.32 28.63 82.95

528.45 94.83 43.40 138.23

704.60 149.42 43.40 192.82

7.8 6.3 14.1

12.9 7.5 20.4

15.4 8.1 23.5

17.9 8.2 26.2

21.2 6.2 27.4

183.75

275.63

367.50

551.25

735.00

Income tax

18.37

38.58

58.79

99.22

158.45

10.0

14.0

16.0

18.0

21.6

NICs

10.78

19.96

29.15

45.90

45.90

5.9

7.2

7.9

8.3

6.2

Income tax and NICs 2001-02 Gross income Income tax NICs Income tax and NICs 2002-03 Gross income Income tax NICs Income tax and NICs

29.15

58.54

87.94

145.12

204.35

15.9

21.2

23.9

26.3

27.8

196.70 19.75 10.97 30.72

295.05 41.39 20.81 62.19

393.40 63.02 30.64 93.66

590.10 106.30 48.80 155.10

786.80 173.73 48.80 222.53

10.0 5.6 15.6

14.0 7.1 21.1

16.0 7.8 23.8

18.0 8.3 26.3

22.1 6.2 28.3

198.75 19.77 10.98 30.75

298.13 41.63 20.91 62.54

397.50 63.49 30.85 94.34

596.25 107.22 49.60 156.82

795.00 174.57 49.60 224.17

9.9 5.5 15.5

14.0 7.0 21.0

16.0 7.8 23.7

18.0 8.3 26.3

22.0 6.2 28.2

22.3

2000-01 Gross income

2003-04 Gross income

205.90

308.85

411.80

617.70

823.60

Income tax

21.25

43.90

66.55

111.85

183.84

10.3

14.2

16.2

18.1

NICs

12.86

24.18

35.51

55.89

57.95

6.2

7.8

8.6

9.0

7.0

Income tax and NICs

34.11

68.08

102.06

167.74

241.79

16.6

22.0

24.8

27.2

29.4

316

Section 14: Time series

Table 14.7: One-earner married couple, with no children, income tax and NICs (continued) £ per week

As a percentage of gross earnings

Multiples of median earnings

Multiples of median earnings

50%

75%

100%

150%

200%

50%

75%

100%

150%

200%

2004-05 212.70

319.05

425.40

638.10

850.80

Income tax

22.06

45.45

68.85

115.65

190.47

10.4

14.2

16.2

18.1

NICs

13.39

25.09

36.78

57.37

59.50

6.3

7.9

8.6

9.0

7.0

Income tax an

35.45

70.54

105.63

173.02

249.97

16.7

22.1

24.8

27.1

29.4

22.4

Gross income

22.4

2005-06 Gross income

219.58

329.36

439.15

658.73

878.30

Income tax

22.77

46.93

71.08

119.39

196.69

10.4

14.2

16.2

18.1

NICs

13.81

25.89

37.97

59.25

61.44

6.3

7.9

8.6

9.0

7.0

Income tax an

36.59

72.82

109.05

178.63

258.13

16.7

22.1

24.8

27.1

29.4

22.4

2006-07 225.95

338.93

451.90

677.85

903.80

Income tax

23.45

48.30

73.15

122.86

202.56

10.4

14.3

16.2

18.1

NICs

14.18

26.61

39.04

60.61

62.87

6.3

7.9

8.6

8.9

7.0

Income tax an

37.63

74.91

112.19

183.47

265.43

16.7

22.1

24.8

27.1

29.4

22.3

Gross income

2007-08 233.85

350.78

467.70

701.55

935.40

Income tax

24.20

49.92

75.64

127.09

209.05

10.3

14.2

16.2

18.1

NICs

14.72

27.59

40.45

63.02

65.35

6.3

7.9

8.6

9.0

7.0

Income tax an

38.92

77.50

116.09

190.10

274.41

16.6

22.1

24.8

27.1

29.3

20.7

Gross income

2008-09 242.00

363.00

484.00

726.00

968.00

Income tax

25.19

49.39

73.59

121.99

200.01

10.4

13.6

15.2

16.8

NICs

15.07

28.38

41.69

68.31

75.13

6.2

7.8

8.6

9.4

7.8

Income tax an

40.26

77.77

115.28

190.30

275.14

16.6

21.4

23.8

26.2

28.4

20.6

Gross income

2009-10 250.00

375.00

500.00

750.00

1000.00

Income tax

25.10

50.10

75.10

125.10

206.35

10.0

13.4

15.0

16.7

NICs

15.40

29.15

42.90

70.40

82.30

6.2

7.8

8.6

9.4

8.2

Income tax an

40.50

79.25

118.00

195.50

288.65

16.2

21.1

23.6

26.1

28.9

Gross income

317

Section 14: Time series

Table 14.8: One-earner married couple, with 2 children, direct tax burden £ per week

50% 1983-84 Gross income Income tax NICs Child Benefit Direct tax burden Family income supplement Net of family income supplement 1984-85 Gross income Income tax NICs Child Benefit Direct tax burden Family income supplement Net of family income supplement 1985-86 Gross income Income tax NICs Child Benefit Direct tax burden Family income supplement Net of family income supplement 1986-87 Gross income Income tax NICs Child Benefit Direct tax burden Family income supplement Net of family income supplement 1987-88 Gross income Income tax NICs Child Benefit Direct tax burden Family income supplement Net of family income supplement 1988-89 Gross income Income tax NICs Child Benefit Direct tax burden Family credit Net of family credit 1989-90 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit

As a percentage of gross earnings

Multiples of median earnings 75% 100% 150%

200%

68.63 4.46 6.18 12.18 -1.54 12.06 -13.60

102.94 14.76 9.26 12.18 11.84 0.00 11.84

137.25 25.05 12.35 12.18 25.22 0.00 25.22

205.88 45.64 18.53 12.18 51.99 0.00 51.99

274.50 66.23 21.15 12.18 75.20 0.00 75.20

73.70 3.91 6.63 13.26 -2.72

110.55 14.96 9.95 13.26 11.65

147.40 26.02 13.27 13.26 26.02

221.10 48.13 19.90 13.26 54.77

294.80 70.24 22.50 13.26 79.48

11.55 -14.27

0.00 11.65

0.00 26.02

0.00 54.77

0.00 79.48

79.04 3.78 6.32 13.80 -3.70 12.04 -15.74

118.56 15.64 10.67 13.80 12.51 0.00 12.51

158.09 27.49 14.23 13.80 27.92 0.00 27.92

237.13 51.21 21.34 13.80 58.75 0.00 58.75

316.17 74.92 23.85 13.80 84.97 0.00 84.97

84.68 4.17 5.93 14.14 -4.04 12.58 -16.62

127.02 16.45 11.43 14.14 13.74 0.00 13.74

169.36 28.73 15.24 14.14 29.83 0.00 29.83

254.04 53.29 22.86 14.14 62.01 0.00 62.01

338.72 77.85 25.65 14.14 89.36 0.00 89.36

91.62 5.03 6.41 14.50 -3.05 10.49 -13.55

137.43 17.40 12.37 14.50 15.27 0.00 15.27

183.24 29.77 16.49 14.50 31.76 0.00 31.76

274.85 54.51 24.74 14.50 64.74 0.00 64.74

366.47 79.24 26.55 14.50 91.29 0.00 91.29

100.18 5.36 7.01 14.50 -2.13 18.75 -20.88

150.27 17.88 13.52 14.50 16.90 0.00 16.90

200.36 30.40 18.03 14.50 33.93 0.00 33.93

300.54 55.45 27.05 14.50 68.00 0.00 68.00

400.72 80.49 27.45 14.50 93.44 0.00 93.44

109.67 6.38 7.27 14.50 -0.85 19.35 -20.20

164.50 20.09 13.30 14.50 18.89 0.00 18.89

219.33 33.80 18.23 14.50 37.53 0.00 37.53

329.00 61.22 27.75 14.50 74.46 0.00 74.46

438.66 88.63 27.75 14.50 101.88 0.00 101.88

318

50%

Multiples of median earnings 75% 100% 150%

200%

6.5 9.0

14.3 9.0

18.3 9.0

22.2 9.0

24.1 7.7

-2.2

11.5

18.4

25.3

27.4

-19.8

11.5

18.4

25.3

27.4

5.3 9.0

13.5 9.0

17.7 9.0

21.8 9.0

23.8 7.6

-3.7

10.5

17.7

24.8

27.0

-19.4

10.5

17.7

24.8

27.0

4.8 8.0

13.2 9.0

17.4 9.0

21.6 9.0

23.7 7.5

-4.7

10.5

17.7

24.8

26.9

-19.9

10.5

17.7

24.8

26.9

4.9 7.0

13.0 9.0

17.0 9.0

21.0 9.0

23.0 7.6

-4.8

10.8

17.6

24.4

26.4

-19.6

10.8

17.6

24.4

26.4

5.5 7.0

12.7 9.0

16.2 9.0

19.8 9.0

21.6 7.2

-3.3

11.1

17.3

23.6

24.9

-14.8

11.1

17.3

23.6

24.9

5.3 7.0

11.9 9.0

15.2 9.0

18.4 9.0

20.1 6.9

-2.1

11.2

16.9

22.6

23.3

-20.8

11.2

16.9

22.6

23.3

5.8 6.6

12.2 8.1

15.4 8.3

18.6 8.4

20.2 6.3

-0.8

11.5

17.1

22.6

23.2

-18.4

11.5

17.1

22.6

23.2

Section 14: Time series

Table 14.8: One-earner married couple, with 2 children, direct tax burden (continued) £ per week

50% 1990-91 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit 1991-92 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit 1992-93 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit 1993-94 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit 1994-95 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit 1995-96 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit 1996-97 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit

As a percentage of gross earnings

Multiples of median earnings 75% 100% 150%

200%

119.10 7.06 7.50 14.50 0.06 19.99 -19.94

178.64 21.94 12.86 14.50 20.30 0.00 20.30

238.19 36.83 18.22 14.50 40.55 0.00 40.55

357.29 66.60 28.28 14.50 80.38 0.00 80.38

476.38 96.38 28.28 14.50 110.16 0.00 110.16

127.92 7.87 7.87 16.13 -0.38 22.75 -23.14

191.87 23.86 13.63 16.13 21.36 0.00 21.36

255.83 39.85 19.38 16.13 43.11 0.00 43.11

383.75 71.83 30.90 16.13 86.60 0.00 86.60

511.66 103.80 31.46 16.13 119.14 0.00 119.14

134.54 7.04 8.33 17.45 -2.08 25.00 -27.08

201.81 23.70 14.38 17.45 20.63 0.00 20.63

269.08 40.51 20.44 17.45 43.50 0.00 43.50

403.61 74.15 32.55 17.45 89.24 0.00 89.24

538.15 107.78 32.67 17.45 123.00 0.00 123.00

138.64 7.86 8.56 18.10 -1.68 26.75 -28.43

207.96 24.75 14.80 18.10 21.45 0.00 21.45

277.28 42.08 21.04 18.10 45.02 0.00 45.02

415.92 76.74 33.51 18.10 92.16 0.00 92.16

554.56 111.40 33.88 18.10 127.18 0.00 127.18

143.00 9.69 9.74 18.45 0.98 30.39 -29.42

214.49 27.56 16.89 18.45 26.00 0.00 26.00

285.99 45.44 24.04 18.45 51.02 0.00 51.02

428.99 81.18 38.34 18.45 101.07 0.00 101.07

571.98 124.43 38.44 18.45 144.42 0.00 144.42

148.00 12.01 10.16 18.85 3.32 38.42 -35.10

222.00 30.51 17.56 18.85 29.22 4.75 24.47

296.00 49.01 24.96 18.85 55.12 0.00 55.12

443.99 86.01 39.36 18.85 106.52 0.00 106.52

591.99 131.55 39.36 18.85 152.06 0.00 152.06

153.98 11.41 10.52 19.60 2.33 40.46 -38.12

230.97 29.89 18.22 19.60 28.51 4.89 23.62

307.96 48.37 25.92 19.60 54.69 0.00 54.69

461.94 85.33 40.62 19.60 106.35 0.00 106.35

615.92 130.78 40.62 19.60 151.80 0.00 151.80

319

Multiples of median earnings 50% 75% 100% 150% 200%

5.9 6.3

12.3 7.2

15.5 7.6

18.6 7.9

20.2 5.9

0.0

11.4

17.0

22.5

23.1

-16.7

11.4

17.0

22.5

23.1

6.2 6.2

12.4 7.1

15.6 7.6

18.7 8.1

20.3 6.1

-0.3

11.1

16.8

22.6

23.3

-18.1

11.1

16.8

22.6

23.3

5.2 6.2

11.7 7.1

15.1 7.6

18.4 8.1

20.0 6.1

-1.5

10.2

16.2

22.1

22.9

-20.1

10.2

16.2

22.1

22.9

5.7 6.2

11.9 7.1

15.2 7.6

18.5 8.1

20.1 6.1

-1.2

10.3

16.2

22.2

22.9

-20.5

10.3

16.2

22.2

22.9

6.8 6.8

12.8 7.9

15.9 8.4

18.9 8.9

21.8 6.7

0.7

12.1

17.8

23.6

25.2

-20.6

12.1

17.8

23.6

25.2

8.1 6.9

13.7 7.9

16.6 8.4

19.4 8.9

22.2 6.6

2.2

13.2

18.6

24.0

25.7

-23.7

11.0

18.6

24.0

25.7

7.4 6.8

12.9 7.9

15.7 8.4

18.5 8.8

21.2 6.6

1.5

12.3

17.8

23.0

24.6

-24.8

10.2

17.8

23.0

24.6

Section 14: Time series

Table 14.8: One-earner married couple, with 2 children, direct tax burden (continued) £ per week

50%

As a percentage of gross earnings

Multiples of median earnings 75% 100% 150%

200%

Multiples of median earnings 50% 75% 100% 150% 200%

1997-98 Gross income

163.85

245.78

327.70

491.55

655.40

Income tax

12.15

30.99

49.84

87.52

138.07

7.4

12.6

15.2

17.8

21.1

NICs

11.43

19.62

27.81

41.54

41.54

7.0

8.0

8.5

8.5

6.3

Child Benefit

20.05

20.05

20.05

20.05

20.05

3.52

30.56

57.60

109.01

159.56

2.2

12.4

17.6

22.2

24.3

-21.1

12.4

17.6

22.2

24.3

Direct tax burden Family Credit Net of Family Credit

38.11

0.00

0.00

0.00

0.00

-34.59

30.56

57.60

109.01

159.56

1998-99 Gross income

170.10

255.15

340.20

510.30

680.40

Income tax

12.61

32.17

51.73

90.85

143.33

7.4

12.6

15.2

17.8

21.1

NICs

11.89

20.40

28.90

43.38

43.38

7.0

8.0

8.5

8.5

6.4

Child Benefit

20.75

20.75

20.75

20.75

20.75

3.75 37.68 -33.93

31.81 0.00 31.81

59.88 0.00 59.88

113.48 0.00 113.48

165.96 0.00 165.96

2.2

12.5

17.6

22.2

24.4

-19.9

12.5

17.6

22.2

24.4

176.15 13.80 11.02 24.00 0.82 41.67 -40.85

264.23 34.06 19.82 24.00 29.88 0.00 29.88

352.30 54.32 28.63 24.00 58.95 0.00 58.95

528.45 94.83 43.40 24.00 114.23 0.00 114.23

704.60 149.42 43.40 24.00 168.82 0.00 168.82

7.8 6.3

12.9 7.5

15.4 8.1

17.9 8.2

21.2 6.2

0.5

11.3

16.7

21.6

24.0

-23.2

11.3

16.7

21.6

24.0

Direct tax burden Family Credit Net of Family Credit 1999-00 Gross income Income tax NICs Child Benefit Direct tax burden Family Credit Net of Family Credit 2000-01 Gross income

183.75

275.63

367.50

551.25

735.00

Income tax

18.37

38.58

58.79

99.22

158.45

10.0

14.0

16.0

18.0

21.6

NICs

10.28

19.96

29.15

45.90

45.90

5.6

7.2

7.9

8.3

6.2

-42.0

-4.7

13.8

21.8

24.4

Working Families' Tax Credit Child Benefit Direct tax burden 2001-02 Gross income Income tax NICs Working Families' Tax Credit Child Benefit Direct tax burden 2002-03 Gross income Income tax NICs

80.86 25.00 -77.21

46.50 25.00 -12.96

12.14 25.00 50.80

0.00 25.00 120.12

0.00 25.00 179.35

196.70 9.75 10.97 76.76 25.85 -81.89

295.05 31.39 20.81 39.97 25.85 -13.63

393.40 53.02 30.64 3.19 25.85 54.62

590.10 96.30 48.80 0.00 25.85 119.25

786.80 172.67 48.80 0.00 25.85 195.62

5.0 5.6

10.6 7.1

13.5 7.8

16.3 8.3

21.9 6.2

-41.6

-4.6

13.9

20.2

24.9

198.75 9.60 10.98

298.13 31.46 20.91

397.50 53.32 30.85

596.25 97.05 49.60

795.00 173.15 49.60

4.8 5.5

10.6 7.0

13.4 7.8

16.3 8.3

21.8 6.2

Working Families' Tax Credit Child Benefit Direct tax burden

81.13 26.30 -86.85

43.96 26.30 -17.89

6.79 26.30 51.08

0.00 26.30 120.35

0.00 26.30 196.45

-43.7

-6.0

12.9

20.2

24.7

320

Section 14: Time series

Table 14.8: One-earner married couple, with 2 children, direct tax burden (continued) £ per week

As a percentage of gross earnings

Multiples of median earnings

Multiples of median earnings

50%

75%

100%

150%

200%

50%

75%

100%

150%

200%

2003-04 Gross income

205.90

308.85

411.80

617.70

823.60

Income tax

21.25

43.90

66.55

111.85

183.84

10.3

14.2

16.2

18.1

22.3

NICs

12.86

24.18

35.51

55.89

57.95

6.2

7.8

8.6

9.0

7.0

-42.9

-5.3

13.5

21.1

24.8

Total Tax Credits

95.56

57.67

19.79

10.43

10.43

Child Benefit

26.80

26.80

26.80

26.80

26.80

-88.25

-16.39

55.47

130.51

204.56

212.70

319.05

425.40

638.10

850.80

Income tax

22.06

45.45

68.85

115.65

190.47

10.4

14.2

16.2

18.1

22.4

NICs

13.39

25.09

36.78

57.37

59.50

6.3

7.9

8.6

9.0

7.0

102.53

63.29

24.05

10.50

10.50 -44.5

-6.4

12.7

21.2

24.9

Direct tax burden 2004-05 Gross income

Total Tax Credits Child Benefit Direct tax burden

27.55

27.55

27.55

27.55

27.55

-94.63

-20.30

54.03

134.97

211.92

2005-06 Gross income

219.58

329.36

439.15

658.73

878.30

Income tax

22.77

46.93

71.08

119.39

196.69

10.4

14.2

16.2

18.1

22.4

NICs

13.81

25.89

37.97

59.25

61.44

6.3

7.9

8.6

9.0

7.0

105.81

65.30

24.79

10.50

10.50

28.40

28.40

28.40

28.40

28.40

-97.62

-20.88

55.86

139.73

219.23

-44.5

-6.3

12.7

21.2

25.0

Total Tax Credits Child Benefit Direct tax burden 2006-07 Gross income

225.95

338.93

451.90

677.85

903.80

Income tax

23.45

48.30

73.15

122.86

202.56

10.4

14.3

16.2

18.1

22.4

NICs

14.18

26.61

39.04

60.61

62.87

6.3

7.9

8.6

8.9

7.0

108.50

66.81

25.13

10.50

10.50

29.15

29.15

29.15

29.15

29.15

-100.02

-21.05

57.91

143.82

225.78

-44.3

-6.2

12.8

21.2

25.0

233.85

350.78

467.70

701.55

935.40

Income tax

24.20

49.92

75.64

127.09

209.05

10.3

14.2

16.2

18.1

22.3

NICs

14.72

27.59

40.45

63.02

65.35

6.3

7.9

8.6

9.0

7.0

110.95

67.80

24.66

10.43

10.43 -43.7

-5.8

13.1

21.3

25.0

Total Tax Credits Child Benefit Direct tax burden 2007-08 Gross income

Total Tax Credits Child Benefit Direct tax burden

30.20

30.20

30.20

30.20

30.20

-102.23

-20.50

61.23

149.47

233.78

2008-09 Gross income

243.33

364.99

486.65

729.98

973.30

Income tax

25.45

49.79

74.12

122.78

209.05

10.5

13.6

15.2

16.8

21.5

NICs

15.22

28.60

41.98

68.75

75.18

6.3

7.8

8.6

9.4

7.7

126.63

79.31

31.99

10.5

9.71

31.35

31.35

31.35

31.35

31.35

-117.31

-32.28

52.76

149.68

243.17

-48.2

-8.8

10.8

20.5

25.0

Total Tax Credits Child Benefit Direct tax burden

321

Section 14: Time series

Table 14.8: One-earner married couple, with 2 children, direct tax burden (continued) £ per week

As a percentage of gross earnings

Multiples of median earnings 50%

75%

100%

150%

Multiples of median earnings 200%

50%

75%

100%

150%

200%

2009-10 Gross income

250.00

375.00

500.00

Income tax

25.10

50.10

75.10

125.10

206.35

10.0

13.4

15.0

16.7

20.6

NICs

15.40

29.15

42.90

70.40

82.30

6.2

7.8

8.6

9.4

8.2

133.97

85.36

36.74

10.5

7.94 -50.7

-10.5

9.6

20.2

24.8

Total Tax Credits Child Benefit Direct tax burden

750.00 1000.00

33.20

33.20

33.20

33.20

33.20

-126.67

-39.31

48.06

151.80

247.51

322

Section 14: Time series

Table 14.9: Two-earner married couple, with no children, income tax and NICs1 £ per week

50%

Multiples of median earnings 75% 100% 150%

As a percentage of gross earnings

200%

50%

1983-84 Gross income 68.63 102.94 137.25 205.88 274.50 Income tax 0.00 4.46 14.75 35.34 55.93 0.0 NICs 3.71 9.26 12.35 18.53 24.71 5.4 Income tax and NICs 3.71 13.72 27.10 53.87 80.63 5.4 1984-85 Gross income 73.70 110.55 147.40 221.10 294.80 Income tax 0.00 3.40 14.45 36.56 58.67 0.0 NICs 3.98 9.95 13.27 19.90 26.53 5.4 Income tax and NICs 3.98 13.35 27.72 56.46 85.20 5.4 1985-86 Gross income 79.04 118.56 158.09 237.13 316.17 Income tax 0.00 2.92 14.77 38.48 62.20 0.0 NICs 3.32 9.01 13.60 21.34 28.46 4.2 Income tax and NICs 3.32 11.93 28.37 59.83 90.65 4.2 1986-87 Gross income 84.68 127.02 169.36 254.04 338.72 Income tax 0.00 3.43 15.71 40.27 64.82 0.0 NICs 2.54 7.88 13.89 22.86 30.48 3.0 Income tax and NICs 2.54 11.31 29.60 63.13 95.31 3.0 1987-88 Gross income 91.62 137.43 183.24 274.85 366.47 Income tax 0.00 4.81 17.18 41.91 66.65 0.0 NICs 2.75 8.52 15.03 24.74 32.98 3.0 Income tax and NICs 2.75 13.33 32.20 66.65 99.63 3.0 1988-89 Gross income 100.18 150.27 200.36 300.54 400.72 Income tax 0.00 5.36 17.88 42.92 67.97 0.0 NICs 3.01 9.32 16.43 27.05 36.06 3.0 Income tax and NICs 3.01 14.67 34.31 69.97 104.03 3.0 1989-90 Gross income 109.67 164.50 219.33 329.00 438.66 Income tax 0.00 6.70 20.41 47.83 75.24 0.0 NICs 4.67 9.49 15.85 26.60 36.47 4.3 Income tax and NICs 4.67 16.19 36.26 74.43 111.71 4.3 1990-91 Gross income 119.10 178.64 238.19 357.29 476.38 Income tax 0.00 7.50 22.38 52.16 81.93 0.0 NICs 4.28 9.64 15.00 25.72 36.43 3.6 Income tax and NICs 4.28 17.13 37.38 77.87 118.37 3.6 1 It is assumed that earnings are split 60:40 between the two members of the couple.

323

Multiples of median earnings 75% 100% 150%

200%

4.3 9.0 13.3

10.7 9.0 19.7

17.2 9.0 26.2

20.4 9.0 29.4

3.1 9.0 12.1

9.8 9.0 18.8

16.5 9.0 25.5

19.9 9.0 28.9

2.5 7.6 10.1

9.3 8.6 17.9

16.2 9.0 25.2

19.7 9.0 28.7

2.7 6.2 8.9

9.3 8.2 17.5

15.9 9.0 24.9

19.1 9.0 28.1

3.5 6.2 9.7

9.4 8.2 17.6

15.2 9.0 24.2

18.2 9.0 27.2

3.6 6.2 9.8

8.9 8.2 17.1

14.3 9.0 23.3

17.0 9.0 26.0

4.1 5.8 9.8

9.3 7.2 16.5

14.5 8.1 22.6

17.2 8.3 25.5

4.2 5.4 9.6

9.4 6.3 15.7

14.6 7.2 21.8

17.2 7.6 24.8

Section 14: Time series

Table 14.9: Two-earner married couple, with no children, income tax and NICs1 (continued) £ per week

50%

As a percentage of gross earnings

Multiples of median earnings 75% 100% 150%

200%

50%

Multiples of median earnings 75% 100% 150%

200%

1991-92 Gross income

127.92

191.87

255.83

383.75

511.66

Income tax

0.00

8.02

24.01

55.98

87.96

0.0

4.2

9.4

14.6

17.2

NICs

3.27

9.99

15.74

27.26

38.77

2.6

5.2

6.2

7.1

7.6

Income tax and NICs

3.27

18.00

39.75

83.24

126.73

2.6

9.4

15.5

21.7

24.8

134.54

201.81

269.08

403.61

538.15

0.00

7.25

22.03

55.66

89.30

0.0

3.6

8.2

13.8

16.6

1992-93 Gross income Income tax NICs

3.49

10.60

16.66

28.77

40.87

2.6

5.3

6.2

7.1

7.6

Income tax and NICs

3.49

17.85

38.69

84.43

130.17

2.6

8.8

14.4

20.9

24.2

138.64

207.96

277.28

415.92

554.56

0.00

8.48

23.29

57.78

92.44

0.0

4.1

8.4

13.9

16.7

NICs 3.57 10.88 17.12 29.59 42.07 2.6 Income tax and NICs 3.57 19.35 40.40 87.37 134.51 2.6 1994-95 Gross income 143.00 214.49 285.99 428.99 571.98 Income tax 0.00 10.02 26.47 61.74 97.49 0.0 NICs 5.18 12.33 19.48 33.78 48.08 3.6 Income tax and NICs 5.18 22.35 45.94 95.52 145.56 3.6 1995-96 Gross income 148.00 222.00 296.00 443.99 591.99 Income tax 0.00 12.52 29.54 65.99 102.99 0.0 NICs 5.52 12.92 20.32 35.12 49.92 3.7 Income tax and NICs 5.52 25.44 49.86 101.11 152.91 3.7 1996-97 Gross income 153.98 230.97 307.96 461.94 615.92 Income tax 0.00 12.07 28.96 64.95 101.90 0.0 NICs 5.64 13.34 21.04 36.43 51.83 3.7 Income tax and NICs 5.64 25.41 50.00 101.38 153.74 3.7 1997-98 Gross income 163.85 245.78 327.70 491.55 655.40 Income tax 0.00 12.70 30.35 67.26 104.95 0.0 NICs 6.47 14.66 22.85 39.24 55.62 3.9 Income tax and NICs 6.47 27.36 53.20 106.50 160.57 3.9 1998-99 Gross income 170.10 255.15 340.20 510.30 680.40 Income tax 0.00 13.28 31.51 69.82 108.94 0.0 NICs 6.77 15.28 23.78 40.79 57.80 4.0 Income tax and NICs 6.77 28.56 55.29 110.61 166.74 4.0 1 It is assumed that earnings are split 60:40 between the two members of the couple.

5.2 9.3

6.2 14.6

7.1 21.0

7.6 24.3

4.7 5.7 10.4

9.3 6.8 16.1

14.4 7.9 22.3

17.0 8.4 25.4

5.6 5.8 11.5

10.0 6.9 16.8

14.9 7.9 22.8

17.4 8.4 25.8

5.2 5.8 11.0

9.4 6.8 16.2

14.1 7.9 21.9

16.5 8.4 25.0

5.2 6.0 11.1

9.3 7.0 16.2

13.7 8.0 21.7

16.0 8.5 24.5

5.2 6.0 11.2

9.3 7.0 16.3

13.7 8.0 21.7

16.0 8.5 24.5

1993-94 Gross income Income tax

324

Section 14: Time series

Table 14.9: Two-earner married couple, with no children, income tax and NICs1 (continued) £ per week

As a percentage of gross earnings

Multiples of median earnings

Multiples of median earnings

50%

75%

100%

150%

200%

50%

75% 100% 150% 200%

1999-00 Gross income

176.15

264.23

352.30

528.45

704.60

Income tax

0.00

11.98

31.39

71.91

112.42

0.0

4.5

8.9

13.6

NICs

4.42

13.22

22.03

39.65

57.26

2.5

5.0

6.3

7.5

8.1

Income tax and NICs

4.42

25.20

53.42

111.55

169.68

2.5

9.5

15.2

21.1

24.1

16.0

16.0

2000-01 Gross income

183.75

275.63

367.50

551.25

735.00

Income tax

2.59

16.92

36.73

77.16

117.58

1.4

6.1

10.0

14.0

NICs

3.43

12.36

21.55

39.93

58.30

1.9

4.5

5.9

7.2

7.9

Income tax and NICs

6.02

29.28

58.28

117.09

175.88

3.3

10.6

15.9

21.2

23.9

16.0

2001-02 Gross income

196.70

295.05

393.40

590.10

786.80

Income tax

3.08

18.50

39.50

82.77

126.05

1.6

6.3

10.0

14.0

NICs

3.10

12.11

21.94

41.61

61.28

1.6

4.1

5.6

7.1

7.8

Income tax and NICs

6.18

30.61

61.44

124.38

187.33

3.1

10.4

15.6

21.1

23.8

14.7

2002-03 Gross income

198.75

298.13

397.50

596.25

795.00

Income tax

0.00

8.27

29.37

73.09

116.82

0.0

2.8

7.4

12.3

NICs

3.03

12.01

21.95

41.83

61.70

1.5

4.0

5.5

7.0

7.8

Income tax and NICs

3.03

20.28

51.32

114.92

178.52

1.5

6.8

12.9

19.3

22.5

16.2

2003-04 Gross income

205.90

308.85

411.80

617.70

823.60

Income tax

3.48

20.20

42.50

87.80

133.10

1.7

6.5

10.3

14.2

NICs

3.80

14.39

25.72

48.37

71.02

1.8

4.7

6.2

7.8

8.6

Income tax and NICs

7.28

34.59

68.22

136.17

204.12

3.5

11.2

16.6

22.0

24.8

16.2

2004-05 Gross income

212.70

319.05

425.40

638.10

850.80

Income tax

3.64

21.02

44.11

90.91

137.70

1.7

6.6

10.4

14.2

NICs

4.03

15.08

26.77

50.17

73.57

1.9

4.7

6.3

7.9

8.6

Income tax and NICs

7.67

36.10

70.88

141.08

211.27

3.6

11.3

16.7

22.1

24.8

16.2

2005-06 Gross income

219.58

329.36

439.15

658.73

878.30

Income tax

3.76

21.70

45.55

93.85

142.16

1.7

6.6

10.4

14.2

NICs

4.15

15.55

27.63

51.78

75.93

1.9

4.7

6.3

7.9

8.6

Income tax and NICs

7.91

37.25

73.17

145.63

218.09

3.6

11.3

16.7

22.1

24.8

16.2

2006-07 Gross income

225.95

338.93

451.90

677.85

903.80

Income tax

3.87

22.35

46.89

96.60

146.31

1.7

6.6

10.4

14.3

NICs

4.24

15.94

28.37

53.22

78.08

1.9

4.7

6.3

7.9

8.6

Income tax and NICs

8.12

38.29

75.26

149.82

224.39

3.6

11.3

16.7

22.1

24.8

16.2

2007-08 Gross income

233.85

350.78

467.70

700.96

934.62

Income tax

3.97

22.98

48.39

99.71

151.11

1.7

6.6

10.3

14.2

NICs

4.42

16.55

29.45

55.11

80.81

1.9

4.7

6.3

7.9

8.6

Income tax and NICs

8.39

39.54

77.84

154.81

231.92

3.6

11.3

16.6

22.1

24.8

15.2

2008-09 Gross income

242.00

363.00

484.00

726.00

968.00

Income tax

5.83

26.18

50.38

98.78

147.18

2.4

7.2

10.4

13.6

NICs

4.42

16.83

30.14

56.76

83.38

1.8

4.6

6.2

7.8

8.6

Income tax and NICs 10.25 43.01 80.52 155.54 230.56 4.2 1 It is assumed that earnings are split 60:40 between the two members of the couple.

11.8

16.6

21.4

23.8

325

Section 14: Time series Table 14.9: Two-earner married couple, with no children, income tax and NICs1 (continued) £ per week

As a percentage of gross earnings

Multiples of median earnings

Multiples of median earnings

50%

75%

100%

150%

200%

50%

75% 100% 150% 200%

2009-10 Gross income

250.00

375.00

500.00

750.00

1000.00

Income tax

5.10

25.19

50.19

100.19

150.19

2.0

6.7

10.0

13.4

15.0

NICs

4.40

17.05

30.80

58.30

85.80

1.8

4.5

6.2

7.8

8.6

Income tax and NICs 9.50 42.24 80.99 158.49 235.99 3.8 It is assumed that earnings are split 60:40 between the two members of the couple.

11.3

16.2

21.1

23.6

1

326

Section 14: Time series

Table 14.10: Direct tax burden on a one-earner couple with 2 children

1960-61 1961-62 1962-63 1963-64 1964-65 1965-66 1966-67 1967-68 1968-69 1969-70 1970-71 1971-72 1972-73 1973-74 1974-75 1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 2 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 1

Average earnings (£ per week) Male mean All employee earnings median earnings 16.5 17.1 17.7 18.4 19.7 21.1 22.3 23.3 25.1 27.3 30.8 33.9 38.4 43.4 52.9 65.5 74.1 80.7 92.8 109.3 131.4 145.9 157.4 171.0 137.3 185.0 147.4 198.5 158.1 213.8 169.4 233.6 183.2 256.3 200.4 279.9 219.3 306.2 238.2 328.7 255.8 347.7 269.1 359.1 277.3 369.1 286.0 381.2 296.0 397.8 308.0 426.9 327.7 445.9 340.2 462.6 352.3 485.2 367.5 511.0 393.4 531.3 397.4 544.0 411.8 558.8 425.4 580.3 439.2 598.9 451.9 618.6 467.7 640.3 484.0 661.7 500.0

1

Tax Burden (per cent) on male on all employee mean earnings median earnings 5.8 7.7 8.4 7.8 9.0 10.5 11.7 13.0 14.8 16.7 18.8 17.7 17.5 19.6 22.2 25.7 24.6 22.5 20.9 18.9 20.8 22.5 22.8 22.4 18.4 22.0 17.7 22.0 17.7 21.9 17.6 21.4 17.3 20.7 16.9 20.8 17.1 20.8 17.0 20.7 16.8 20.2 16.2 20.3 16.2 21.7 17.8 22.3 18.6 21.4 17.8 21.2 17.6 21.3 17.6 20.6 15.5 20.7 13.8 18.7 13.9 19.0 12.8 19.9 13.5 20.0 12.7 20.1 12.7 20.2 12.8 20.3 13.1 19.0 10.8 18.8 9.7

Defined as income tax and NICs less Child Benefit and Tax Credits as a percentage of gross income. A family with 2 children

on mean male earnings is only entitled to the basic family element of CTC. Note: WFTC was netted off from its first full year of implementation in 2000-01, until it was replaced by TCs in April 2003. At male mean earnings, a couple with 2 children were not entitled to WFTC; on median earnings of all employees, a couple with two children had WFTC entitlements of £14.33 per week in 2000-01, £9.38 per week in 2001-02 and £8.08 per week in 2002-03. Note: Prior to 2000-01, the tax burden was defined as income tax and NICs less Child Benefit as a percentage of gross income. A couple with 2 children on median (or male mean) earnings was not entitled to Family Credit or Family Income Supplement.

327

Section 14: Time series

Table 14.11: Number of taxpayers and income tax liabilities Thousands Taxpayers with income

£ billion

Number of people paying tax Individuals

greater than

Single

Husbands

Wives

Higher Taxpayers

Aged

people

under

reliefs and

65

Aged

State 65 and Pension age over

rate

liable

taxpayers

allowances due1

Total income

to

tax

investment

liability

income surcharge

1978-79

21,400

25,900

9,220

12,000

4,750

-

-

763

611

20.3

1979-80

21,600

25,900

9,650

11,800

4,510

-

-

674

236

22.9

1980-81

21,000

24,900

9,050

11,700

4,150

-

-

796

273

26.9

1981-82

20,800

24,800

9,230

11,200

4,350

-

-

1,090

324

30.5

1982-83

20,800

24,600

9,400

11,100

4,110

-

-

983

289

32.6

1983-84

20,300

24,000

9,400

10,700

4,050

-

-

860

238

33.4

1984-85

20,200

23,800

9,370

10,500

3,930

-

-

930

-

35.3

1985-86

20,200

23,700

9,520

10,400

3,830

-

-

950

-

38.8

1986-87

20,400

23,900

9,830

10,400

3,690

-

-

1,120

-

42.8

1987-88

20,800

24,300

10,300

10,300

3,750

-

-

1,190

-

45.3

1988-89

21,200

25,200

10,400

10,600

4,150

-

-

1,350

-

46.5

1989-90

21,500

25,000

11,200

9,880

3,880

-

-

1,500

-

53.4

1990-91

-

26,100

10,700

9,660

5,710

23,000

3,120

1,700

-

60.2

1991-92

-

25,700

10,900

9,170

5,780

22,800

2,930

1,620

-

63.3

1992-93

-

25,400

10,500

9,080

5,840

22,400

2,960

1,720

-

60.7

1993-94

-

25,000

10,100

9,050

5,820

22,000

3,040

1,740

-

61.4

1994-95

-

25,300

10,400

9,060

5,940

22,100

3,250

2,000

-

66.3

1995-96

-

25,800

10,600

9,090

6,120

22,500

3,320

2,130

-

72.0

1996-97

-

25,700

10,400

9,110

6,200

22,400

3,280

2,080

-

73.7

1997-98

-

26,200

10,600

9,310

6,330

22,800

3,390

2,120

-

79.5

1998-99

-

26,900

11,400

9,130

6,440

23,300

3,670

2,350

-

88.0

1999-00

-

..

..

..

..

..

..

..

-

..

2000-01

-

29,300

13,900

8,530

6,830

25,300

3,950

2,880

-

105.6

2001-02

-

28,600

13,700

8,140

6,760

24,500

4,090

3,000

2002-03

-

28,900

2003-04

-

2004-05

-

2005-06

-

107.0

24,700

4,190

3,040

-

111.7

28,500

24,500

3,950

2,960

-

117

30,300

26,000

4,250

3,330

-

123

-

31,100

26,900

4,160

5,100

3,590

-

138

2006-072

-

31,800

27,300

4,520

5,590

3,770

-

150

2007-083

-

32,300

27,600

4,710

5,790

3,890

-

160

2008-093

-

30,900

26,700

4,240

5,280

3,560

-

150

2009-103

-

29,300

25,300

4,040

5,010

2,910

-

141

1

14,600

7,930

6,380

For years up to and including 1989-90, married couples were counted as one taxpayer and their incomes are combined. Since 1990-91, husbands and

wives have been counted separately. 2 3

This is the latest survey year Projected, in line with Budget 2009.

328

HM Treasury contacts This document can be found in full on our website at: hm-treasury.gov.uk If you require this information in another language, format or have general enquiries about HM Treasury and its work, contact: Correspondence and Enquiry Unit HM Treasury 1 Horse Guards Road London SW1A 2HQ Tel: 020 7270 4558 Fax: 020 7270 4861 E-mail: [email protected]

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