§ Before coming to the rates of income tax, I must refer to one other proposal—which will not be unexpected. In 1969 my right hon. Friend who is now Home Secretary took measures to curb excessive personal borrowing by withdrawing the tax relief on interest for private borrowings except for specified purposes. These measures were cancelled by the right hon. Member for Altrincham and Sale in 1972. We have never wavered in our belief that my right hon. Friend's legislation was right, and I believe that the experience of the past two years has proved our case to the hilt. It is obvious nonsense for the Exchequer to subsidise inessential borrowing at any time, let alone in the current state of the economy. In the past two years, it has been a factor in the excessive growth of the money supply. I therefore propose to include in the Finance Bill provisions broadly reintroducing the 1969 legislation, but with two material differences.
§ The first relates to tax relief on mortgage interest paid by owner-occupiers. At the present moment, when there is a universal shortage of housing for ordinary families, there can be no justification for giving tax subsidies for the provision of luxury houses or second homes. I propose, therefore, that in future an owner-occupier will be entitled to relief only for a loan to acquire or improve his principal place of residence, and the relief will be limited to the interest on a mortgage up to £25,000. This is a generous limit indeed, some may think it over-generous—but on practical grounds we need a single limit for the whole country and one that can reasonably be expected to stand for some time.325
§ The other difference from the 1969 legislation relates to interest on overdrafts. In 1969, relief was allowed on overdraft interest so far as it related to qualifying purposes. This was an easy condition to take advantage of, and I propose, therefore, that this time there should be no relief for interest on overdraft facilities. If a loan is to qualify for relief, it must be tied to a particular qualifying purpose.
§ The new conditions for relief will apply to all loans taken out after today. Interest on existing loans will continue to qualify for relief as at present for a period of six years, with the exception of overdraft interest. This will qualify for relief up to the end of 1974–75. I estimate the tax yield from these proposals at £20 million in 1974–75 and £100 million in a full year.