§ Mr. Peter Rees
Income tax is charged on total income regardless of the source, and there are difficulties in distinguishing the proportion of tax relating to income from any one source. The following estimates have been prepared on the assumption that earned income represents the bottom slice of taxable income, and that charges such as mortgage interest relief—but not personal allowances—are deducted first from investment income, with any excess allocated against earned income. They relate to the tax due from the income of taxpayers in the fiscal years mentioned, not to revenue received by the Exchequer as the latter is not categorised by basic and higher rates or by type of income.
On this notional basis, the estimate of tax on earned income due at the higher rates is about £1,220 million in a full year for 1978–79, and £1,040 million for 1979–80. The rate of inflation, as measured by the retail prices index, was 10.1 percent, from April 1978 to April 1979, and 21.8 per cent, from April 1979 to April 1980.