Explaining the costings

The general approach

5A.2 Since total income and total spending at factor cost are assumed to be fixed at their post-Budget levels, the estimates do not include any effect the tax changes themselves may have on levels of income and spending.

5A.3 Other effects on behaviour are taken into account where they are likely to have a significant effect on the yield. For example changes to excise duties influence the pattern of consumer spending.

5A.4 The estimates take account of any consequential changes in receipts from related taxes. For example, the estimated yield from increasing the excise duty on tobacco includes the change in the yield of VAT on that duty, and the change in the yield of VAT and other excise duties resulting from the new pattern of spending.

5A.5 The direct effect of some tax changes is affected by the implementation of others. Where this happens, measures are costed in the order in which they appear in Table 5.1.

5A.6 In the first column of the table the pre-Budget regime is the regime of allowances, thresholds and rates of duty which applied before this Budget (including any measures previously announced but not yet implemented).

5A.7 The remaining three columns strip out the effects of inflation by assuming that allowances, thresholds and rates of duty are increased in line with prices in this and in future Budgets (again taking account of measures previously announced but not yet implemented). Measures announced in this Budget are assumed to be indexed in the same way in future Budgets.

5A.8 In calculating the indexed base we assume that each year excise duties rise in December (January for alcohol), and allowances and thresholds rise in April, in line with the assumed increase in the RPI over twelve months to the previous September. The assumptions are 3 per cent, 2 1/2 per cent and 2 per cent for September 1995, 1996 and 1997 respectively.

Notes on individual Budget measures

Inland Revenue taxes

1,3,5,6		The increases in allowances, thresholds and 
		limits are rounded according to statutory 
		rules after being increased in line with the 
		rise in the all items Retail Prices Index in 
		the year to September 1994.

2		The cost of the increase in a full year, 
		against an indexed base, is £200 million.

4		The cost of the increase in a full year, 
		against an indexed base, is £100 million.

18 - 23		The yield represents the estimated direct 
		effect of the measures with the existing 
		level of activity. Without these measures 
		there could be a more significant loss of 
		revenue in the future.

Customs and Excise taxes

37		The reduction in duty on fortified wines 
		reflects the Government's intention, 
		announced in December 1992, to reduce 
		the duty differential between fortified 
		wine and table wine.

39		This row shows the additional yield from 
		the duty increases specified compared with 
		the yield from raising duty by 3 per cent 
		in real terms as announced in the November 
		1993 Budget. Since the commitment was
		expressed in real terms there is no 
		difference between the indexed and 
		non-indexed base.

40, 41, 42	These rows show the additional yield from 
		the duty increases specified compared with 
		the yield from raising duty by 5 per cent in 
		real terms as announced in the November 1993 
		Budget. Since the commitment was expressed in 
		real terms there is no difference between the 
		indexed and non-indexed base.

44		Includes the cost of payment by instalments.

Revenue effects in 1994-95

[See printed copy for table]