1. This clause extends the starting rate of income tax to income from savings with effect from 6 April 1999. As a result the first £1,500 of income received by an individual in 1999-2000 (£1,520 in 2000-01) will be taxed at the starting rate of 10 per cent, whether that income is from earnings, a pension or savings.

2. This change was announced in the Pre-Budget Report on 9 November 1999.

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3. Sub-section (1) provides that section 1A of the Income and Corporation Taxes Act (ICTA) 1988 shall be amended.

4. Subsection (2) inserts a new subsection (i) into section 1A(1)(b) of ICTA 1988. New subsection 1A(1)(b)(i) has the effect of including savings income within the starting rate band as defined in section 1(2)(aa) ICTA 1988.

5. Sub-section (3) inserts a new subsection (1AA) into section 1A of ICTA 1988. New subsection 1A(1AA) removes from the definition of "savings income" to which the starting rate band might apply by virtue of new subsection (1)(b)(i) income taxable under Schedule F and equivalent foreign income. This is because such income is already taxed at 10 per cent up to the basic rate limit in accordance with section 1A and section 1B of ICTA 1988.

6. Sub-section (4) is a commencement provision. The changes have effect for 1999-00 and later years.

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7. The 10p starting rate of income tax was announced by the Chancellor of the Exchequer in his 1999 Budget. It came into effect from 6 April 1999 and applies to the first £1,500 of an individual’s taxable non-savings income in 1999-00 (£1,520 in 2000-01).

8. As announced in the Pre-Budget Report on 9 November 1999 the starting rate is being extended to savings income (as defined in section 1A of ICTA 1988) with effect from 6 April 1999. As a result, whether an individual has income from earnings, a pension or savings the 10p starting rate will now apply to the first £1,500 of their taxable income in 1999-00 (£1,520 in 2000-01). Savings income above the limit for the starting rate but within the basic rate band will continue to be taxed at 20%.

9. About 2.5 million people will benefit from this change, including 1.5 million pensioners. The average they will gain is about £60 per year.

10. Extending the 10p rate to savings income will cost about £110 million in 1999-00.

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