Date: 16 May 2008

10p Tax Band

Regular readers of this column will know that I have written several times about the removal of the 10p tax rate and how it hit the lowest paid hardest. Along with so many people, I was shocked to see the effect on people’s pay packets, particularly at a time of rising prices. Young nursery nurses, shop workers, apprentices – all worse off.  I received many requests from people wanting to know what the Conservatives could do to stop this. I replied to all of them that we would never have put them in this situation in the first place and that we were pressing the government to change things and forcing votes in Parliament to make sure that they were compensated.

The problem with what Gordon Brown announced in the 2007 Budget is that most people ended up paying less tax due to the reduction in the basic rate of income tax from 22% to 20%.  But some people – over 5 million of them – earning up to £18,000 a year ended up paying more tax due to the abolition of the starting 10p tax band. By abolishing this 10p band Mr Brown was robbing Peter to pay Paul for that reduction in the basic rate.

Now the new Chancellor, Alistair Darling, has finally told us what he is going to do to compensate those 5 million people who were worse off. My first reaction is to welcome the announcement and say thank goodness that at last he has listened to us. I had said to many people that the 10p tax band should only ever have been abolished if there was a corresponding increase in the amount that can be earned before starting to pay tax – the tax free personal allowance. This is what the Chancellor has now done, which is good news.  However, it’s not all positive.

It’s very disappointing that the proposed changes are only for one year. I hope that the Government can be convinced that if people need the help this year they are almost certainly going to need it next year, and the year after. 

There are also still some losers.  The very lowest paid still end up worse off because they don’t benefit from the reduction in the basic rate.  Someone earning around £7,500 who doesn’t have children is £32 worse off this year as a result of abolishing the 10p tax band.  Whereas, someone earning £40,000 is £120 better off after this week’s new announcement.  It is not right that the lowest paid are still hit by this move.

Finally, it is a sign of the Government’s desperation that only ten weeks after a – presumably – carefully planned and costed Budget, they are now giving away tax in one area without balancing it with a raise it from somewhere else. That means it will cost us all a lot more in taxes to pay for the interest on the extra £2.7 billion the Chancellor must borrow to fund this giveaway.

One thing I know from costing policies for the Conservative Party is the rigour and detail that goes into costing any new idea or policy.  And this is the Government that can’t find the money to keep our Post Offices open or to back date police pay, but can find it for a super-soaraway tax giveaway to 22 million people.  I’m all for lower taxes, but only when the country can properly afford it, not just because the Government might lose a by-election.