Courage mes braves!
Labour MPs now have it in their power to undo some of the damage of last year’s Budget and compensate the millions of people on low incomes who are paying more tax this month than they did last.
An amendment to the Finance Bill – which retrospectively introduces the new tax rules – has been tabled by the ex-welfare reform minister Frank Field. It would force the Government to draw up plans to compensate the 5.3 million people who will lose by the abolition of the 10p tax band. Thirty nine Labour MPs have put their names to it. If they stick to their guns and the Conservatives and LibDems put their votes where their rhetoric is next Monday it could be carried against the Government’s wishes.
Frank Field says the compensation might cost £700 million which is less than a tenth of the £7.3 billion saved by scrapping the 10p band. It can be done using data provided by employers and pension providers in their end of year returns which show the earned (or pension) income of every taxpayer. So the Government knows who is below the break-even point of £15,075 a year if you pay NI or £16,505 if you do not (see NOTES below)*. So it could give all those people a one off tax rebate of up to £200 to make sure they were not worse off.
This column pointed out within 24 hours of the 2007 Budget that there would be losers from the 2007 Budget and they would all have low incomes and lots of them would be women (and men) who had retired before 65. But few MPs realised the implications of what we called then Gordon’s Tax Grab. They were probably more interested in the fact that people earning more than £41,435 a year (MPs among them) would be more than £297 a year better off. It has taken a year of constant drumming by a minority in the press – including of course Saga – to make them realise that this was a big problem. And a month of canvassing for the local elections has made them fear for their own political future if the problem is left unresolved. The the Government could of course agree to compensation before Parliament votes on Monday. But if it doesn’t it could find itself in what my mother used to call ‘big trouble’. And no-one want to be in that, believe me.
*NOTES FOR TECHIES
The change does not affect people aged 65 or more who get a one-off rise in their tax allowance to compensate them. Nor does it affect people whose income above their tax allowance is from interest on their savings. They keep the 10p rate. Some people are saying the break even point is £18,500. It isn’t. But that was the best guess when the change was announced. The accurate figure for that is now an annual income of £19,355. People below that won’t all pay more tax this year than last. But they will all pay more tax than they would have done if the Chancellor had not changed the rules.
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