10% U-turn leaves losers
Labour rebels have withdrawn their threat to defeat the Government over the abolition of the 10p tax band. Their decision came after the Chancellor Alistair Darling promised to do something for what he called "the main two groups" affected – "pensioners under 65" and "low paid workers without children".
But asked if the Government would now compensate everyone who is paying more tax this year than last a Treasury spokesman told Saga "We have never said we will directly compensate every person who has lost from the changes. That would be disproportionately expensive. What we are doing is looking at the full range of options and costing them and looking at the speed of implementation."
The Treasury is considering paying the compensation for people aged 60 to 64 by adding around £100 on to their winter fuel payment. Given that the loss faced by people on low pensions – mainly women – is between £1 and £181 this year that is a pretty rough and ready way to compensate them. And the Treasury confirmed that if winter fuel payment was raised it would apply to everyone age 60 to 64 regardless of income and whether they had lost anything. Some of those who got the extra would have already gained up to £788 a year from the tax changes.
Compensation paid through the winter fuel payment would exclude people who have retired under the age of 60. It would also exclude those who reached 60 after the qualifying date of 23 September 2007 – unless the 2008 qualifying date was used. And the estimated 300,000 men who are aged 60 to 64 but have not claimed the winter fuel payment would have to do so to get the compensation.
Younger people in work and without children will be helped by changes to the limits for working tax credit. Three groups are currently excluded from WTC – the under 25s, those who work fewer than 30 hours, and anyone earning £13,000 or more.
The Treasury is looking at the cost of relaxing those rules to allow at least some of them to claim working tax credit. One problem is that four out of ten of those entitled to working tax credit do not in fact claim it. Another is that the amount of the tax credit would be entirely unrelated to the amount lost through scrapping the 10p band.
The Government is also considering an increase in the minimum wage. The current adult rate of £5.52 an hour is set to rise anyway to £5.73 in October, though people under 22 get rather less. A further rise in the minimum wage might offset the loss for some people. But it is not clear if employers or the Treasury would bear the extra cost.
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