A million still pay more tax
Two cheers for the Government. First for admitting it was wrong (how rare is that?) and second for reversing most of the damage from the scandalous abolition of the 10p tax rate. But a big boo for the fact that even the Chancellor Alistair Darling admits that more than a million very low income taxpayers will still pay more tax this year than last. Less than they would have done. But still more.
Saga has banged on about this problem since the announcement was made in the Budget on 21 March 2007. But it took more than a year before MPs (with a few noble exceptions) and then the Government even recognised the problem. Now, at last, a solution of sorts has been found.
I missed the announcement (I knew I shouldn’t take a holiday!) but I did get back in time to hear the extraordinary confession of Prime Minister Brown talking about his last act as Chancellor Brown – scrapping the 10p tax rate. He said in an interview on Radio 4 "A mistake was made" but then rather spoiled it by adding "in not dealing with all the problems that arose from the 10p change."
Dealing with those problems has proved very difficult. The Treasury went back on its original suggestions of a £100 rise in the winter fuel payment and a boost to working tax credits. Instead the Government has decided to raise the level of the personal tax allowance by £600, putting it up to £6035. That will mean almost everyone under 65 will pay £120 a year less tax than they would have done. That will wipe out the extra tax imposed on most people with an income below £15,075 (if they pay National Insurance) or £16,505 (if they do not). But anyone whose tax has gone up by more than £120 this year will still end up paying more this year than they did last. The worst affected will still be those with an income of £7455. Their extra tax has been cut from £181 to £61 a year and from £152.40 to £32.40 if they work and pay national insurance. But they will still pay more.
No Minister has explained why a Labour Government decided in 2007 to take more tax from those on low incomes and give it to those on higher incomes. And no-one has explained why in 2008 it found a solution that leaves a million people on very low incomes still paying more tax. The £2.7 billion cost of this change will mainly go to other basic rate taxpayers who were already paying less tax this year. Surely a bit of that money could have been used to prevent any loss to those on the lowest incomes.
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