Labour’s income tax reforms, 2008

Although I cope, when I look at tables, P60s, payslips, &tc I slightly panic. I find reasons not to read the Business section of the Observer, which is the only paper I read (besides The Sun and the London Paper, but they don’t really count). It’s pretty pathetic and it’s one of the reasons I don’t write about tax even though tax is one of the most elemental aspects of any civilisation (maybe not the oil states). As you would gather from this, I have enough money. But this evening I realised I should really know what happened with the tax reforms last month so I had a bit of a look.

This recent budget, former Chancellor Gordon Brown had already decided that Chancellor Alistair Darling decided to scrap the 10p starting tax band (£5,435 – £7,755 I think) would be scrapped in order to fund a reduction in the 22p basic rate band down to 20p (22 million pay no more than this basic rate which is £8,955 – £36,000). The reason Darling did this is that he wanted to be able to say that basic rate, at which most people pay most of their tax, was the lowest in 75 years and that Labour had made “a family tax cut that provides support for those on middle incomes”.

Trouble is 5.5 million of the poorer households from this were going to lose an average of £120 per household, but the poorest households were going to be up to £232 worse off. Meanwhile food and fuel prices continue to rise (fuel by several hundred %) and great swathes of the population are ending the interest-free period of their mortgage repayments this year and in the coming couple.

There was a revolt from the Labour back benches, led by Frank Field.

Darling made adjustments. He decided to borrow £2.7 billion (our borrowing this year is now forecast at £46bn) in order to fund a raise in the personal (tax free) allowance by £600 from £5,435 to £6,035 for the year beginning 6th April 2008, meaning that 22 million people will gain an average of £120 and 600,000 people on low incomes will be taken out of tax altogether.

At the same time the higher rate threshold (at which people move from paying basic rate to the highest 40p tax band) was reduced by £1,200 from £36,000 to £34,800, meaning that 150,000 more people would make some contribution at this rate.

The Conservatives point out that, and Darling concedes, that only 80% of those who originally lost from the withdrawal of the starting rate are compensated. 1.1 million of the lowest earners on between £6,036 and £10, 050 will only halve their losses and will be charged an average of £112 more this year. It’s not clear whether they can claim money elsewhere in tax credits (this is fraught – hard to administrate and undignified for claimants) but these people – 1.1 million of the poorest – are the losers. This is nuts for a Labour government.

Newsnight is showing pictures of the injuries of members of the Zimbabwean Movement for Democratic Change who have been terribly beaten and tortured by Mugabe’s JOC central committee. Burns. Buttocks and palms beaten with rods to expose muscle and bone. China thinks it’s lost 50,000 people in the Sichuan earthquake. Myanmar estimates stretch to 100,000, many of whom are dead because the junta stopped aid workers from doing their work. The UN is currently working at only 20% capacity.

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One thought on “Labour’s income tax reforms, 2008

  1. Just a small detail.
    It was not Darling who introduced the 10p tax change. It was in last years budget introduced by Gordon Brown when he was still Chancellor.
    As i blogged last August:
    “spare a thought for Darling – he is the one person in the UK who cannot blame any cock ups on his predecessor”.

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