Should the 10p tax rate have been scrapped?

April 21, 2008

darling1.jpgA possible Commons rebellion by Labour MPs next Monday over the scrapping of the 10p starting tax rate has been averted but the episode has further damaged the standing of Gordon Brown.

In 2007, in his last budget as Chancellor, Brown abolished the 10p rate as he reduced the standard income tax rate to 20 from 22p and reformed National Insurance thresholds. Many backbench government MPs felt that hitting some of the poorest sections of the working population in such a way was an affront to their basic Labour principles.

Chancellor Alistair Darling at first rejected demands to compensate those worst hit, like the under-25s who earn less than 18,000 pounds or those who work fewer than 16 hours a week and who therefore do not qualify for tax credits. “I cannot re-wind the budget,” he points out.

But with local elections coming up on May 1, the need to head off rebellion was urgent.

Do you believe abolition of the 10p rate should ever have been considered by a Labour government?

28 comments

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The question is (perhaps deliberately) the wrong one. It should properly be “Should the 10p rate have ever been introduced and, having been introduced, should it have been abolished in a way which causes the low paid to pay more tax?”

The plain fact is that the 10p rate was never needed for its supposed purpose of relieving the tax burden on the low paid, as the logical way to do this is simply to increase the tax threshold to an amount high enough to keep pensioners and other low earners out of poverty. Having been introduced, it should only have been abolished if the threshold had been raised by an amount sufficient to offset the negative effect on low earners.

The Brown way of imposing tax is the Socialist way, ie everyone pays tax on income above a ludicrously low threshold, then some of them have it returned in the form of tax “credits”, which are within the gift of the government so can be used both as a means of disguising the total amount of tax taken and as a carrot-and-stick means of obtaining information and controlling behaviour. The direct result of Brown’s efforts is that the UK has the largest and most opaque tax manual in the world which, for every pound collected, is also the most expensive to administer.

In countries with more progressive tax systems, everyone keeps a realistic untaxed portion of what they earn, then are taxed at a flat rate on everything they earn beyond that. The problem with those systems, for the likes of Brown, is that they are easy to understand and simple to administer, so there is no opportunity to tax by stealth or to use financial means to control behaviour.

As for the Brown/Darling double-act and the so-called “rebellion” against them, the hypocrisy of all concerned
turns the stomach.

Posted by Mike T | Report as abusive

These politician aren’t silly. Come on, how else is money going to squeezed from the middle class and poor? The Government hs got it’s priorities right. It has to look after the politician’s pay packets and the rich (not necessarily the ‘upper-class’) who help keep them there – directly or indirectly. As if the ‘rich’ are going to foot the bill. How dare the Government tax them at all! There are still enough of the ‘middle class’ and ‘poor with some money’ to get the cash the Government needs. Is this why the rich are getting richer and the poor poorer and the middle class shrinking?

Posted by Conscientious Observer | Report as abusive

The abolition of the 10p tax rate will succeed in locking even more people into the client state as tax credits become even more attractive. I find it astonishing that Labour MPs on Tyneside think that the answer to low pay is to shift more civil servants away from London, rather than reinstating the 10p rate.

I HAVE VOTED LABOUR FOR 58 YEARS, NEVER AGAIN WILL I VOTE LABOUR. THE OLD PARTY YEARS AGO PUT POOR PEOPLE FIRST ALLWAYS, ALL WE GET NOW FROM LABOUR IS TALK TALK TALK BUT THATS ABOUT AS FAR AS IT GOES,
WHEN THE WAR FINISHED IN 1945 MILLIONS WORKED THIER HEARTS OUT FOR WHAT. GORDEN BROWN IS BEYOND ANY DOUBT THE ENEMY OF THE WORKING CLASS, HOWEVER MAKE THE MOST OF IT GORDEN YOU AND YOUR PARTY ARE ON THE WAY OUT, MANY MILLIONS HAVE SEEN THE LIGHT OF DAY. YOU HAVE DESTROYED THE LABOUR PARTY MR BROWN MAY GOD FORGIVE YOU

After watching some of the debate and hearing the finance minister speak, I gather there’s going to be a consultation about the 10p tax rate. Clearly they haven’t got the message YET that some of us are very unhappy at the loss of funds when utility bills, food, diesel/petrol have risen significantly in recent weeks. I think the actions are a scam and an insult, further giving little regard to those of us who are already struggling and will struggle further. I work part-time as I have caring commitments towards elderly relatives. If I decide to work more hours this will put extra pressure on the social care network and the NHS. Or perhaps I’ll give up work altogether to care for my family – and go on benefit – something I have never done in 40 years of working life. Why should I support the rich ? And this is happening under a LABOUR Government – the party of the ordinary person. Apparently this bill affects one in five of us – not exactly an insignificant number of people. Maybe Labour will find that out when it comes to the General Election !!

Posted by Mary | Report as abusive

The low paid disproportionately support the Labour party and thus favour exhorbitant state spending, under the usual assumption that somebody else will foot the tax bill and they will enjoy redistribution via benefits and services. I find it satisfying that Labour’s wasteful spending has become so excessive that it now has to soak its own support base for tax revenue. The only way that core Labour voters can be weaned off their support of Labour’s wasteful spending is if they are finally and belatedly made to pay a small part of the bill. Frankly, it serves them right.

Posted by Chris | Report as abusive

It should be clear to everyone, even the ‘slow on the uptake’ Labour back benches, that Brown’s last attempt at a budget was little more than a panic driven knee jerk in response to Tory tax proposals.

Something to grab the headlines on the day, but never thought through.

What it shows, apart from the usual incompetence, is Brown’s utter contempt for the very people that Labour pretends to represent.
Pensioners, like myself, and the low paid workers.

Posted by John Ball | Report as abusive

A friend on a DOD pension has received a letter stating her increased pension. With the 10 pence tax removed, she is £7 a week worse off than last year.

Posted by Hank Wade | Report as abusive

I government has become blind and obsessed with it’s own importance.

It lurches into chaos!

Posted by Keith M Warwick | Report as abusive

The Rich and Powerful are running away with all the money, it’s time to take the cap off national insurance. With the abolition of the 10p tax rate, the ones who are really hurt are those with a small Company Pension and drawing the State Pension and in no position to claim any supplements.

Posted by William Fowler | Report as abusive

the words lost and plot spring forward. is the leader not the same person who introduced the 10p rate as an innovative way forward(temporarily it seems now)

Posted by Appitt | Report as abusive

So the Labour rebels are standing up for their beliefs and trying to represent the poorest in society? Perhaps they could have used that thinking 12 months ago when they cheered Browns final budget and with it the tax changes, which seem to only come into focus this month as the reality of the changes finally takes place.

Labour have lost the plot on the front benches, and the backbenchers have surely not shown themselves at being any more able to read something and form an opinion of it – not until there’s been some public opinion on it at any rate. 12 months down the line at that!

Posted by Grant | Report as abusive

What I find incredible about the whole 10% thing is why it took so long to hit the headlines! As soon as Gordon Brown theatrically announced the 20% tax rate you knew he would take it back somewhere. It was obvious at the time that removing the 10% tax rate was the answer.

It was perfectly obvious that the lower paid would be hit so where were those Labour rebels then.
? You could do the sums on a fag packet or maybe it is just that they didn’t listen having been taken in by Gordon’s 20% “three card trick”. Quite a disgraceful act for a Labour chancellor and one for which he should not be forgiven.

Oh yes and don’t forget the higher than normal hike in the National Insurance upper earnings limit as well.

Posted by Melvyn Pye | Report as abusive

betrayal of all their so called primciples. and what about the retired women below 65?

Posted by hall | Report as abusive

Abolition of the 10p tax band is the finest thing Nulabour have do so far. It is about time the people who voted for this bunch of clowns got screwed the same as the rest of us. I am sorry for the genuine poor; pensioners and low paid workers (I’m one of them) but if this shows this lying, thieving bunch of twisters up for what they are it will be worth a little suffering. This is a nail in NuLabours coffin and the burial service cannot come soon enough for me.

Posted by Bob | Report as abusive

What frightens me is that, like so many decisions made by this government, they couldn’t have thought through the implications of the changes they proposed. What’s worse, in this case they had a year to think it through and clearly didn’t. As I say every decision they have made appears to lack any foresight.

And I have just realised that Brown has taken back my winter fuel allowance, in spades!

Posted by William Fowler | Report as abusive

I can’t understand why anyone is surprised by the actions of politicians these days. They earn huge wage packets and surprise surprise are one of the very few jobs which can retire on a final salary based pension…..why? Because they are smart! They are looking after themselves! None of the parties have a genuine concern for Britain’s future, they only want to preserve their wealth and lookk good during their own power reign.
PS. To all those labour supporters who complain about the rich not paying their fair share etc etc, yu precious labour politicians are among those rich!!

Posted by Iain | Report as abusive

I did not vote for Labour at the last election but perhaps I can be blamed for this Government’s policies in some other way! I have a state pension and two small company pensions. My total income from all sources comes to less than £14000 a year and I qualify for Council Tax benefit. Although the press recognised the day after the Budget that the poor would be worse off, those MPs who supported the Finance Bill seemed to be unaware of this until the 11th hour. It was also claimed that pensioners would be BETTER off. Today I received notification of an annual increase in one pension but the tax for April is 50% more than it was for March, in effect a substantial REDUCTION of this pension. There has been no change in my tax code.

Posted by Marion Pope | Report as abusive

I have been a supporter of Labour for years and years but not anymore, i am working 2 partime jobs ones i love and support the community, i pay base rate on the 2nd income and now loss of £28.00 per month on my taxable job.
The only people who are hit are the poor and low income bracket and with everything else going up, Mr Brown lives in cloud cuckoo land i do not get any benefits at all i own my own home with a mortgage and no dependants so how will i benefit……………i will not………..its a disgrace….

Posted by Holly | Report as abusive

There are always going to be winners and losers, and unfortunately this time it looks like it will be the lowest earners that suffer the most. I’m all for tax simplification, but is this the best way to do it?

http://www.thebusinesslounge.co.uk/index .php/10-tax-rate/

That article suggests that someone earning £7,665 would be the hardest hit.

The introduction of the 10p rate was fine. It gave relief to those just above the personal tax threshold and ensured the low paid did not jump straight into a 22% tax band. So, a high personal tax allowance took the poorest out of taxation and the 10p rate gave relief to those just above it. At the same time the quite well off people paying tax at the standard rate or higher benefitted by having both of these allowances.
The problem now is that the quite well offs have the benefit of a reduced standard rate from 22% to 20% and this more than compensates them for the loss of the 10p tax band, which is wholly paid for by the 5.3 million of the poorest paid. This is unfair. The poorest do not benefit…they suffer.
There used to be a great claim in the 70`s and 80`s that the Labour Party had never reduced the standard rate of tax, only incresed it…it was after all the party of higher taxes. I regret to say that Gordon Brown is fighting old battles in his desire to reduce the standard rate to 20%, even at the expense of the poorest in the country.
It is good to know that he feels the poorest in the country can pay more while at the same time, through the Treasury, supporting the bail out of the banking system by putting billions in for the banks` bad debts, the very banks that got us in to the trouble we now face.

Well why are we surprised? Action is only now being taken because Labour MP`s are afraid of losing their jobs. Some have consciences, like Frank Field…good for him….but why only 39 prepared to sign an amendment to the Finance Bill? How can the others be prepared to let the Chancellor say he will look at the issue over the months to come, when all the time poor people are losing money? Do they think 5.3 million people will forget this matter when it comes to voting time? No wonder the population is disaffected with politicians. But I can assure you that the Government`s handling of this issue will get the voters out in droves..but not to vote for them.

Posted by glenn | Report as abusive

Brown and his supporters in the government are not only breathtakingly arrogant, they are dishonest. They bang on about lifting people out of poverty (but only those who fall in groups deemed worthy by this government, ie people who depend on state benefits). They do not even admit that the scrapping of the 10% tax for the poorest is an injustice. Why did Brown and his croonies not double income tax for everybody? Dishonest.

Posted by Christine | Report as abusive

someone was once sold out for twenty pices of silver.
brown will sell out his goverment for 10p.
from the 5 million voters with low income at the next
election.

Posted by pauld | Report as abusive

I think that this 10 pence increase in tax is disgusting. I will be over £100 a year worse off, as I have a very small private pension, which was much reduced by insurance companies investing in stocks and shares as it was. It would have been better for me not to have saved to make provision for my old age. It is the lowest income familes who are not in receipt of state benefits who are suffering the most as a result of this change in the 10 pence tax payment. I for one am really angry that I shall be worse off by such a sum, especially as my electricity, gas, food and fuel costs are rising at an alarming rate, these expenses take up the majority of my expendable income, leaving me with no way of saving for emergencies.

I find it astonishing that the party has abandoned its roots and become gift aid for the wealthy. As labour member for many years i feel i must resign my membership. I live on state pension and a small personal pension the rise in tax has totaly wiped out my cost of living rise on both pensions plus i will be paying over £100 more tax than last year

Posted by Ross Llewellyn | Report as abusive

I seems that over-65 higher rate taxpayers will be paying more tax as a result of the U-turn. They will not receive the £600 change in tax allowance, but will be liable for the reduction in higher rate threshold.

My wife is a retired lecturer and has already felt the brunt of this disgusting tax change. She is now losing 51 pounds per month. Her teachers pension was only originally 139 pounds per month! We moved out of the country because we could not afford to live there. It seems that she will still be paying for the well off, even though she worked all her life and never claimed benefit. She was too angry to post this herself and has been a lifelong Labour supporter. NOT ANYMORE.

Posted by peter johnson | Report as abusive