Tuesday, 8 April 2008

Brown Defends 10 per cent tax rate cut

Gordon Brown has made it clear that he intends to stand firm against the growing revolt by Labour backbenchers against the abolition of the 10 per cent tax band which will hit many less well off voters. Of course, the problem for the prime minister is that if he backs down he will look weak and be accused of a 'U turn', a piece of political vocabulary which actually discourages ministers from admitting they have got it wrong and making sensible adjustments to policy.

The real problem is that if a substantial change was made in the budget package the Government would have an even bigger shortfall in the public finances than it does already and finding the money elsewhere would be equally unpopular. Ever since the days of Mrs Thatcher politicians have seen reducing the standard rate of income tax as a test of their political virility. Given that voters do not expect to see public services deteriorate, taxes are then piled on elsewhere - and these taxes may be less fair and more inefficient than an increase (or at least a steadying) of the standard rate.

Labour backbenchers are hoping for some 'concessions', but these are likely to be marginal. Given offsetting tax credits (although not all those entitled to them claim them) working families with children may not be hit that hard. However, single persons and childless couples who were beneficiaries of the 10 per cent band will take a hit. There is an argument that they have been neglected by tax policy as a result of the understandable attempt to help families.

According to the Institute of Fiscal Studies, there are 2.2m single working people who will take a hit. Other losers include 500,000 non-workers who may be on incapacit benefit or early retirees and women pensioners aged 60-64. Why give the opposition an opportunity to appeal to people who might otherwise be disposed to vote Labour?


Justin Greaves said...

I agree. It seems at times that Labour are only interested in reducing child poverty and not poverty as a whole (surely the latter should the objective of a truly progressive government?). I am not convinced, however, by Dave's attempts to be the friend of the low paid. After all, he should be looking at ways to reduce taxes on low earners (perhaps by increasing the personal tax-free allowance?)as opposed to helping the very rich via his policy on inheritance tax. Incidentally, Dave also says that money gained through increased environmental taxes should be put into a 'family fund' to allow tax cuts elsewhere. It sounds to me, therefore, that the Conservatives would concentrate policy on families and children just as much as Labour. The only difference being they would probably go back to a so called 'golden age' of rewarding marriage in the tax system.

Wyn Grant said...

There are some reasons for focusing on families and children. The time anyone's budget is under greatest pressure is when they have young children. And there is a general societal interest in people having children for demographic reasons. Nevertheless, I would accept that the balance has swung too much against single persons and childless couples because they do not have anyone to articulate their views in the way that families do. Whether Dave is really the new friend of the low paid is certainly open to question.