Tuesday, May 13, 2008

Alistair Darling's statement

Never let it be said that Labour does not cut taxes. Not only has the basic rate of tax been cut from 22% to 20%, effective this April, but in a statement in the commons this afternoon, Alistair Darling announced that he was raising the personal tax-free allowance as well. This means that the allowance will have increased from the £5225 in the 2007/8 tax year to £6035 in the 2008/9 tax year, an effective increase in the allowance of 15%. Some 22 million taxpayers will benefit (far out-weighing those who were disadvantaged by the abolition of the 10p rate). Plus the increase in tax credits for people with families, announced previously, will continue to go ahead.

Some commentators have likened this to the tax rebates the US government is giving to their citizens, but the US tax rebate is a one-off, they won't get it next year. Whereas Darling's increase of the personal allowance will not only be permanent (the personal allowance will not be reduced next year - not going into a general election!), but it will continue to increase in succeeding years in line with inflation to comply with the Rooker-Wise parliamentary amendment, passed in the 1970's, which requires governments to increase the personal allowance in line with inflation unless they have a good reason not to. The only budget since the 70's that froze the personal allowance was the vicious Thatcher/Howe budget of 1981, during which he also abolished the 25p lower rate of tax that Labour had introduced in 1978, so that these low tax-payers suffered an increase to the then 30% basic rate of tax. And it all happened when the inflation rate was over 10%. The other Thatcher/Howe masterpiece was the 1979 budget when they raised VAT from 8.5% to 15%. (Tories who dare to criticize Labour on tax have very short memories indeed).

Perhaps Labour should develop this theme, and continue to increase the personal allowance/decrease the basic rate of tax and increase the higher rate to compensate. I can't see our opponents trying to reverse this in order to pay for inheritance tax cuts.

4 comments:

Anonymous said...

So lets get this right:

To try and wrongfoot the Tories last year, Brown scraps the 10p rate,to cheers from Labour MP's who are either too thick to understand the consequences or just too arrogant to believe it will be noticed.

After meltdown in the local and London elections and open mutiny from Labour backbenchers Brown is forced to back down with a massive U turn.

To reimburse the additional £630 million tax taken from those that were previously on the 10p rate,costs a staggering £2.7 billion,which of course has to be borrowed because the government long ago ran out of money.

These are the people that used to talk about uncosted Tory. pledges!

snowflake5 said...

Brown originally thought that most of the people working part-time( and therefore on the 10p tax) were single mothers and he compensated them with tax credits in his budget. Who knew there were so many single males working part-time?

Anyway, he's responded to the criticsm by giving EVERYONE a tax-break. Surely it's what the country wanted? Increased personal allowance PLUS a cut in basic rate from 22% to 20%?

Puzzled why Tories are so upset about this. I think it's because they have pledged to keep to Labour spending plans, and these tax cuts for the low-paid mean it's impossible to do what they did in 1979-1981, which was to increase tax for the low paid while cutting tax for the high paid.

Anonymous said...

I am retired and will receive the increased age related tax allowance when aged 65 - in 4 years time! The removal of the 10p tax rate meant that I was liable to pay an additional £232 tax each year. I am now liable for an additional £112 each year so will still be paying more tax to fund those on a higher salary. So much for working all my life and investing in a personal pension scheme!! The Chancellor is stating that the increase in the winter fuel allowance of £50 should also be part of the compensation package. Wrong - all retired people get the increase whilst the removal of the 10p tax rate only effects those retired between the ages of 60 - 64.

I knew last year that I would be paying more tax and felt that the removal of the lower band was a political decision to wrongfoot the opposition. Further, those on middle incomes would benefit - all good for the then Chancellor soon to become PM. I also feel that the PM sanctioned the tax changes announced yesterday to pacify the back benches (who were hit hard by local election results caused in some part by the 10p tax change)and in view of the upcoming bye election.

A review of all the press today suggests that next years budget will have to increase taxation or cut public spending. This is also based on the assumption that the increased personal allowances is for the current financial year only.

It is a mess and many people like me remain shocked that a Labour Government increased the tax burden on the low paid/income families. Yes the compensation will help some but the feeling that we have been let down remains very strong. Power creates the most dreadful complacency and arrogance.

Alan Peakall said...

Snowflake, Are you sure you are right about the only personal allowance freeze since the 1970s being in 1981? My recollection is that the 1993 budget announced a freeze of the personal allowance between tax years 1993/94 and 1994/95 which duly happened in Mar/Apr 1994, although the blow was softened by a broadening of the 20% lower rate band.