5 April 2008

About 48 000 households in Cornwall worse off

Labour argued for and introduced a 10 pence income tax rate because, it said, it was fairer to the low paid and would make work pay and thus be an incentive to work for the poor. I think in fact that the best way to help the poor would be to raise the tax free threshold and to cut regressive indirect taxes such as VAT, but Labour chose another, less efficient way. Nevertheless Labour did act on tax and also created a minimum wage to help the low paid.

In his 2007 budget Gordon Brown announced the abolition of the 10 pence income tax rate. The change comes into effect tomorrow.

Belatedly some more Labour MPs have just realised that this abolition will leave about 5.3 million households worse off. These are largely the households without dependent children and who do not have tax credits and who have incomes of between about £5400 and £18 500 a year. Way back in October 2007 the government gave its estimate to Frank Field of how many would be worse off and even said 900 000 of those had incomes below £10 000 a year – actually the number refers to the household reference person (Hansard 18 October 2007 column 1266W).

Field was on to this unfairness at the time of the 2007 budget and tried to get an impact assessment of tax changes on different groups and transitional arrangements if necessary for those on the lowest pay: his clause was rejected by Labour MPs though a handful of six Labour MPs and most Libdems voted for it, along with a few others (Hansard 25 June 2007 column 108 onwards). Julia Goldsworthy and Matthew Taylor both voted for Field’s clause and Dan Rogerson was a teller for it.

I can estimate how many households in Cornwall are adversely affected by the abolition of the 10 pence rate by comparing the number of households in Cornwall with the number in the UK and those adversely affected in the UK. This arithmetic suggests that suggests about forty eight thousand households in Cornwall are worse off because of the abolition of the 10 pence rate. As the proportion of low income households in Cornwall is greater than in the UK generally, the number affected is probably greater too.

Labour has done much, though nothing like enough, to help the poor since 1997 while keeping the economy sound and the bulk of the electorate on side. It has wrought a sea change since the barbarian days of the Tory governments 1979-1997. Things are now beginning to fall apart. It is difficult to understand this 10 pence tax policy. Labour is making a lot of low paid people worse off and doing it on purpose. Is this what people voting Labour thought they were voting for? How does this square with the minimum wage? This policy of soaking the poor is pitiable and shameful. The government should put its mistake right and ensure the low paid are not worse off.

PS The Conservatives officially abstained in the 25 June 2007 vote.