A few minutes ago the Chancellor made a statement to the House of Commons setting out how the Government would dig itself out of the mess created by the Prime Minister when he abolished the 10p tax rate.
The doubling of the 10p rate created around 5.3 million losers, and their average loss was around £120 per year. To compensate for the 'average' loss, the Chancellor has therefore announced that the personal tax allowance for 2008/09 will rise by £600. Since the basic rate is now 20%, this will save most people 20% of £600 or £120. Gains won't only go to people who lost through the 10p rate, but also to basic rate taxpayers. To avoid higher rate taxpayers gaining, he is cutting the starting point for higher rate tax by £600. Because it will take a while to legislate and then issue new tax tables, people will get a £60 boost to their pay in September and then an extra £10 per month for the rest of the year.
Key points are:
- the cost of this is £2.7 billion, which the Government is simply going to have to borrow;
- although there will be 'average' compensation, 1.1 million families will still end up out of pocket, though not by as much as they would have done;
- there are no promises for next year - it is one thing to find the money for a one-off bail-out, but that is a very different matter to finding £2.7 billion year after year; the Treasury will be very busy between now and the Autumn identifying low-profile 'stealth taxes' they can use next year to make up the shortfall so that the allowance changes can be made permanent.
In terms of straight arithmetic, the announcement takes most of the sting out of the issue, and Frank Field has even apologised in the House this afternoon for being 'personal' in his campaigning. But I have my doubts that the electorate will want to praise the Government for coming up with a rescue package to largely undue the damage that they caused in the first place and which they pretended for a long period did not exist at all...
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2 comments:
I have a novel idea - government spending could be cut!
I think we know a few areas where this would be very easy. How about ID cards?
They could scrap the functions of the DTI rather than reshuffling them.
There's many many Quangos out there which serve no useful function too, and if they went the whole hog and simplified the tax system and regulatory system then less need be spent on compliance.
And lets not forget Iraq, although perhaps some of the money would be best redirected towards Afghanistan and supporting those sent to die for the government.
Quite agree - ID cards are likely to be an expensive waste of time and money, and also agree that a lot of what the DTI (now DBERR) does is not necessary. As for the huge amounts that have been spent so far and continue to be spent in Iraq...
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