Chancellor Alistair Darling tried to lay the ‘10p losers’ tax campaign to rest on Tuesday by raising the personal income tax allowance. It’s hard to believe how incompetently this has been handled.
By raising the personal tax allowance from the £5,435 announced last November to £6,035, Darling hands basic rate taxpayers £120 each (an extra £600 of tax-free allowance saves that much at 20% tax) - £60 of which will appear in their September pay packets and the rest in £10 monthly instalments after that.
He claims 22 million beneficiaries, and that of 6 million households who were losers under the previously announced plan to eliminate the ‘starting rate’ of income tax at 10%, 4.2 million will be winners, 1.1 million will claw back half their losses and 600,000 will escape the tax net altogether.
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No gains for high rate taxpayers
But to add to the confusion, Darling will also lower the threshold for 40% tax from £36,000 to £35,400 so that higher rate taxpayers’ gains from the higher personal allowance are wiped out.
People over 65 had already had a big rise in their personal allowances, so they don’t get any more this time round.
The whole packages costs £2.7 billion, and since the government doesn’t have it and doesn’t dare to increase any other tax to meet it, the cost will be met by increasing government borrowing.
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18 months to get the sums wrong
What is quite unbelievable about this is that the abolition of the 10p rate was announced in Spring 2007 by the then Chancellor Gordon Brown. It was confirmed by Darling last November and again confirmed in his March Budget - yet it was only after this that a group of Labour MPs headed by Frank Field pointed out that millions of low-paid people would be losers from the change.
The Treasury had, it seems, simply failed to do its sums, and after flannelling for weeks Darling caved in and made these changes.
In the meantime, millions of tax tables have been printed, tax codings prepared and all employers’ PAYE systems programmed with the allowances announced in March. So, masses more work all round to cope with the changes, which I’m sure will produce the usual quota of cock-ups.
I can’t remember the last time a significant change to personal taxes was rushed through like this after the Budget proposals were announced.
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Darling should have waited
The whole point of pre-announcing tax changes - as Brown did with the 10p rate last year - is that because the tax credits Brown introduced have made the system so complex, it takes the taxmen about a year to programme the changes into the computers. So making last-minute changes like this is about as good an indication of incompetence in government as you can get.
Darling could have waited until this autumn to announce compensation for the ‘10p losers’ in next year’s Budget. The fact that he did cave in now owes more to Gordon Brown’s weak position as Prime Minister than to any desire to ‘get it right’ – if that had been the motive, the government had a whole 18 months to get it right before this.
It confirms my belief that Brown was simply a lucky Chancellor but that in today’s tougher economic conditions, Labour doesn’t have a clue about how to manage the national finances.
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