Derek Deedman

Labour MPs yesterday called off their revolt over the abolition of the 10p income tax rate after the Chancellor promised to compensate poor households who will lose out. He said he would use the minimum wage, tax credits and winter fuel payments to compensate the estimated 5.3 million families who will suffer financially from the abolition of the 10p rate. Changes, he said, would be backdated to April 2008.

However, the Chancellor has not promised to ensure all 5.3m people on low incomes who have lost out as a result of the Budget will be fully compensated:

• If he is to ensure that all people are fully compensated from the abolition of the 10p rate, the Exchequer will have to spend up to an additional £1.23bn
  
• To ensure that all 600,000, 60 to 64 year olds receive full compensation through the winter fuel allowance the cost would have to be almost doubled from £250 to £482 at a cost of £120m
  
• Changes to tax credits to compensate people would be investigated. However, currently people under the age of 25 are not entitled to tax credits. Furthermore, take up of tax credits by eligible people without children (one of the key groups who lose from the doubling of the 10p rate) is just 22%

 For people currently outside the tax credit system,  the low pay commission will be consulted on possible changes to the minimum wage:

• • The minimum wage for 16-18 year-olds is currently £3.40 per hour, or £6,630 per year (based on 37.5 hour working week)
  • The minimum wage for 18-22 year olds is currently £4.77 per hour, or £9,301 per year (based on 37.5 hour working week)
  • The minimum wage for 22 year olds and over is currently £5.52 per hour, or £10, 764 per year (based on 37.5 hour working week)
    

 To ensure that all people on the minimum wage would no longer loose out from the 10p rate, the minimum wage would have to be increased for all people to £18,500 per year - or £9.49 per hour. 

It is clear that Gordon Brown’s tax changes are now in total disarray. In a last-gasp attempt to appease its own backbenchers, the Government has cobbled together a set of half promises which will not even be properly revealed for another seven months. People who have just seen their tax rates doubled are unlikely to be comforted by the reassurance that the Government is going to tinker with an overly complex and failing tax credit system, which people under 25 aren’t even entitled to.

Many people in the Bramber Castle Division on low incomes will be worse off from these tax changes. Yesterday on Newsnight the Labour spokesperson even claimed that they were looking at how to benefit people on low incomes rather than admitting they needed to restore the cuts the Government had made to those people already low take home pay! Only the Liberal Democrats have consistently opposed this attack on low earners with the Tories abstaining on the issue when it was first announced last year. And even the Lib Dems have not succeeded in consistently highlighting in the media throughout the last year the way Labour intended to widen the poverty gap. But at last the media is taking notice that only the Liberal Democrats have the person with the right skills from a career in business and finance – Vince Cable, to address the problems caused by Labour’s ineptitude.