Robbing Peter to pay Paul
Well, the Broon government is pretty pleased with itself. It thinks it has satisfactorily bribed the electorate, and as the icing on the cake it caused Frank Field to make an abject apology. That’s bad. He had nothing to apologise for.
But let’s look at what they have done.
The Darling man has gone much further than he suggested when he said he would help the lowest paid workers. He has simply raised the personal tax allowance. On the face of it a clear and easy option, but one which will cause chaos for those people who actually handle the monthly or weekly payroll. They will need to change PAYE codes and tax systems part way through the fiscal year, and this will spell real problems for already overstretched small business unpaid tax collectors.
And is there a legal problem? Oliver Letwin has suggested this one-off tax cut could fall foul of electoral law coming as it does one week before a by-election.
The “tax cut” is being provided for by increased government borrowing to the tune of £2.7 billion. This will take borrowing very near to the Chancellor’s rule that net debt should not exceed 40% of national income.
By putting the country in hock to lenders to the tune of another £2.7 billion, it seems that 4.2 million of the original losers will be fully compensated, or better, while the losses of the remaining 1.1 million will be at least halved. (They originally lost £230, get £120 now, so will still be £110 worse off.)
As ever there are losers, and by and large as ever they are the poor sods who don’t fit that terrible description, “hard-working families”.
1.1m people who earn between £6,635 and £13,355 will be worse off, and that includes childless workers who are under 25 or work less than 30 hours, and some female pensioners under 65.
The claim that raising the personal allowance benefits all income tax payers does not quite add up. Yes, under the proposal the first £6,035 of earnings will be tax-free, and the basic rate of 20% will be payable up to £40,835. They will gain £120 this year.
But our Darling has reduced the threshold at which the 40% tax band kicks in by £600. Since this is supposed to be a one-off measure, it should be put back to its existing level, (ie plus £600), for ensuing years. Any takers that it will be?
And these changes apply only to taxpayers who are under the age of 65. So those of 65 and over, who are living on pensions grossly depleted by Brown’s earlier raid on pension funds, and on low fixed interest from their savings, will not be helped. Their plans of saving for a comfortable retirement have been well and truly hit by Labour, and now, because they do come within the tax bracket, they will be stung by this latest horror.
Incidentally, this is the first time in living memory that income tax has changed within a financial year. Panic anyone? Crisis anyone?
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