Monday, 21 April 2008

Budget Blowback

The big news story this past weekend is surely the angst of Labour MPs directed at Gordon Brown over the abolition of the 10p starter income tax band. 6 Parliamentary aides have expressed serious anxiety at the change (one of which has to be persuaded by Brown not to resign over the issue) and even David Blunkett has spoken out. Brown is said to be angry that this flared up while he was in America, as if public objection to Government policy should only be shown while he is in the country. Downing Street has made it clear there are no concessions to be given such as increased tax credits despite (Treasury busybody) Angela Eagle’s comments to “watch this space”. Chancellor of the Exchequer Darling has said that he cannot re-write the Budget but that in future budgets it might be possible, which for me doesn’t exactly sound like reassurance for those who lose out as a result of the changes.

The thinking behind the policy is that it pays for a tax cut for Middle England who get a 2p cut in their income tax. It also gets the added benefit of giving the pensioners a one time only increase on their winter fuel payments. Unfortunately it has the side effect of doubling tax on the lowest paid. The Government has argued that the band abolition isn’t that bad since those who lose out immediately can offset it with tax credits. All fine and dandy you’d think. Well that would be true, if you are in a position to claim them. Not everyone earning below a certain level of income can claim them. People like me for example. I have no children and work less than 30 hours a week, therefore I don’t qualify.

I don’t consider myself a burden upon the country. If anything the Government must surely make a profit on me since I barely use public services. Ive used health services twice in the last 5 years and both times were blood donations. I do not rely on welfare of any kind and I follow the rules, however stupid they may well appear and yet I have to pay double income tax so that the middle earners can keep more of their money. What gives?

There is an easy solution to this, which has been around for sometime, recommended by Lord Forsyth in a report for the Conservatives a couple of years ago and which is sensible, cutting back heavily on administration and streamlining the tax system hugely. Abolish tax credits and kick the personal tax allowance up substantially, immediately removing the poor from the tax system. There is little logic in demanding more tax revenue from the poor, only to give it back to them in the form of tax credits, which many who can claim do not. Just cut out the middle man and let the poor keep their own money. Economically, increasing taxation at the present economic situation isn’t sound since it will slow public spending, one of the constants that has kept the economy afloat when other economies have stuttered worse.

The abolition of the 10p band is completely against Labour’s principle of helping the poor and I hope local Labour will come out and admit that the changes will leave many poor residents out of pocket. Preaching about tax credits and the national minimum wage is using the two schemes as a smokescreen and is a terrible way to treat the public who deserve honesty at this time.

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