Darling raises tax allowances to compensate 10p tax victims

Developing >>>

3.49pm: Darling - Individual tax allowance up £600 but (IT SEEMS) for just one year - to £6,035.

3.49pm: Highlights of George Osborne's response:

• "Humiliating" for the Chancellor to have to make the tenth emergency statement since becoming Chancellor
• "Humiliating" to have to introduce a mini-budget to compensate for Gordon Brown's tax con Budget of 2007
• This is less like a considered statement from a Chancellor - more like a cynical press release in the middle of a by-election campaign
• What are the long-term plans to compensate people?  This is just a one-off measure - like the pre-election council tax discount.

3.55pm: Vince Cable welcomes the statement but attacks Darling for not giving him or George Osborne any pre-notification of the announcement.  He asks how many people will NOT be fully compensated by this move and urges the Chancellor to reconsider giving a rebate to people.

3.58pm: Frank Field apologises to the Prime Minister for what he said at the weekend about Mr Brown.

4.05pm CONSERVATIVEHOME'S VERDICT: Cynical?  Yes. Related to the by-election?  Yes.  Forced upon Labour?  Yes.  Even more borrowing?  Yes.  The right thing?  On the face of it, Yes.  As Lord Forsyth advocated some weeks ago: Raising the personal tax allowance was the right response to this issue.  The Tories should have recommended this option weeks ago, too.  We should now press for these higher thresholds to be made permanent.  It is right that as many low income people as possible are taken out of the tax system.

4.30pm: Nick Robinson's take: "Labour MPs are happier than they have been for weeks and the Tories, for the first time in a long time, look wrong footed."

4.43pm: Download PDF of full statement from George Osborne.

4.49pm: Guido welcomes Labour's "unfunded tax cut"!

4.52pm: TaxPayers' Alliance's response: "This 10p saga has been a mess from the beginning and this is a poor attempt to fix it. Large numbers of people on low incomes will still lose out, and even those the Chancellor says will be compensated are simply being given their own money back. It is a sorry state of affairs when taxation is pushing millions of families to the brink and the Government struggles to even make up for its own bad decisions. People urgently need Alistair Darling to make serious reductions in the tax burden, but at the moment he barely seems capable of tinkering around the edges.”

5.30pm: ThreeLineWhip: The Tories should have listened to Forsyth on 10p tax

5.59pm: From George Osborne: "What he didn’t tell us was that 1.1 million low earners on between £6,635 and £13,355 will still be worse off, by up to £112 a year. So the poorest people will still lose out."

Comments

[Chris Blore]

How typical of BBC News to cut away when it looked as though Darling was just about to be properly held to account. Osbourne had some very harsh words from the Chancellor but I'm afraid it looked as though it was Vince Cable's questions as to exactly how many of the 5.3 million affected were to be fully compensated were going to be the more telling in terms of picking the statement apart. As for the Conservatives, I'm afraid we don't come out looking especially principled from all this.

On another note, I noticed that Darling was emphasising "this year". We need to look out particularly for more fudging in the next budget!

[Daniel Furr]

What is interesting is Gordon Brown saying -in both interviews to the BBC and Skynews- that it was impossible to increase the tax allowance.

There is nothing significant in the statement and Labour MPs are stupid if they believe these fake words.

[Will Stobart]

Chris, don't watch the BBC, watch here:
http://www.parliamentlive.tv/Main/VideoPlayer.aspx?meetingId=1688&rel=ok

Personally I am dismayed at this statement, Darling is borrowing yet more in order to fund this. It will make the problem worse in the future.

[Ben Surtees]

What happened to “making the tough, long term decisions”?

This government gives short-termism a bad name! How it has the ‘brass-neck’ to try and pull off these sort of ‘volte-face’ is simply beyond me, it happened over NR, it happened over Inheritance Tax and now on the 10p rate… its simply farcical.

I assume that Gordo was there with a big gormless, grin as he tries (in an increasingly delusional manner) to convince himself he’s actually a political genius who’s just conducted a masterful tactical manoeuvre?

[Chris Blore]

Still not good enough. 1.1 million people (or there abouts) are only going to be compensated by about a half. Let's hope the media aren't going to be completely taken in by another con.

[a-tracy]

A friend earns £7500 pa, she stood to lose £180 per year which is over a weeks pay, this now gives her back 66% of her loss so it's better than nothing.

[Northernhousewife]

The average loss is compensated and only from one year. And on the back of borrowing.
BBC cut away but GO's response was to pick up on the 'one year factor'.
Did the BBC cover Darling getting a ticking off for giving the details to the press gallery but not to the HoC!

[Will Stobart]

By the way, does this affect our budget deficit even more? Perhaps we're behind Hungary, Pakistan and Egypt by now....

I don't know, does anyone have the relevant figures?

[Ben Surtees]

Chris

From what i see Nick Robinson is already lauding Darling 'wrong footing the Tories'... although i cant see the media falling for it, frankly the damage is done and all the government is doing is digging itself deeper with this.

[David]

Raising the threshold is a good long-term objective, but it will nevertheless be an expensive way of compensating those hit by the 10p tax abolition as all taxpayers will benefit.

[Stefan]

Twelve thousand dead in China, but the BBC News website immediately puts this as the top story...

[peterbuss]

I totally agree with Chris(above) - I was almost sceaming at the TV for George to ask "where is the money coming from?" Afte all the jibes over the years about "unfunded Tory Rax cuts" this was an open goal for the Tories.
Glad he asked about next year though.

[NorthernEconomist]

Not quite sure about the small print but surely higher rate taxpayers would end up paying more? If the higher rate threshold is down £600, this will cost higher rate taxpayers £600x 40% = £240, whereas the basic rate savings will only be £600x 20% = £120. So a tax increase of £120 on the higher rate tax payers?

[Daniel Furr]

The media are not buying this.

Sky are critical of the overall fiscal policy of the government, BBC are commenting on government borrowing and asking why Brown did not do this in the first place.

The BBC is extremely critical (which is a surprise.)

[Louise Bagshawe]

Surprised to see your verdict here. It was right to raise the threshold but utterly wrong to pay for it by borrowing, instead of cutting waste. And one year only? That's also wrong.

Now is emphatically not the time to deepen our debt.

[a-tracy]

BBC News "the 40p rate threshold would change so that higher earners' tax bills would be unchanged"
NE - They only need to decrease this band by £300 instead of £600 to stay neutral.

[Editor]

I agree Louise that it should ideally financed by a reduction in waste, not extra borrowing. There's plenty of waste around.

[NorthernEconomist]

a-tracy - indeed.
But:
"I am therefore reducing the threshold at which an individual starts to pay tax at the higher rate by £600."

Point 24:
http://www.hm-treasury.gov.uk/newsroom_and_speeches/speeches/statement/Speech_statement_130508.cfm

[Voice from the South West]

Editor - How can this be the right thing, when its being financed by borrowing (which we can ill-afford) and is for one year only. The government's economic policy is a complete mess; this is the point that we should be emphasising. Remember what happened the last time Labour tried to "wrong-foot" the Tories on the economy...

[Andrew Woodman]

This is shambolic. The lowest paid still losing out as Brown and Darling attempt so give another nod to middle England. People won't be fooled though with this being paid by borrowing or should I say deferred taxation.

[Alan S]

Great. A tax cut.

[Iain]

""unfunded Tory Rax cuts" this was an open goal for the Tories. "

As is the fact that Brown is now borrowing to make tax cuts, which a fundamental breach of his very tarnished 'Golden rule' which was supposed to be 'borrowing to invest'!

[Vince]

I think the Editor is right, we SHOULD welcome this but let's examine the small print before rushing to judgment.

[Andrew Woodman]

Any talk of Tory black holes is very hollow now.

[Richard]

So people who weren't hurt by the 10p fiasco will also gain from this except those on the higher rate of income tax. Seems if basic rate payers can benefit then higher rate payers should benefit too.

How should we pay for this? Spending cuts, not borrowing.

[Adam]

While the action taken to help the poor by raising the tax threshold is welcome, the government's overall fiscal position remains a mess.

The problem for us is that we don't have a coherent alternative. We should have proposed raising the tax threshold - this should have been our policy even if we didn't give exact details. When we didn't come up with any specific proposal or policy to help those on low incomes except saying that we wouldn't have done what Labour did , it's bound to look like we've been wrong footed when the government announces measures to help.

[Neil Reddin]

So the £2.7m is going onto borrowings. Who says the government is affected by the credit crunch? However, a tax cut funded by borrowing is merely a deferral of the inevitable cut in public spending … using the logic that Labour have to attack Conservative desires to see tax reduced, that would be a £2.7m cut in public services, then – all for the sake of trying to avoid a few days of bad headlines next week.

(Blogged.)

[graham p malpas]

let's just hope that the rabble at HMRC are able to produce the correct tax codings for us all. highly unlikely methinks!

[Neil Reddin]

Oops - £2.7bn, not £2.7m - bit of LibDem maths creeping in there - sorry!

[Sammy Finn]

The Conservatives should have recommended this ages ago.We failed to demonstrate that we were on the side of the poor.

ConHome is wrong to support higher borrowing to fund this. It should be paid with less spending on quangoes and press officers.

[Daniel Furr]

As Guido has pointed out;
This is a unfunded tax cut, which the government accused the Tories of wanting.

This MUST be Cameron's attack line.

[Adam]

Borrowing to fund a tax cut when times are hard is much better than borrowing to spend on public expenditure which the government has been doing recklessly. While it doubles up as a pre bye-election gimmick, a tax cut surely helps to stimulate the econmoy. And raising the tax threshold (if raised significantly) should encourage more people into work.

[David Gold]

How Nick Robinson thinks this wrong foots the Tories is beyond me. It is a Labour Chancellor who has made 10 emergency statements, this one to specifically correct a calamity of Gordon Brown's making which at the time had Labour MPs roaring their approval, and will cost billions in additional borrowing to pay for. This at a time when house prices are to fall by 10% (according to today's government report) and inflation has soared above the Chancellor's forecast of only weeks ago.
Not long for poor Darling to have to cope with this misery I suspect. Soon it will be someone else's turn to do Gordon's bidding.

[Andrew Lilico]

Err...How is it, precisely, that we have been "wrong-footed"? We said that it was good to get rid of the 10p tax band but that doing so in a way that targeted the low-paid for a tax rise was a mistake. After insisting and insisting and insisting that there was no real problem and that if there was, the way to deal with it was through benefits/tax credits, the government has finally folded like a pack of cards and don what they should have done in the first place - raise thresholds. That sounds to me like a huge, crushing victory for the Conservatives, not some kind of vague embarrassment!

[MikeA]

Is it me or is this a tax raise for higher rate tax payers?
Darling raises the 20% threshold by £600 yielding a benefit of 20% * 600 = £120 but reduces the 40% threshold also by £600. This is a loss to higher rate tax payers of 40% * 600 = £240.
So a net loss for higher rate tax payers of £120?
No-one has mentioned this.

[Louise Bagshawe]

Fraser Nelson "It's the economics of the madhouse"

http://www.spectator.co.uk/coffeehouse/701441/darling-announces-10p-tax-compensation.thtml

I'll keep a close eye on politicshome for reaction, which I bet will not be good long-term

[MikeA]

One other point. Isn't this politically sensitive change during the time of a by-election illegal?

[EML]

At the end of the day this is £2.7b more for the people of the UK, and £2.7b less for this crappy government. It's got to be good news!

Apart from the fact that borrowing is going to be even higher now ...

[Robin 'Badger' Hood]

not a tax rise for higher rate payers: at the bottom, they pay 20% of £600 less. At the top, they pay 20% of £600 more. In the second case, 20% is the difference between the basic (20%) and higher (40%) bands.

More importantly, why has the BBC failed in its balanced reporting objectives and completely ignored that this will cost future generations £2.7 BILLION.

All to win a by-election. This government is DESPERATE.

Bring on the next Polling Day!

[Iain]

"The problem for us is that we don't have a coherent alternative. We should have proposed raising the tax threshold - this should have been our policy even if we didn't give exact details."

Yes as I and others on this message board have said, the line of attack should always have been to the question 'What you would have done?' Was to have said the Conservatives want to simplify the tax, raise the tax threshold to take people out of tax, and scrap the tax credit system. Unfortunately all we got was opposition to the 10p tax band removal, that on its own just sounded very opportunistic.

George Osborne in the Commons sounded very gloating, political and shrill, not nice to listen to.

[comstock]

Good. And-to be fair- thanks for the Tories for acting like an opposition and holding the government to account on this.

Now let's hope that's enough to hold Crewe and bring Labour back from the brink.

[Umbrella man]

Osborne made me sick today. All politics. No principle.

[Oberon Houston]

Is this an unfunded tax cut?. I thought Labour were constantly blaming the Tories for that. Better keep their mouths shut in the future.

[Andrew Lilico]

Politically, the higher rate change issue is neither here nor there - though it may animate some ConservativeHome readers!

[comstock]

bold off

[comstock]

Oh dear, Oberon, you've done my usual trick.

Type out 'I must not leave the bold on' 100 times, and have it on my desk for 9 in the morning, Houston. Class dismiss!

[JH]

http://www.independent.co.uk/news/business/news/uk-faces-disciplinary-action-by-eu-for-breaching-budget-rules-817352.html

So Britain already has the worst level of borrowing in the EU, and Darling is extending the credit even further.

Not sure whether I'll get anything extra from this, but once I've worked it out, I'm sending my savings straight to the Crewe Conservative Association.

[Will]

If Darling's having to borrow more cash to pay for this then does that push him over the 40% of GDP borrowing threshold - one of the golden rules - that people were so concerned about back when Darling delivered his budget earlier this year?

[Neville]

Am I correct in thinking that our rate of borrowing has been adversly commented on by the IMF? Could the IMF impose sanctions as a result of the further increase in borrowing?
Relative the the earlier comments about the Oosborne response I note that he had no prior knowledge of the statemnt and needed to hand write the response in double quick time!

[comstock]

Presumably everyone who earns over 6 grand a year will be 120 quid (20% of 600) a year better off- whether you earn 7 grand or 700 grand.

I don't agree with higher earners gaining from a move intended to compensate the low paid.

Still overall it's a welcome move.