Are the Conservatives planning a £700m rescue package for the 10p tax victims?

It's notable that George Osborne on BBC1's Andrew Marr programme and David Cameron on Radio 4's World at One both mentioned that it would cost £700m to combat the worst effects of Labour's abolition of the 10p tax band.  Up until now the Conservatives have avoided getting into any debate about what they would do to help the low income families clobbered by Gordon Brown's 2007 Budget changes.

Before today the Tory leadership has simply concentrated on attacking Labour.  George Osborne (on Marr) accused Labour of losing its moral compass and David Cameron (on TWTW) talked of a "premeditated attack" on low income Britons.  The attacks are now being complemented by mention of this £700m figure, however.  With Parliament returning this week and discussions underway about how the Conservatives might work with rebels like Frank Field to force the Government to review policy, we may be on the verge of a Tory plan to do something positive for some of the poorest members of society.  Now that really would be something to celebrate...

PS It may be that the Tory thinking has something to do with a new IFS analysis.  This is what the IFS' Robert Chote wrote in The Sunday Telegraph (our emphasis):

"If Mr Brown wants fewer losers, he could extend the working tax credit to the under-25s and/or those working less than 30 hours. To do both would cost £2.2 billion and remove 1.2 million losers. Or he could raise the working tax credit for single people without children by 50 per cent, which would cost about £600 million and remove 300,000 losers. But there might not be much political benefit, as most constituents see the tax credit system as complex, bureaucratic and stigmatising.  A more popular way to reduce the number of losers would be to raise the personal allowance people can earn before they start to pay income tax and National Insurance. This would also be more cost-effective, as it would partly unwind the reform that created the losers in the first place. Raising the allowance by £100 would remove 1.3 million losers and cost £800 million; by £300 would remove 3.3 million losers and cost £2.5 billion; by £750 would remove almost all the losers and cost £6 billion."

Comments

[bluepatriot]

You're right. It's unlikely that they'd mention the 700 million figure if they were not thinking of some sort of compensation plan.

[EML]

I certainly hope so, it would put Labour firmly on the back foot!

[Jack Stone]

Where is the money coming from? That is the question Labour will ask and the leadership had better be able to convincingly answer it or we will be back to Tory cuts yet again!

[Tony Makara]

The tax credit system needs to be replaced because it leads to a half work/half benefits culture that means working people are forever dependent on the state. Much better than the low-waged are taken out of the tax regime altogether. Tax credits are a political measure designed to make people vote for a government that tops up their wage, all the talk about tax credits being an incentive to work is a nonsense.

[JohnfromCamberley]

At the risk of stating the completely obvious, isn't the way ahead simply to restore the 10p band and return the income tax basic rate to 22p?

So far as I understand it, this approach is revenue neutral. It's also fully consistent with our approach of not commiting to tax cuts until they are affordable. Manifestly, at the moment reducing the basic rate to 20p is NOT affordable (surely, having to stuff the lowest earners in society in order to do it is the very definition of unaffordability?). Brown's last budget was pure trickery and show-offery, utterly disconnected from the facts. Just look at the current budget deficit - what can we afford? More-or-less nothing, I would say.

We must not allow ourselves to be sucked into a political agenda that says that 20p basic rate of tax is in some way sacrosanct. All that does is further Brown's interests.

[David Belchamber]

"we may be on the verge of a Tory plan to do something positive for some of the poorest members of society. Now that really would be something to celebrate...".

Hear, hear; that really would be the way for a conservative government to sweep this shower out of office for a long time to come.

As Tony Makara says at 17.15:

"Much better that the low-waged are taken out of the tax regime altogether. Tax credits are a political measure designed to make people vote for a government that tops up their wage.."

Morally and politically correct!

[comstock]

This is opportunism at its worst. This is comming from a party that, when last in power, did more to hurt the poor than any previous government, Labour or Conservative.

[CJ]

Please see URL link to a good blog article:

http://whatrocksu.wordpress.com/

[spagbob]

"we may be on the verge of a Tory plan to do something positive for some of the poorest members of society. Now that really would be something to celebrate..."

Yay Yay Yay, definetely.

[Richard]

How about raise the tax threshold and scrap the complex tax credits system? Make things simple!

[ukipwebmaster]

John Prescott in shock announcement from 10 Downing street:
http://www.westbournemouthukip.com/toons.htm

[michael.mcgough]

Osborne is previously on record (speaking at the last annual policy summit of the Institute of Chartered Accountants) as wishing to take tax credits away from HMRC and administering them through the DWP despite the accounting problems in that organisation.
With the problems inherent in the flawed tax credit adminstration it should be discarded altogether and something more responsive and auditable developed.Brown has been more interested in his card trickery of seemingly both lowering tax take and the welfare budget by the tax credit smoke'n'mirrors.

[Caroline Strafford]

Some time ago Maurice Saatchi suggested that taxation should start at an income of £15,000 pa. It was a good idea then, and still remains so. It is simple, sound, sincere and gets rid of a welter of complicated schemes dreamed up by Labour to try and help the less well off.

[Malcolm Dunn]

Interesting that when the abolition of the 10p tax band first became an issue 'Passing Leftie' accused this blog of lying about its effect on many less well off people. Now so many Labour are pouring scorn on Darling's proposals Passing Leftie seems to have disappeared. Odd that.

[Londoner]

I really hope we are not going further into the mire of keeping higher tax rates so that we can pay more tax credits. To think that a solution to putting up tax on poor people is to give them "help" is pathetic. The solution is not to tax them!

We should just announce that the personal allowance will go to half way up the old 10% band and, if necessary, we will increase the basic rate to pay for it. The 10% band was, in reality, probably a needless and fiddly complication in the tax system even though, amusingly, my uni son with a trust fund will still benefit from it even after its abolition for the poor bloody workers because he has no earned income!

We should further say that we will radically review the tax credit system with a view to drastically cutting the tax/tax credit merry-go-round. It is absurd that people with children on up to twice average earnings have to claim these bloody things if they are not to lose out.

[m dowding]

We must get attuned to the Nation at large. Anger and pain is all around us in tax, fuel, food, energy costs and pure despair. What are we doing to tap this depth of resentment. We are pussyfooting around looking weak and grateful for the mess this bunch of endless social engineering, economic incompetents are doing to a once great nation. Find (me!) someone of such ordinairy normality that could articulate the terrible mess we are in and for God's sake DO SOMETHING constructive. As for Osborne, pleeeese! He was Useless with Marr when he had such an opportunity to be angry! Still, comfortable and secure in their own skins, our leaders' really don't have a care in the world. Wake up, the Nation is badly screwed and my own beloved Conservative Party don't seem to have a clue. Yeah, just sit back and wait for power by default. That is and wil remain a betrayal.

[Deborah]

"Still, comfortable and secure in their own skins, our leaders' really don't have a care in the world" - M Dowding is right.

People are angry and hurting and want to see someone fighting on their behalf. All they can see is politicians sitting on the sidelines, watching and waiting for the other side to fall apart.

It is time for Osborne and Cameron to get serious on this subject and show they are leaders, not just politicians. I hope they start tomorrow.

[m dowding]

Thank you, Deborah.

[passing leftie]

Interesting that when the abolition of the 10p tax band first became an issue 'Passing Leftie' accused this blog of lying about its effect on many less well off people. Now so many Labour are pouring scorn on Darling's proposals Passing Leftie seems to have disappeared. Odd that.

As I mentioned a week ago, I was on holiday. I also said that you would miss me, and it's obvious you have. The actuarial facts of the matter, as quoted, and as calculated by KPMG hold true. No one has succesfully disputed that. It's a PR nightmare, though, no doubt about it. Not much point in me banging on about the facts, though. If you don't think KPMG can calculate net tax tables, there isn't much hope for you.

[m dowding]

No input on my comments, passing leftie? Typical.I'm passionately impressed you can afford a holiday. Moron.

[Joe James Broughton]

Passing leftie - for goodness sake, go away and campaign for your party to sort this problem out.

Fact - TAXES on the low paid have gone UP.

Various ministers have been arguing that some people will be compensated through benefits. We value the principle that everyone at a given particular level is entitled to be taxed fairly in the first place - at the same rate.

It's also social engineering that your favoured groups (for example, I suspect, problem families where very little work occurs) get help whereas anyone else on a low wage is just paying more. Is that fair?

[Yet Another Anon]

At the risk of stating the completely obvious, isn't the way ahead simply to restore the 10p band and return the income tax basic rate to 22p?

So far as I understand it, this approach is revenue neutral.
As I understood it, to restore the 10p starting rate would cost £7bn - simply because so many people were paying tax at that rate right from the low paid in work to billionaires, the restoration of the Basic Rate to 22p would be regressive - in fact the abolition of the Starting Rate was a move towards simplification, back to the brief time in the early 1990s when there was only a Basic and a Higher Rate before John Major introduced a lower 19p rate at the bottom that was later replaced by a 10p rate.

The government needs to clawback money by extending charging for services, cancelling new public service programmes (such as free Health checks for all men aged 40-65 which have been criticised by many doctors as wasting resources), tightening eligibility criteria for some benefits, extending VAT and general cuts in welfare and bureacracy.

There is also the issue of the upcoming Fuel Duty rise that really should be shelved and also has revenue implications if that also was to be done.

[Yet Another Anon]

And then rather than restoring the 10p rate then the threshold should be raised and focus should be given on moving towards a flat tax at 10-20% only on those of above average incomes with the difference made up in lower public spending and switching more to using VAT to raise money which was the strategy from 1979-97.

[bexie]

It is a reflection of a general lack of direction and purpose in what really amounts to a pork barrel government. Most of their policies seem to favour a few small specialised interest groups, either in finance, which seems to have the government like a rabbit in headlights, or property developers. In otherwords anyone prepared to make a large donation to governement coffers.

Caroline Strafford | April 20, 2008 at 20:05 Agreed. IIRC George Osbourne was seriously considering something along these lines, by raising the personal allowance to around 12k per year and putting the basic rate up to around 25%. It would greatly simplify the tax system, enabling a cut in the overhead of collection, as well as enabling the party to accuse ZaNuLab of poverty taxation. At the same time scrap the whole tax credit system. It does not work, it is very expensive and makes beggars of half the population to no great effect. Better to have a benefit system that correctly targets people in poverty, and one that encourages people to stop being in poverty.

[James Maskell]

So amny other bloggers have gotten here first and elsewhere with the simplest, most efficiebnt way of solving this so that the whole low paid are relieved of the tax burden. Abolish tax credits and put the money into kicking the personal tax allowance up.

The changes Brown made in this last budegt was deliberately to win support from middle earners who would get a tax cut. But in doing so he has undermined his own core support which in light of his less then absolute parliamentary support over other issues is a rather risky thing to do.

[Mike T]

I completely agree with bexie and James M abolish tax credits and share the proceeds with all low-paid workers, single or married, parents or not. If this government was really serious about child poverty, lifting the tax threshold to £15,000 and a simpler flatter tax system (starting at 25%)would remove hundreds of thousands from the figures overnight.

Reinstate the 10p tax band by removing just over 10% of the £60bn spent in quangos.

Fuel is up, food is up, gas and electricity are up and incomes are falling. We have precious little to show for the last 10 years of this government. The public is sick and tired of this government and want the opposition to tear into this lot and bring them crashing down. Being reasonable detoxified the Conservatives, now it's time for us to show our teeth.

As for the compensation plan, this is excellent politicking, make it an amendment to the vote and put Brown under real pressure.

[Tanuki]

The downside of any plan to "raise tax thresholds so nobody under £15000 pays income-tax" or similar schemes is that it further divides the taxpayers from those who receive benefits from taxation.

If you are not yourself paying income-tax you've got no motivation to vote for the low-tax party; if anything you have a motivation to vote for parties that will raise income-tax (on those who pay it) in the hope that those parties will in turn use those tax-revenues to increase your benefits.

Equally, the heavily-taxed middle classes will look at those below any raised tax-threshold and see them as getting something-for-nothing.

To me it's axiomatic that the pain of taxation must be shared by all in any vision of trying to maintain social cohesiveness. "No taxation without representation!" was once the cry. We must avoid at all costs the situation where there's a growing number of people who get representation without taxation.

[Joe James Broughton]

Tanuki - you also have a valid point aswell. Surely the ideal, therefore, is for the 10p to be restored, and to be extended.

[asquith]

I agree with Tanuki. I've always said this to those who advocate taking the low paid out of taxation altogether. It's fairly obvious. They are in receipt of council housing, state education, the NHS and what have you, so they're already inclined to support high taxes. If we don't keep the brakes on them by making them pay tax, we'll get millions of people voting supporting raging socialism and having no reason at all to hold back.

[Passing Leftie]

No input on my comments, passing leftie? Typical.I'm passionately impressed you can afford a holiday. Moron.
Posted by: m dowding | April 21, 2008 at 00:01

Moron? That isn't up to Conservative Home's usual standard, although your semi-literate ranting shouldn't really lead me to expect more. I'd be more than happy to comment on your views. What was it? Oh, yes...

As for Osborne, pleeeese! He was Useless with Marr when he had such an opportunity to be angry! Still, comfortable and secure in their own skins, our leaders' really don't have a care in the world. Wake up, the Nation is badly screwed and my own beloved Conservative Party don't seem to have a clue. Yeah, just sit back and wait for power by default. That is and wil remain a betrayal.

You know, I couldn't have put it better myself other than, you know, using the correct spelling and grammar.

[Yet Another Anon]

is that it further divides the taxpayers from those who receive benefits from taxation.

If you are not yourself paying income-tax you've got no motivation to vote for the low-tax party
Income Tax is not the only tax, indeed far more people pay duty or VAT and VAT has the advantage that it falls on those in work and those out of work at the same proportions and so does not disincentivise people from working in the way that Income Tax or National Insurance do.

[Mark Fulford]

The actuarial facts of the matter, as quoted, and as calculated by KPMG hold true. No one has succesfully disputed that.

Passing Leftie, agreed, the KPMG data seems to be true.

Taking everything into account, couples with a combined income of £20,000 are £214 worse off.

Why is it that Gordon Brown thinks these people should pay 1% more while a couple earning £70,000 should pay 1% (£754) less? Is this what the Labour government would call "championing low earners"?

While, technically, those with children and a low income are better off -- the reality is that Brown's system is so complicated that only 20% actually claim their allowances.

[passing leftie]

There are six examples on the entire chart where people are worse off. Congratulations for picking one of those out. I'm not happy that they are there - I'd rather have seen them decrease at the expense of the better paid, but overall the majority of people in every centile are better off as a result of the budget.

The others aren't "technically" better off, they are actually better off. Look at net disposable income in the UK, not improving during Tory times, and increasing under Labour:

http://www.statistics.gov.uk
/cci/nugget.asp?id=1928

[Mark Fulford]

There are six examples on the entire chart where people are worse off. Congratulations for picking one of those out.

LOL. It's not about the number of examples, it's about the number of people. Childless couples earning 10 to 15K per head...

National Statistic's ASHE suggests around 4.5 million fall into that wage bracket. How many of those are in childless couples I can only guess at. 1 million?

To me it's the betrayal that typifies this government. Labour claims to champion low earners yet have singled this group out? The question is unavoidable.

[Mark Fulford]

BTW Passing Leftie, regarding your nugget.

Have a look at page 63 (93 of 264) of the full report:

http://www.telegraph.co.uk/news/graphics/2008/04/09/socialtrends.pdf

You'll see:

1. The gap between rich and poor has grown. Labour policy?

2. Most of the growth happened between 1995 and 2000. Whose policies were we following then?

3. "Over the period 1971 to 2006 as a whole, growth in household disposable income
per head averaged 2.5 per cent per year compared with that in GDP per head of 2.2 per cent. However, there were years when this pattern was reversed, most recently between 2005 and 2006 when the growth in real household disposable income per head was considerably lower than that in GDP per head (0.6 per cent compared with 2.3 per cent), and much lower than the average annual growth rate of 2.5 per cent between
1971 and 2006."