Every time I try to write a post about the current tax shenanigans I am distracted by something unspeakably dreadful. Sometimes it’s another gem from the Osborne Boy’s Book of 1950s Economic Homilies – “He didn’t make the jam while the rug needed a stitch in time and now the house is on fire. Quick, open the ginger beer!”. (Customarily, of course, metaphors are provided by a politician so that the public can grasp what’s going on; in this case I wonder if they weren’t provided by the publicity team so that the politician can grasp what’s going on. Sooner or later, George is going to want to see this damned house he keeps having to make announcements about.)
But above all, it’s this, blogged from the Number 10 press conference on Tuesday:
Brown says that they are already seeing tax cuts, such as the £120 cut going to basic rate taxpayers as a result of the decision to raise allowances.
That’s right. The fudged solution to a problem that Brown created by axing the 10p tax band is now a “tax cut”.
It is a truth universally acknowledged that the point at which you are finally sick of talking about something is the point at which you must not give up, so I crave your indulgence as, by way of a public service, I drive yet another nail into the 10p debacle. No-one anywhere in the blogosphere must be left in any doubt about what an insupportable lie the above constitutes. It’s a technocrat lying to people who don’t have the specialist knowledge to check the facts, and it is thoroughly sickening. From the top, then:
In 2007/08, someone earning £14,000 would have enjoyed their first £5,225 tax free. Then a block of £2,230 would have been taxed at 10% (£223, would you believe). The remaining £6,545 (14000 – (2230+ 5225)) was taxed at 22% (£1439.90). Their tax bill for the year would have been £1,662.90. Assuming they had no children, they would not be eligible for tax credits.
The initial 2008/09 changes raised the tax free portion to £5,435 (in line with inflation, as is usual with the tax free allowance). But the whole of our £14,000 earner’s salary above that level would now be taxed at 20%. This gives a tax bill for the year of £1,713.
Following the outcry, by way of a “solution” the tax free portion was raised by a further £600, to £6,035. Effectively this means 20% of the £600 is recovered by the taxpayer – that’s the £120 Brown keeps talking about. It brings our £14,000 earner’s tax bill back down to £1,593, below even the 2007/08 level. All well and good.
But there is a point in the salary scale below which the £120 does not make up the loss of the taxpayer when the 10p band disappeared. Consider someone earning, say, £7,455 (what was formerly the top of the 10p band – £5,225 plus £2,230). From having had most of their salary tax free and a small upper quarter taxed at 10%, they suddenly found that they were paying 20% on that upper quarter. Their tax bill almost doubled in real terms from £223 to £404 (£7,455 less the new tax free allowance of £5,435 gives £2,020, which is taxed at 20%). Getting a hundred and twenty pounds back only about halves their loss. It doesn’t commute the loss altogether.
The break-even point, the point at which the taxpayer lost more than £120 by the axing of the 10p band and so did not have their loss fully commuted, is a salary of around £10,500. Or, as it’s sometimes known, the annual equivalent of the minimum wage. On that salary, a worker who paid tax of £892.90 in 2007/08 was originally destined to pay tax of £1,013 under the initial 2008/09 arrangements. The revised arrangements bring that sum back down to £893. Below that level, even the emergency hike of the tax free allowance to £6,035 does not entirely wipe out the loss that resulted from the disappearance of the 10p tax band.
How did it happen? It still staggers me. The party of the working man, doubling the tax on some of the lowest paid people in the country, and then even when their mistake was pointed out to them, failing to make up for it. What kind of heartless, gutless cheat do you have to be to not only go through with the initial abomination, not only brazen it out when you’re discovered, but later on start referring to it as a successful tax cut.
I’m told (she said primly) that the word on the inside is that Brown knew perfectly well what he was doing when he got rid of the 10p tax rate, but reckoned that the higher earners would be sufficiently self-interested not to make a fuss about the poor low-paid losers. His original aim was to bring in the package in March, become Prime Minister in the summer and call an election in the autumn at which the grateful beneficiaries of the 2p tax cut would sweep him to a mandate of his very own. He kept the 2007 budget from Blair’s final sign-off until the last possible moment. Blair noticed the problem and queried it. He was lied to in much the same terms we were – it won’t be many people and anyway, they’re all on tax credits. He shrugged and waved it through; Gordon’s problem, not his.
If that account is anything like true, Brown’s a lying bastard. And I wouldn’t attach so much credence to the lying bastard scenario if the alternative wasn’t – if anything – even more outlandish, that Brown and his advisers and everyone else at the Treasury were too stupid to notice the problem. There is just no way they are unable to carry out the simple calculations I’ve sketched out above. Next time he talks about the £120 “tax cut” he gave people on middle incomes, remind yourself of the full deceitful horror of its provenance, and the million people earning between £6,035 and £10,500 who are still taking home less than they were last year. And now they’re facing the recession as well – his recession. He must not be allowed to get away with this.