Several constituents have recently expressed their concern to me about the impact that the abolition of the 10p tax rate has on some people on low incomes. Like many other Labour MPs, I share their concern about this. Neither I, nor most MPs I have spoken to, intended people on low incomes to lose out as a result of the changes to the tax and benefits systems passed by Parliament last year with the 2007 Budget – and which have come into effect in April 2008. Indeed, the 2007 Budget, like all the Budgets that have been passed since Labour was elected in 1997, was structured to improve the living standards and opportunities for people on low incomes – whether through changes to tax rates, the introduction of tax credits, increases in child benefits, improvements in pensions and other benefits for pensioners, or record investment in public services like police, schools and hospitals.
Overall, the 2007 Budget followed the same path. The basic rate of tax was cut to 20%, simplifying the bands in a way that most parties supported. Together with the changes to tax credits and other initiatives, the overall effect of the 2007 budget was to leave millions of households better off. For example, a single-earner couple with one child earning £12,000 (half median wages) might lose £232 from the 10% rate removal but will gain £332 from the Working Tax Credit, boosting their income by £100. Similarly, higher tax allowances have been introduced for pensioners, meaning that 600,000 more pensioners will now pay no tax at all. The abolition of the 10% starting rate of tax was part of this package.
The problem is that whilst most people gain – including families and pensioners on low incomes – the interrelationship between different parts of the tax system means that some people on low incomes have also lost out. Even though the numbers of these are far fewer than the gainers I accept that, if you are one of those adversely affected, the impact is real and a problem if you are already having difficulty making ends meet.
Along with other Labour MPs, I am making representations to the Government to see what can be done to help. This is not a simple matter. Because the decision to scrap the 10p tax rate was taken in the 2007 Budget rather than the 2008 one, and because all the budget calculations have to balance out, it is unlikely to be possible to simply reintroduce the 10p starting rate of income tax at this late stage. However, it is important that action is taken now to ensure that nobody on a low income loses as a result of these changes.
I can assure you that my colleagues and I take this issue seriously and we are trying to identify ways in which the issue can be resolved to help those who are affected.
