Matthew Elliott is Chief Executive of The TaxPayers’ Alliance.
Alistair Darling’s statement on the abolition of the 10p rate of income tax yesterday afternoon was a fascinating development in the ongoing tax debate. Having taken a battering for Gordon Brown’s decision to raise taxes on some of Britain’s poorest workers, the Government has finally been forced into at least partial retreat.
The Chancellor’s proposals are not perfect, and certainly don’t correct all the damage – raising the threshold by £600 will return 80% of those adversely affected by the abolition back to the financial situation they faced in March, whilst partially mitigating the losses suffered by the remaining 1.1million people. They do, though, mark an improvement on Brown’s original Budget. In essence, things for those on low incomes are better than they were yesterday but slightly worse than they were a month ago.
We shouldn’t let this moment pass, however, without noting the positives from this development, as it shows the growing power of the public’s opposition to the tax burden. Particularly good news is that it has brought the power of raising the threshold to the public’s attention. For years, the Government have sought to keep up the pretence that the poor can only be helped by direct intervention – an Emperor’s Clothes-like charade of insisting that more tax credits, benefits and public servants are the only answer to poverty. That is not the case, and today’s statement shows it.
When even the Chancellor of the Exchequer is boasting that “600,000
people on low incomes will be taken out of tax altogether”, that
Emperor is well and truly revealed as being stark naked. Suddenly, even
the Government has been forced to acknowledge that lowering taxes can
help the poor and perform a social good. That is a genie that Brown and
Darling will find hard to force back into the bottle.
We should be careful not to rejoice too much at this announcement –
after all, this is a pretty sorry tale. The Government raised taxes on
the poor and has now been forced into mostly restating them to their
former position of being overtaxed at slightly more than 2007 levels.
Paying for this partial retreat (costing £2.7bn) through further
borrowing is also a bad move, especially as there is more than enough
waste (£101 billion) alone that could be trimmed in order to fund this
and further reductions in tax. This is an encouraging sign that things
are changing, though.
Twice in eight months, with Inheritance Tax and now with the 10p tax
rate, taxes and their reduction have taken centre stage in the
political debate. In fact, they can be identified as the only issues
that have made a concrete, identifiable difference to the leading
parties’ standing in the polls. It is encouraging that tax is set to be
a key issue in the run up to the next General Election.
And so it should be. Faced with soaring costs of fuel, council tax,
food, rent and mortgages, people are more stretched than they have been
for a very long time. Ordinary families increasingly have to count the
pennies to make ends meet, and the record tax take the Government have
forced on people is making that a whole lot worse. That the Chancellor
has started to retreat is a good thing, but it needs to be the first
victory in many. A £600 shift in the threshold is only enough to
mitigate most of the damage done by the abolition of the 10p tax rate –
if we are to help alleviate the genuine suffering around the country,
shore up consumer confidence and give the economy a shot in the arm
then we need drastically lower taxes full stop. This is a battle won,
and a welcome victory, but there is still a war ahead of us.