It’s a shame there was no one to hand who had a shovel.
Alistair Darling would have found that very useful yesterday morning, when he seemed to be trying very hard to dig himself and his boss into the mire, in an interview on the Andrew Marr show. “I can’t do anything about scrapping the 10p tax band now,” he said. He seemed to be admitting the 10p tax band shouldn’t have been scrapped in the first place.
Actually, what is odd about this furore about 10p tax is how it has taken so long to come into the public spotlight. Last year, most of us enjoyed a personal allowance of £5,225. Our next £2,230 of earnings were taxed at 10p, then we were paying 22p tax for the next £32,369. Now, our personal allowance is £5,435. There is no 10p band, but the 22p rate has been lowered to 20p. So, obviously, someone who was previously not earning a sufficient amount to fall into the 22p tax bracket will be worse off.
The chart below looks at earnings after the personal allowance. We have not taken this into account, because while it has risen this year, you would expect that anyway after allowing for inflation. It also assumes everything else is equal. Of course, in a world defined by Gordon Brown, things are more complicated than that, but more of that in a minute.
The bottom line is this. If you ignore all the other tinkering, someone, anyone, earning £13,000, plus personal allowances will have paid less tax last year than this. Someone earning £14,000 plus personal allowances will be paying less tax this year. Those who miss out the most will be those who earn exactly £2,230 plus their personal allowance; they will be £223 a year worse off.
But, and this is where it gets complicated, pensioners will gain, because they enjoyed a higher rise in their personal allowance. Families with children will probably gain because of the various benefits they are entitled to. Single men and women will probably be worse off, but, on the other hand, increases in the minimum wage have partially offset this.
You can understand why Mr Darling found it so difficult to explain himself. The problem though, surely, lies with means testing and Gordon Brown’s love of making things difficult.
The 10p tax band was heavily criticised because it added more administration. It added complexity. That was the real reason for removing it. If the chancellor had removed the 10p tax band, and upped personal allowances by just over £1,000, then the revenue raised would have been barely affected, no one would have been worse off, hardly anyone would have been better off, and even then only by a tiny amount, but the system would have been easier to administer, because a tax band would have been removed.
But then again, that would have just been too easy. And Gordon and his sidekick don’t want us to understand their tax changes, now do they?
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