Tuesday, May 13, 2008

Grant Thornton: Darling Fails the Lowest Paid

I post this press release from Grant Thornton without comment...

Basic rate taxpayers benefit by £120 while low income earners on £7,455 remain £32.40 worse off. Leading business and financial adviser, Grant Thornton, says the Chancellor's announcement to raise personal allowances to offset losses to low income earners by the abolition of the 10p rate will still leave some low income earners worse off, while benefiting all basic rate taxpayers under 65 to the tune of £120.

Francesca Lagerberg, head of Grant Thornton's national tax office, says although it is pleasing to see the government, having blundered on this decision from the outset, moving quickly to clean up the mess created for low income earners. However, she is concerned that raising personal allowances by £600 (to £6,035) is not targeting all those affected.

"While the Chancellor's plan offers a solution to the political problem it does not offer full compensation to those worst hit by the abolition of the 10p rate, as there are still some who will spend the 2008/09 tax year worse off," she says. "Furthermore, and rubbing further salt into the wound of those low income earners who have not been helped by today's announcement, is the fact that a large number of middle income earners will benefit from the raising of the personal allowance by £120 as well*."

"The Chancellor has delivered an essentially unfunded early Christmas present to a large number of UK workers, but failed to undo its mistake for around 1.1 million low income households." Lagerberg says many UK workers will be up-beat about the announcement expecting an additional and unplanned boost to their income, but those earning £7,455 will still be £32.40 in arrears come the end of the 2008/09 tax year.

19 comments:

Martyn Green said...

Iain - I wonder if you could possibly highlight the dangers of drink driving. It's a pernicious evil in our society and, as a non-drinker your self I'm sure if would mean a lot to many if you were to indicate your disgust of all those who are tempted or do drink and drive.

David Lindsay said...

Of course, the Tories have no plans to restore the 10p tax rate. I just thought that I'd mention that, since nobody who is paid to mention it ever does so.

Anonymous said...

Isn't this increase for just this tax year only/

Neil Reddin said...

It seems he may have got his sums wrong anyway.

Anonymous said...

It is a one-off tax bribe, pure and simple.

At least, as others have said, Darling can no longer accuse the tories of unfunded tax promises.

It'll calm the Labour MPs for a bit, but the economy is going nowhere and prices of essentials are rocketing so this is just a temporary salve for Bean's phoney reputation.

sceptical said...

Of course they are targeting the middle class as well, the home-owners etc. They are desperate to win back Middle England.

It's a deeply cynical bribe which partly makes amends for hitting the low-paid and also injects money into the economy at a time when they (the government) are petrified by a possible recession.

Timing is dictated by Crewe. It's cunning, underhand and plays fast and loose with our money, pushing up the deficit. In other words, it's typical Gordon.

norman said...

In this disappearing world of Labour supporters there are still
rare friends of Brown and Darling as some postings suggest! Well, keep on dreaming about Brown the Wizard of Kirkaldi and Cowdenbeath!

Anonymous said...

To be quite frank. Darling has only done exactly what Cameron and Osborne should have been demanding in the first place.

Raising personal allowances to get out of this mess was the elephant in the room. A Tory Elephant come to that.

Insted Cameron kept whittering on about restoring the 10p rate and how much he admired tax credits.

Perhaps there is now hope that Alistair Darling will now follow on from Tony Blair in persuing real TORY policies.

Ed said...

Just as an aside, by lowering the 40% threshold to ensure that higher rate tax payers are no better off, thousands more people are going to be pushed into the 'higher rate tax payer' bracket - although they'll pay no more tax.

Why is this significant? Well, it means thousands more people will have to fill in a tax return each year - higher rate payers being one of the few categories required to fill one in.

I'm not sure of the stats, but I'd guess that the threshold will go down from £41,435 gross per annum to £40,235 gross per annum. How many thousands of taxpayers is that? How is HMRC going to cope with the increased volume of tax returns, exactly? Who's going to pay for that?

Anonymous said...

If it's going to cost 2.7 billion this year what about next year and the year after etc etc.

I expect that the annual increases in the allowance will be frozen for a few years.

Which is ironic if it;s true that that is what Gordon Brown did which necessetated the bringing in of the 10p band in the first place.

Gwil ap Tomos

Anonymous said...

Come on Iain you can do better than this.

The change means that the vast majority don't lose out. It is true that a small number lose out, but by only £1 per week.

In addition these people are a lot better off than they were because of the minimum wage and tax credits.

Auntie Flo' said...

Same old tax and spend con man Broon, he lies, lies, lies. A leopard doesn't change its spots, does it?

Raising the basic allowance by £600 means that anyone earning slightly more than £1200 over the old basic allowance will still be worse off than with the 10% band.

So, a taxpayer earning, say, £7435 with a personal tax allowance of £5,435 paid £200 tax until Broon and Darling's stealth taxing schemes axed the 10% band.

Now, with the new enhanced basic allowance of £6035, they will pay £280 income tax on their poverty pay.

TheMadCobbler said...

"Of course, the Tories have no plans to restore the 10p tax rate."

This is because they don't know the total state of the public finances. They don't know if there's any wastiges etc. [As Boris has been finding]

Put simply, Cameron's pledge so far has been "We'd have never abolished it."

There's been hints at bringing it back, but they just don't know if they can actually afford to do so at present. It's a terrible conundrum because Cameron still has a touch of the paranoia of the Tories retreating to the "Old Ground" which lost them 1997, 2001 and 2005. That of tax cuts, Europe and Immigration. Hence Cameron is stuck by a slight fear of "if we start hitting these old notes, we're done for".

It's a shame really as it's really what folks want to hear this time...

Ewan Spece said...

Never let it be said Labour have returned to "Tax and Spend." As we've seen today it's all spend spend spend and very little tax.

Twig said...

"David Lyndsay
Of course, the Tories have no plans to restore the 10p tax rate. I just thought that I'd mention that, since nobody who is paid to mention it ever does so.
May 13, 2008 6:39 PM


The abolition of the 10p band is one of many changes made to the tax system in the last budget. You cannot simply undo one of the changes and hey presto all is okay - it doesn't work like that in maths.
If it did, Labour would have done it - right? Darling has simply borrowed some money to knock the problem into the long grass - that's all.

No reasonable person would expect the opposition to say what they might do two years hence because the have no way of knowing what the state of the economy will be by then.

Maybe Iain could upload the mp3 of the famouse Neil Kinnock "kebab" outburst to R4's Jim Naughty where he says exactly the same thing in a slightly less temperate way.

Anonymous said...

"It is true that a small number lose out, but by only £1 per week."

But I thought His Magnificence regarded 74p as a grand thing for pensioners? (and that was years ago)
I've also read today that MPs, being obviously irreplaceable (compared to pensioners), were still considering a not inconsiderable rise for themselves.

curly15 said...

This fiasco is like an awfully bad script from a rotten film, we all know it ends in tragedy.

Which mechanism will they use to claw back the £2.7bn?

Anonymous said...

The Tories won't restore the 10p starting rate of tax, so their complaints are utter hypocrisy (nothing new there then!).

Tax credits are great in theory, but we know that 75% of the people who are entitled won't claim. So in practice they don't really work.

Raising personal allowances is the best way to lift the poorest people out of tax, because everyone who needs to benefit does so, without needing to make a claim. But its not "targetted", so it ends up costing more.

The way out of this is to raise taxes on the wealthiest (or shut off the various loop holes and schemes that allow them to avoid paying their fair share). But New Labour is too scared of the Daily Mail to do that, so we end up with a stupid and unfunded fudge.

Adrian Yalland said...

Jeez - this Government is so incompetent that it cannot even get its by-election bribes correct!