15.02.13
Labour proposes reintroducing 10p tax band
Labour has pledged to reintroduce the 10p tax band in a shock announcement. The rate was abolished in 2007 by Gordon Brown, but Party Leader Ed Miliband has stated that this was a mistake.
The tax band would be funded by a new mansion tax on properties valued over £2m, although Miliband did not reveal full details of how this would work.
He emphasised that the policy would have to be reviewed immediately before the election because of the state of the economy.
Miliband said: “People in Britain are putting in the hours, doing the shifts, as never before, but something has changed in the last few years. There's less chance of promotion, less chance of a pay rise, and prices just go up and up and up. Petrol for the car. Tickets for the train. Childcare for the kids. Deposits for a first home. The squeezed middle has never been so squeezed.”
Chief secretary to the Treasury Danny Alexander responded: “Increasing the personal allowance, extending the 0p rate of income tax, as it were, to £10,000 is a far more direct, far more progressive way of getting more money into the pockets of working people on low and middle incomes than anything Labour ever did when they were in government and anything that Ed Miliband is proposing today.”
A No 10 spokesman added: “This is a stunning admission of economic incompetence from Ed Miliband and Ed Balls – that their decision in government to scrap the 10p tax rate hurt millions of working families. People will never trust Labour again.”
Independent think tank the Institute for Fiscal Studies has been highly critical of Miliband’s announcement, which it said has “no plausible economic justification” and is a “remarkable failure to learn from history”.
It explains: “A 10p tax rate would reduce taxes for those on low incomes and strengthen their work incentives. A far simpler and more sensible way of achieving these aims would be to spend the same amount of money on increasing the personal allowance – a policy on which the current government has already spent £9bn a year. This would have virtually the same impact on individuals’ tax payments, be slightly more progressive, take some people out of income tax altogether and avoid the complexity involved in introducing a new income tax rate.
“An even better alternative, which would help those who already pay no income tax because their incomes are below the personal allowance but do pay employee National Insurance Contributions (from April, there will be 1 million such people earning between £7,748 and £9,440), would be to increase the point at which individuals start paying employee National Insurance Contributions. This would also bring the income tax and National Insurance systems more in line and would take some people out of direct tax altogether. And if one wanted to focus the gains from the policy on low-income working families rather than basic-rate taxpayers generally, increasing Working Tax Credits would be another sensible alternative to look at.”
Tell us what you think – have your say below, or email us directly at [email protected]
Image courtesy Plashing Vole used under a Creative Commons licence.