Tax overhaul penalises the poor

(19-10-07) - A tax overhaul announced by Gordon Brown earlier this year will hit low earners the hardest according to the Treasury’s own figures, released today.

The tax overhaul will reduce the basic rate of income tax by two pence to 20 pence - the lowest rate in 75 years - when it comes into force next year. However, it will also scrap the 10 pence band for the country’s lowest earners.

The 10 pence rate that taxpayers currently pay on the first £2,150 above the personal tax allowance of £5,035 was introduced in 1999, but will be withdrawn under the new plans.

Although everyone will have to pay the new 20 pence rate on this first £2,150, top earners and some families getting increased tax credits will make up for this shortfall from the new lower rate, but the lowest earners will be left worse off..

The Treasury’s figures show that although the majority of earners will benefit from the cut - a single person on a salary of £35,000 will see an extra £303 a year - those earning under £20,000 will no longer benefit from a lower rate.

A person under 25 on a salary of £10,000 will lose £197 a year, while anyone earning £15,000 will lose £97 a year, reported The Times.

Vince Cable, acting leader for the Liberal Democrat Party, told The Times that the changes are “regressive and favour the rich”.

Defending the reform, a Treasury spokesman said: “Once the Budget reforms are implemented, households will on average be £1,050 a year better off and families with children will be £1,800 better off in real terms than under the 1997 tax and benefit system.”

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