The 10% Scandal

Recently, Alister Darling proposed that the personal allowance, i.e. the first slice of income which is not taxable, be raised another £600 to £6,035 for this fiscal year.

The Labour party has championed this move as it allegedly alleviates some of the tax burden for 22 million people on low and middle incomes by offering an additional £120.

In 2005, Lord Forsyth of Dunlean (a former Conservative Cabinet Minister) chaired the Tax Reform Commission, which outlined proposals for our current tax system. One particular result was the increase in the Personal Allowance (PA) to £7,185 (figure at the time of report). In addition, it also suggested that the 10% band should be abolished only if coupled with a raise in personal allowance to the figure noted above. The reason for this is (if 07/08 figures are taken) that the increase in PA by £1,750 saves every person £350 (at 20%). By scraping the 10% band the extra tax paid in isolation would be £223. Therefore, there would be a surplus £127, whilst flattening and simplifying the tax system.

Unfortunately, Alister Darling has used the ratio of this report as a quick fix to what would be seen as one of the most fundamental mistakes Labour has made. Not only has Labour used a Conservative style policy, but it has used it incorrectly and to the detriment of those on low and middle incomes. Instead of providing a surplus, the calculations show taxpayers will suffer a deficit. As noted at the very start of this post, the figure gained by the increase in PA is £120. However, the loss is £223 (as the 10% band is the next £2,230 above the PA using 07/08 figures). Therefore, taxpayers will suffer an overall loss of £103.

Moreover, Labour has used spin to allege that it is delivering for the country and its people.