The Chancellor Alistair Darling's £2.7bn compensation package for the losers of the abolition of the 10p tax rate was much more significant than had been expected. Individual personal tax allowances will be increased by £600 this year, handing up £120 to 22 million basic rate taxpayers. This means that 80 per cent of the losers from the change will be fully compensated - for one year, at least.
It's a remarkable U-turn which shows just how much damage Gordon Brown's decision in his last Budget has done to both to Labour and Brown personally. The interesting thing is that Darling considered limiting the likely damage from the tax shake-up when he drew up his March Budget but decided he simply didn't have the money. Now, miraculously, he has found it, by yet another rise in borrowing. It illustrates the depth of the hole that Brown is in.
No doubt minds in Numbers 10 and 11 Downing Street were focused by next week's Crewe and Nantwich by-election. Although Labour MPs cheered Darling in the Commons this afternoon, whether the move will save Labour's skins in Crewe is another matter. The damage may already have been done. Outside the chamber, old Labour heads were a little more sober. "A high economic price to pay for very little political return," one told me. Another said: "This is Operation Stabilise Gordon Brown. It will help him among Labour MPs, but I'm not sure it will change much in the country."
But the dividend tax rate of 10% up to £36,000 (the basic rate band limit). So if you've about £1 million in stocks and shares yielding 3.6% and don't work you can get away with £3,600 of tax a year while a salary earner with £36,000 taxable pays £7,200. And it's the same on lower levels, £10,000 dividends = £1,000 tax, £10,000 salary taxable £2,000 tax. You couldn't make it up and not one MP has mentioned it.
Posted by: Alan Lamb | Tuesday, 13 May 2008 at 06:57 PM
This is nothing less than a slap in the face for the public. The slap trying to snap us out of the bad mood we are feeling toward the government for this total shambles over the Budget. The only difference is that Gordon will be hoping that we will forgive and forget but on this occasion we will slap back and much harder. Again I offer the best advice for any politician but hope Gordon in particular takes note. Listen to the people and act accordingly to the real concerns. A quick fix bribe is not going to cut any ice. Employ common sense rather than party rhetoric. Cut off temporarily all ties with foreign countries in order to sort out domestic issues first. Clean up your own house and make politicians accountable and by doing this you will go down in history as the only Prime Minister to give the people back their voice. I fear it will not save you personally but doing the right thing sometimes calls for sacrifice.
Posted by: John Finningham | Tuesday, 13 May 2008 at 07:03 PM
A rather high price to pay for Crewe, I'd have thought?
I wonder if Nobody's Darling would have been so generous if there wasn't a by-election due?? He certainly didn't care when he gave his Budget.
Posted by: Neil McGowan | Tuesday, 13 May 2008 at 08:06 PM
the dictator G.B.will only understand bullying tactics which he has used on us for the last ten years,therefore a national strike is the only answer to bring him to his senses
Posted by: Michael O`Pray | Tuesday, 13 May 2008 at 09:01 PM
At a time when prices are rising, proportionally affecting more the lower paid, I'm amazed that this government can get away with this move. Comparing this latest tax change with the situation prior to the 2007 budget someone earning £16,000 will be better off by about £60 over the year. But those on £40,000 will be over £500 better off.
In my book, Gordon Brown was not a successful Chancellor. Everything he did was horrendously complicated. All our politicians seem to not understand the word 'simple' which is why we now, for instance, have over 20 benefits that can be claimed rather than one which could be payable to all those on low (or no) income. Brown seemed to attempt a justification of the change by referring to helping those with children. Why is he so interested in paying vast amounts to those who do not need it just because they have children? Someone earning £60,000 can get benefit but others without children cannot get benefit if they have income of £15,000. Do children cost that much? No. With or without the cost of gas/electric, council tax etc is the same.
Posted by: George Durst | Tuesday, 13 May 2008 at 09:09 PM
Pensioners face 50% tax rates as Age Allowance is withdrawn at the rate of £1 for every £2 above the threshhold - currently £21,800......so people aged 75+ pay 50% marginal rates on £22000
Posted by: TomTom | Tuesday, 13 May 2008 at 09:22 PM
In truth, this patch from Darling will probably close the wound. More to the point, Gordon Brown most certainly won't recover post-op and will wish that the anaesthetic had been prolonged. He is frankly a heartless sod (at least that's how he is perceived) and by God, he has ignored those who had such good advice for him for too long. RIP
Posted by: Peter Ellis | Tuesday, 13 May 2008 at 09:58 PM
Prudence...remember that mantra? £2,700,000,000 No more boom and bust? All credibility lost.They will now stumble from one crisis to another.
Posted by: John Bush | Tuesday, 13 May 2008 at 11:09 PM
unfunded tax 'cuts' anyone?
Posted by: carol42 | Wednesday, 14 May 2008 at 12:03 AM
Alan Lamb ... The reason not one MP has mentioned is because you are so totally and completely wrong.
The dividend tax credit rate is grossed up to look like 10% but the profits on the company made are taxed at whatever is the applicable rate. For small companies that is 20% last year, 21% this and 22% next year. Big companies were paying 30%, declining to 28%
So on last year's small company rate, the lowest rate a company would pay, it would go like this:
The company makes £10,000;
Pays £2,000 corporation tax;
Leaves £8,000;
£8,000 dividend paid to investor.
Investor completes tax return showing £8,000 net, grossed up to £8,888.89 to get a tax rate of 10%.
20% tax has still been paid on the underlying profits. This year that rate will be higher. Bigger profit-making companies pay even bigger taxes. Which means your investor's share of the profits have been subjected to higher taxes. And if he happens to be a higher rate taxpayer then rate jumps from 10% to 32.5%. So the effective rate, taking big-company tax rates into account, would be even higher.
Plus there is capital risk. That dividend doesn't come anywhere near the risk-free return deposits would pay.
Then there is the Government policy of deliberately having inflation to allow the stealth confiscation of money from those who have savings, a la Keynes. You think it is an accident that the £ has lost more than 96% of its value in less than 60 years?
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