It is hard to believe that it has been five years since Gordon Brown announced the abolition of the 10p rate band, and I am as surprised that it has taken until now for someone to suggest reintroducing it.
At Conservative Home, Robert Halfon MP argues;
Restoring a 10p rate of income tax, between £9,205 and £12,000, would cost around £6 billion a year according to the House of Commons Library. This is significantly cheaper than raising the personal allowance to £12,500 (which could cost as much as £14.4 billion). It also has the advantage that it would benefit all workers, and could be paid for without dragging more families into the 40p band of income tax.
Assuming that he is right in his arithmetic, introducing a new, lower tax rate would be totemic, a perpetual reminder to Labour activists and the public of the error of judgement made in abolishing it in the first place. It would be hailed by the media as a huge giveaway to the less well-off.
It also addresses something which bothers some Conservatives, in that by taking more people out of tax altogether, they have less incentive to support reductions in government spending – it appears much more attractive to support spending if it doesn’t cost you anything personally.
There are some obvious downsides. His proposal only gives £279.50 back to basic rate taxpayers, whereas raising the personal allowance to £12,500 would give them £659.00, a much more attractive option for the ‘squeezed middle’. And, without other adjustments, his tax cut would go to everyone, including the currently unpopular wealthy, who would benefit disproportionately – it would be worth £978.25 to a 45% taxpayer, something he seems to accepts, as he apparently doesn’t intend to reduce thresholds. It also leaves those on minimum wage still paying income tax.
There is also an argument, which I hear less of than I might expect from Conservatives, which runs thus;
“If we take less money in tax from working families, we need give less to them in benefits and credits, reducing the benefits budget plus the costs of administration, as well as reducing the number in receipt of benefits.”
One might consider withholding an amount of benefits/credits equal to the reduction in the tax bill, or use the money for other targeted benefits, such as child care, or just raise the living standards of the poorer, more vulnerable elements of our society, or whatever, but it would give governments of whatever stripe options to reform society in a manner suited to their philosophy. Everyone will have their own ideas.
Increasing the personal allowance to £12,500 does come with a cost, with added complexity required to restrict the benefits to the wealthiest, and would probably drag more people into the higher tax bands. It is simpler for most though, continues progress towards taking those on the minimum wage out of the tax system altogether (if it’s a minimum wage, why should it be taxed). It could also lead to a future equalisation, and thus simplification, of the thresholds for income tax and national insurance contributions and aligning these with the National Minimum Wage.
In summary, reintroducing the 10p rate band is an interesting idea, which will attract support from across the political spectrum, even as its proponents will argue about the necessity for consequential adjustments to ensure their personal definition of fairness. It is less generous than the Liberal Democrat proposals but, obviously, more easily affordable.
The debate should be an interesting one in the coming months…
* Mark Valladares is the Friday Editor of Liberal Democrat Voice.