Farewell to the 10p tax rate

The winners and losers

The Treasury Select Committee has criticised the government for abolishing the 10p tax rate, a move pre-announced in Gordon Brown’s Budget last year. The committee says that those on lower incomes who will be affected disproportionately by the change represent an “unreasonable target for raising additional tax revenues.

The cut in the basic rate of tax from 22p to 20p will hit the less well-off according to the Treasury Select Committee, claiming that households without children or anyone over the age of 65, and who earn less than £18,500 a year, would be the “main losers.”

The independent Institute for Fiscal Studies (IFS) estimates the losers will include 2.2 million single working people with no children, 1.2 million double-income couples with no children, 700,000 double-income couples with children, 500,000 non-workers, 400,000 single-income couples without children and 300,000 women aged 60 to 64.

Changes in tax credits mean that some families with children and some pensioners, but not all, will be protected. However, that is provided they successfully apply for credits and benefits, a procedure that some find too challenging. The council tax benefit take-up rate was just 65 per cent in 2006, while that for working tax credits was about 80 per cent.

In addition a small percentage of the population earning between £38,840 and £40,040 will be adversely affected by the alteration in the National Insurance rate, rising from 1 per cent to 11 per cent on this element of income. However, they could still benefit if the other changes are taken into account, but by less than other taxpayers.