Brown’s poverty strategy comes unstuck over 10p tax u-turn

Gordon Brown’s last budget as chancellor should have underlined his reputation as a safe pair of economic hands. However, commentators accused him of sleight of hand when he financed a 2p cut in the basic rate of income tax by axing the 10p starting rate.

While those on higher incomes were set to gain from the tax changes, the chancellor offered compensation to those on lower incomes by pledging £1bn to raise tax allowances for those aged 65 over, £1bn on child tax credit and £1.3bn to raise the income at which tax credits are withdrawn.

However, there was one group that did not gain from these measures: adults without dependent children. The Institute for Fiscal Studies says this “difference in generosity between different family types” is entirely consistent with Brown’s record. There are 600,000 fewer chidren living in poverty now, 200,000 fewer working-age parents and 200,000 fewer pensioners since 1996-7. But poverty has increased by 500,000 among working age adults without children.

Single people the losers

While no one would decry the government’s efforts to end child poverty this should not be done at the expense of other low income groups, says Niall Cooper, national co-ordinator at campaign group Church Action on Poverty.

“It’s very unfortunate that the government got into a position of taking money from one group of poor people and giving it to another,” he says.

Losses suffered by low-paid workers without children and pensioners will be offset through the winter fuel allowance system, tax credits and the minimum wage. The detail of these measures is likely to come in the pre-budget report in the autumn, says a Treasury spokesperson.

Cooper described these proposals as a “dog’s dinner”. But he added: “This is clearly a fix for this year. This has highlighted the fact that the government hasn’t got a well-thought through strategy for taking people who don’t have dependent children out of poverty.”

End all poverty target

Cooper says that because the government has set itself tough targets on ending child poverty it has lost sight of other vulnerable groups. And he calls on the government to set itself a target of ending all poverty – not just among children.

But he believes the 10p tax debacle could have a positive effect. “The positive outcome in this debate is that it has brought much more clearly into the public focus the reality of life for low income working families.”

A spokesman for Child Poverty Action Group warned that while tax credits did benefit families with children, take up should be improved. Families who might only be entitled to £5-£10 a week were put off from claiming the credits because of the effort in claiming such a small amount. He said that changes made to the system might mean that they may now be entitled to more.

Gavin Macgregor, head of communications and development at Carers UK, said: “Many carers can only manage their caring responsibilities by working part-time or in low paid jobs. Carers contribute so much to society yet these tax changes will leave some worse off. The government will shortly be publishing a new National Strategy for Carers and it should use this opportunity to help those carers made worse off as a result of last year’s budget.”

Summary: Tale of the 10p tax

* The 10p starting rate of income tax was introduced in 1999 as a transitional measure to help low income households.

* The government announced in the 2007 Budget, Gordon Brown’s last as chancellor, that it was to be abolished from April 2008. Basic income tax was also lowered to 20p from 22p.

* Initially, ministers said there would be no losers but once figures were analysed more closely it was discovered more than five million of the lowest paid people would be worse off. They tended to be single and earning less than £18,000 annually.

* Following pressure from backbench MPs and the media the prime minister announced this week that a backdated package of fiscal changes will be unveiled in the autumn to compensate those losing from the 10p rate being scrapped.

* The Institute for Fiscal Studies advocates increasing the personal allowance people can earn before they start to pay income tax and National Insurance.

Increasing the income tax and National Insurance allowance by £100 would remove 1.3 million losers and cost £800m increasing it by £300 would remove 3.3 million losers and cost around £2.5bn increasing it by £750 would remove almost all the losers and cost around £6bn.

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