Gordon Brown and his Chancellor, Alistair Darling, were forced to retreat this week amid threats of a “crippling revolt” over the abolition of the 10p starting rate, says Philip Webster in The Times.
A rebel amendment to the Finance Bill, tabled by Frank Field, was withdrawn after the Chancellor announced there would be compensation for the 5.3 million people who have lost out because of the change.
Specifics have yet to be decided, but would probably include changes to the winter fuel payments and tax credits system. A deal will be unveiled in autumn, with compensation backdated to April.
Tony Blair predicted that Gordon Brown’s 2007 Budget would “unravel”, says Rachel Sylvester in The Daily Telegraph. He told colleagues at the time that Brown was “trying to pull the wool over people’s eyes by giving the impression that his Budget was a tax-cutting package when it was not”.
Brown’s much-trumpeted 2p cut in the basic rate of income tax was to be paid for, at least in part, by the abolition of the 10p rate. But Brown has always been afraid of alienating voters with his mission of redistributing wealth from rich to poor. Hence the hidden taxes and complicated tax credits.
But when it came to his last Budget, he “wanted to show off with an income tax cut that would appeal to the middle class”. The tactic has backfired. “It would be better for Brown to annoy half the people by saying what he really thinks than to irritate all the people by trying – and failing – to appeal to all sides.”
It’s not just the fact that he wants to redistribute wealth; it’s that he favours particular groups, especially families with children, says a Daily Telegraph editorial. These 5.3 million people are mainly young, childless low-earners on less than £18,000 a year. The current system of benefits and tax credits thus has “the perverse effect of rewarding people for having children they cannot afford to support, and penalising young couples in low-paid jobs who might be trying to save before they start a family, or single people attempting to achieve financial independence before marrying”.
The condition of the working poor would be much improved by simply raising the threshold for income tax. It would be the quickest and most cost-effective way of helping them, and would also provide an incentive for people to find jobs.
It would, says Robert Chote, director of the Institute for Fiscal Studies, in The Sunday Telegraph, and it may also be the best option politically. The 10p rate should never have been introduced in the first place and would cost nearly £7bn to restore. Tinkering with tax credits may prove of little political benefit since voters already see the tax system as “complex, bureaucratic and stigmatising”.
Raising the personal allowance, on the other hand, would be simple and popular. Raising it by £300 would remove 3.3 million losers and cost £2.5bn; raising it by £750 would remove almost all the losers and cost £6bn. “The political calculation is whether he could compensate enough losers to stem the protests, without spending so much that he had to do something even more unpopular to pay for it.”
As for the consequences of this latest climbdown for the Prime Minister, the Government may “muddle through”, says Peter Riddell in The Times, but the political cost will be high. Many people are “disillusioned” with Mr Brown, and the timing of this U-turn, just days before the local elections, couldn’t be worse.