The low-paid will suffer most

Meanwhile, the headline basic income tax rate drops by 2p. According to Brown, in 2008-9 this will cost the exchequer some £8bn. Dropping the 10% rate will fleece the lowest-paid workers of £7.3bn in the same period.

Arguably, this could be considered a fundamental failure by Labour to look after the most vulnerable workers, people it is ostensibly committed to protect. However, Brown's reasoning behind the change is even more bizarre. According to the official Budget document, the 10% rate is being abolished, and I quote, "creating a simpler structure of two rates: a 20 pence basic rate and a 40 pence higher rate". In essence, he's claiming to be simplifying the tax system (despite the fact that income tax is probably already the simplest part of our overcomplicated tax system to calculate).

1.8 million taxpayers to suffer?

According to the 1999 Budget document, some 1.8 million taxpayers would see their tax bills halve, as a result of the shiny new 10% band. However, by ditching it now, we can see that many millions more taxpayers will suffer. Using Brown's own measure of inflation (3.7%), and applying the tax changes to a £14,000 salary (rises to £14,518 in 2008-9 tax year), the tax take rises by a staggering 9.4% - more than double the rate of inflation - and that includes the 2p "reduction" in income tax.

Bargain of the century
We have to hand it to Brown: As he girds his loins to take power from Blair sometime in the coming months, he's managed to create a vote-buying headline 2 pence reduction in income tax, which actually costs him the equivalent of 0.25 pence reduction. For any Chancellor, that has to be the bargain of the century.

But if your salary is less than £14,000, you'll be feeling the full cost of those votes every time you get a payslip.


Links:

1999 Budget: http://www.hm-treasury.gov.uk/budget/budget_99/budget_report/bud99_chap01.cfm
(10% rate announced in the Making Work Pay section)

2007 Budget: http://www.hm-treasury.gov.uk/media/73B/4D/bud07_chapter1_314.pdf

(PDF document - 10% rate abolished, in several locations

http://www.hm-treasury.gov.uk/media/73B/A4/bud07_chaptera_235.pdf

(PDF document - all the facts and figures, including the expected £8bn cost of the 2p reduction, and the £7.3bn gained by dropping the 10% rate)

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