Just a few months after the capital gains tax farce, Gordon Brown made another embarrassing U-turn yesterday. With forty of his own MPs opposing the abolition of the ten percent tax band and local elections coming up next week, the prime minister announced that a ‘compensation deal’ for the losers from the tax changes would be unveiled in the autumn. The 10 percent starting rate of income tax will still be abolished, but the groups that stand to be left worse off – 60-64 year olds and low-paid workers without children – will get more winter fuel payments or new tax credits.
Once again, an attempt at simplification has ended up making the UK’s tax code even more complicated and confused. It’s already the longest in the world at 9,973 pages, while its administrative burden costs the UK £5.1bn a year. Nor is the government’s quick fix (rushed out just in time for Prime Ministers Questions) likely to satisfy opponents of the tax change. The parliamentary rebellion may have been averted, but taxpayers will not be so easily satisfied. They don’t want the hassle of filling out forms and applying for tax credits, they just want to pay less tax and keep more of their hard-earned cash in the first place.
A much better solution is to take the poor out of the tax system altogether. At the minimum, the personal allowance should be raised so that no one earning less than the minimum wage (about £12,000) a year pays any income tax at all. Then you could get rid of the labyrinthine tax credit system and all the bureaucracy that goes with it as well.
Unfortunately I can’t see the government going for such an obvious solution. They would rather tax you as much as they possibly can, and then give back only as much as they think you deserve.