Gordon Brown, our increasingly beleaguered prime minister, seems to have a rebellion on his hands over the abolition of the 10 percent starting rate of income tax.
When he announced the measure in his final budget as chancellor hardly anyone on the Labour benches noticed, so bowled over were they by the reduction in the basic rate from 22 to 20 percent. The Tories were quick to say that this tax cut was a tax con, but it looked like Brown had managed to get away with it. But with the change about to come into effect and the mood on the Labour benches ‘sulphurous’ (to quote Kate Hooey, the former minister), it doesn’t look like that anymore.
It was always a curious move for a Labour chancellor – who had himself introduced the 10 percent starting rate – to make. Cutting the basic rate of tax – good idea. Simplifying the tax code – good idea. But financing the changes by increasing taxes on the poor (anybody earning under £18,000 who doesn’t have dependent children is set to be worse off) really doesn’t make a lot of sense. As a leader in the FT put it:
The prime minister stole from Peter to pay Paul. Peter has woken up to the fact.
The ASI’s long-standing campaign for income tax simplification would have involved abolishing the starting rate of tax too, but we would balance things out by raising the personal allowance quite substantially – to at least £12,000 – so that someone earning the minimum wage would be taken out of the tax net altogether. Come to think of it, I’m not sure why politicians aren’t keener to take that suggestion up. Surely it’s the perfect tax reform? It leaves everyone better off, but the lower your income, the greater the benefit.
Anyway, things are really starting to look grim for the prime minister, as Rachel Sylvester showed in yesterday’s Telegraph, with infighting, indiscipline and a chronic lack of direction taking hold. The point-of-no-return may not have been reached yet, but it can’t be too far off.