Wednesday, April 23, 2008

Who are you not Calling Poorer, Kezia? And Why?

Yesterday the top Scottish Labour blogger, well more or less the only one of any regularity, Kezia Dugdale posted her defence of the doubling of the 10p lowest tax rate. In the comments following this post in response to me asking if she was admitting that Labour had got their sums wrong she proceeded to give a B+ mark for this particular exam.

Now seeing as my late father every July for years was closeted away in the study, surrounded my marking schemes as he marked the old O'level long paper. As a result I know that even if the answer is wrong, it's the working out that still earns you the mark. as he would have to take it through from an error at step one to see if the rest of the equations were correctly worked out.

So for the question posed we need to look at the first step, after all it was a labour budget.

I would propose Keir Hardie as the founder of the Labour party as we know it. One of his key stances when he first stood was a graduated income tax and seeking to improve the lot of the labouring classes. However, as he was also a Socialist with a big 'S' maybe Labour don't want to go back that far.

It was a New Labour that emerged in the 90s.

So lets look at that monumental manifesto that got New Labour Elected in 1997.

They promised:

There will be no increase in the basic or top rates of income tax

The also attacked the Conservative government of John Major of "the broken promises [which] are strewn across the country's memory. " regarding their promises not to raise taxes, oh dear, I find an error there for a start.

They also promised "A Long-term objective of ten pence starting rate of income tax". Can I ask just what is meant by long term if it is taken away again only 8 years after it's introduction in 1999. Now that is approximately 2 government terms hardly long term more like medium term I would say.

They said the following about economic stability:

Government cannot solve all economic problems or end the economic cycle. But by spending wisely and taxing fairly, government can help tackle the problems. Our goals are low inflation, rising living standards and high and stable levels of employment.

Whoops again! The fairness of the doubling of the 10p minimum rate is only fair to Londoners possibly, who aided by their London weighting may reach above the £18000 threshold. As for raising living standards, with everything else going on, food price inflation at 15%, energy prices also up by 15% over the past year. Yet somehow the underlying rate of inflation is sticking to the government targets of 3%. "Three percent to whom?" is the question many of those 5.3 million now losing out on income to even cover that 3% are asking.

Finally I'll turn to the Prime Minister's 11th and final budget of last year, here's how he introduced what is now becoming the hottest potato in Westminster.

Indeed, in making work pay, people on low incomes get more benefit from the working tax credit than either the minimum wage or any other tax measure, whether it be the 10p rate or personal allowances.

If I invested £1 billion in helping low income workers through raising personal allowances they would be only 68p a week better off. If I used the same money to lower the 10p rate, they would be just 67p a week better off. But by using the same money to extend the working tax credit they are £7.10 a week - £370 a year - better off, a clear incentive to take jobs and to gain skills and to work your way up from a lower paid job to a better paid one.

Be warned if you want to work your way up from a lower paid job to a better paid one, there comes a time when the tax credits run out and the income tax doesn't make it worthwhile and it comes a long way you hit £36k and the 40% tax band.

To be fair Kezia's title was "Who are you calling poor?" many of us are just pointing out to Labour that we definitely becoming poorer is all too many way.

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