Developments since the 2008 Budget
36. When we took evidence from Treasury officials
on 18 March during our inquiry into the 2008 Budget, we sought
and failed to obtain a direct answer to the question of how many
people with an income of less than £18,500 would face a fall
in their living standards in 2008-09 as a result of the abolition
of the 10 pence rate of income tax and other measures.
In written evidence received the following day, the Treasury stated
that 800,000 single earners with income under £18,500 would
see their income decrease by around £1.45 a week on average,
with the maximum loss to any individual being £232 a year
(£4.46 a week)about 3% of net income.
When we raised these figures with the Chancellor of the Exchequer
on 19 March, he acknowledged that there were people who would
be adversely affected by the measures in the previous year's Budget.
With respect to those aged 60 to 64, he drew attention to the
benefits of the additional winter fuel payment. He also said that
"we have tried to help wherever we can through the tax credit".
In our subsequent Report we concluded:
Those most affected by the abolition of the 10 pence
rate of income tax appear to be those below the age of 65 with
an income under £18,500 who are in childless households.
The effect is greatest on those households where no individual
is above the age of 60 because the household does not then benefit
from the higher winter fuel allowance. We accept that there are
benefits in tax simplification and that there are merits to focus
on both the needs of children and motivation to work. However,
the group of main losers from the abolition of the 10 pence rate
of income tax seem an unreasonable target for raising additional
tax revenues to fund these and other initiatives.
37. Our views were part of a growing chorus of
concerns about the effects of the tax measures as they came into
force in the new tax year. The postbags and inboxes of Members
of the House of Commons began to bulge with letters and e-mails
expressing concern about the effects of the removal of the starting
rate of income tax. That decision dominated the debate on the
Second Reading of the Finance Bill on 21 April, during which the
Rt. Hon. Yvette Cooper MP, the Chief Secretary to the Treasury,
announced that the programme of work already underway on the next
phase of tackling child poverty would be extended "to include
consideration of households on low incomes without children".
38. Two days later, on 23 April, the Chancellor
of the Exchequer wrote to the Chairman of this Committee indicating
an intention to "do more to help" certain groups "now
and in the future":
The main two groups we want to do more to help are,
first, other low paid workers without children, and, second, pensioners
under 65. We have been actively looking at two ways to help these
groupsdirect payments or changes to the tax credit system
As a sign of the Government's intent, we do not wish to
wait unnecessarily until [the Pre-Budget Report in] November.
Whatever conclusions we come to, all the changes [through direct
payments] will be backdated to the start of this financial year.
These remarks were echoed on the same day by the
Prime Minister, who also said that measures relating to Working
Tax Credit considered for the Pre-Budget Report would relate "to
young people and part-time workers".
In the light of the announcements made on 23 April and the outcome
of a preceding meeting between Mr Frank Field and the Prime Minister,
Mr Field did not proceed with an amendment at the Committee stage
of the 2008 Finance Bill similar in effect to that which he had
tabled to the 2007 Finance Bill.
39. On 13 May 2008, the Chancellor of the Exchequer
announced that he proposed to table an amendment at the report
stage of the Finance Bill to increase the individual personal
tax allowance by £600 to £6,035 for the current financial
year, benefiting all basic rate taxpayers under 65.
We examine this announcement in more detail in chapter 4. However,
before looking at options and decisions for the current tax year,
it is important to look in detail at the initial effect of the
abolition of the starting rate of income tax and related Budget