Abolition of the 10p tax band

15 May 2008

The Government’s reason for abolishing the 10p tax band was to simplify the tax system.  I applaud this aim but the way to do it would be to take people on low incomes out of the tax system altogether and I said this in the Budget day debate in 2007 (click here for my speech).  I was one of six Labour MPs who voted for an amendment to last year’s Finance Bill to review the arrangements in relation to the abolition of the 10p tax rate.

I have pressed the Government on the issue this year by signing Parliamentary motions and the outcome was the Government’s decision to compensate those adversely affected by the measure in this financial year.

On 8 May, I put forward a proposal which, for minimum cost would have fully compensated everyone (please see the text of Early Day Motion 1525, below).   Nonetheless, my preference has always been to have as high a zero rate as possible as indicated in my 2007 Budget speech. 

Since I tabled my proposal, the Chancellor announced details of the Government's compensation package on 13 May 2008.  The personal tax allowance has been put up by £600 - meaning anyone earning up to £40,835 will gain £120, over the original 2007 budget announcements, this year.   The level at which 40p tax is paid will be lowered so higher earners do not gain from the change.  The Chancellor has said this will compensate around 80% of those adversely affected by the abolition of the 10p tax rate and the remaining 20% by at least half.

Given the general economic circumstances, I support the Chancellor's proposal, which is in line with my initial response in 2007 about the importance of increasing the zero rate band, so people on low incomes should be taken out of tax, and also making compensatory adjustments up the income scale.  However, as indicated above, I am in favour of this process being taken much further to achieve a more progressive tax system and redistributing to people on the lowest incomes.

Following the Chancellor's statement, the suggestion in the EDM I tabled on 8 May is still valid but would only be applicable to the 1 million losers who will not be fully compensated by the Chancellor's proposals.  I am drafting an amendment to the Finance Bill to this effect as a measure that the Government could take up for very little extra cost.

2 May 2008 - Tax Credit Information Own Goal

I have written to the Minister for tax credits Jane Kennedy, to express my anger that outdated information is given on tax credit eligibility on the Government website www.direct.gov.uk and to urge that this be remedied and accurate information given, as a matter of urgency.

After a constituent wrote to me to ask about eligibility for single people over 25 for working tax credit, I looked up the earnings cut off point.  The www.direct.gov.uk website said it was £11,700, yet the actual figure is £1,200 higher at £12,900.  The correct figure was recently circulated to Labour MPs in an internal briefing.  It should also be possible to provide the public with correct information!

Failure to update tax credit information may well result in people who are eligible for tax credits not applying.  This is shocking and unacceptable given the widespread concern over people losing out as a result of the abolition of the 10p tax rate and the low take up rate of tax credits.  The Government say they are making every effort encourage people to apply for tax credits and yet some of their basic mechanisms of public communication are not up to date.

A copy of my letter to Jane Kennedy is below:

Financial Secretary
Jane Kennedy MP
HM Treasury
Parliament Street
London
SW1P 3AG

Our ref:            MIN/D0472/ID
Date:                02 May 2008

Dear Jane,

Failure to update tax credit information on www.direct.gov.uk and information available to the public

As a result of emails from constituents over the effects of the abolition of the 10p tax band, I have had cause to look up information on eligibility for tax credits.

The Parliamentary Labour Party did send around a useful three page briefing document which informed me that someone who is single, over 25 and working 30 hours a week can claim working tax credit if they earn up to £12,900.  I wanted to pass this information on but from an official Government, rather than a party source, so I Googled ‘over 25 + 30 hours a week +tax credit’.  This brought up information from the www.direct.gov.uk website, a copy of which I have printed overleaf.  Given the level of concern over the effects of the abolition of the 10p tax band, I was shocked to find this had not been updated and the webpage gave a cut-off figure of £11,700 rather than £12,900.  This might lead people who are eligible not to apply.  This, I am sure you will agree, is a very serious matter; particularly given concerns over low take-up rates for tax credits, which the Government claims to be doing everything possible to remedy.   When will this information be updated?

I subsequently went to the HMRC website to try and double check the figure but I could not find it and could only find a helpline number: 0845 300 3900.  When my assistant first called this she was told that due to the high volume of calls to the number the call could not be answered.  When she tried again, she was put on hold for several minutes and gave up.

On another recent occasion, I went through the HMRC’s tax credits calculator which does apparently give results based on 2008-09 rates and thresholds.  I used the calculator after trying to get information from the frequently asked questions page on tax credits as all I wanted was the earnings cut off point for a couple with children.   This was very long-winded for the information I needed which was simply to confirm that a family with children and a joint income of £37,000 should apply for tax credits. 

I had hoped that the Revenues Tax Credits Ready Reckoner – two pages of tables giving examples of awards for different illustrative family types at different levels of income (http://www.hmrc.gov.uk/taxcredits/reckoner.pdf) – would give me the information I needed without having to enter in details into the calculator.  However the Reckoner still shows the 2007-2008 rates and is therefore useless.  Furthermore, the House of Commons Library inform me that the Reckoner for 2007-2008 was not even put on the HMRC website until 3 August 2007 – 4 months into the tax year.

Why can’t the Ready Reckoner be updated well before the beginning of the new tax year?  After all, the rates and thresholds for 2008-09 have been known for months and why can’t a short leaflet (say, 5-6 pages) be produced setting out the 2008-09 rates and explaining how people can do a rough calculation to see how much they likely to get?

Finally, I note that  the calculator does not calculate the award for the whole tax year but the amount you could get between now and 5 April 2009, so it too is useless for people wanting, for example, to check if their annual award is correct.

I should be grateful for your response to the points raised.

Yours sincerely,

LYNNE JONES MP

Out of date information on www.direct.gov.uk sourced on 1 May 2008:

Source: http://www.direct.gov.uk/en/campaigns/DG_071114

Working Tax Credit

1. Are you aged 25 or over?

2. Do you work over 30 hours a week?

3. Do you earn less than £11,700 if you're single or £16,300 with a partner?

If you answered yes to all three questions, you could be eligible to claim Working Tax Credit!

Do I qualify?

If you’re at least 25, working over 30 hours a week and on a low income, you may be able to get money from tax credits – you don't have to have children to claim.

To find out what you could claim, call the helpline on 0845 300 3900

If you’re single, you could get money if you:

·  are over 25

·  work more than 30 hours a week

·  earn less than £11,700 a year

If you’re living with a partner, you could get money if:

·  at least one of you is over 25

·  at least one of you works more than 30 hours a week

·  together you earn less than £16,300 a year

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