Gordon Brown's decision last year, as UK Chancellor, to scrap the 10p starting rate of income tax is coming back to haunt him Rising outrage from backbench Labour MPs eclipsed his American trip. A revolt is in the air.
As Robert Chote of the Institute of Fiscal Studies observes in the Sunday Telegraph, the 10p rate does add complexity to the tax system. Scrapping it hurts people in the £5k-£20k range, and noticeably helps those in the £20k-£40k bracket. Helping the rich at the expense of the poor? No, says Choate: by raising tax allowances for pensioners and tweaking tax credits, Mr Brown compensated many of the poorest. The trouble is, he didn't compensate them all. The tax credit changes may help those with children, but not childless people of working age. Some 5.3m people are worse off.
The move to scrap the 10p rate is seen by experts like Choate as a welcome simplification of the tax system. But by relying on his over-complicated tax credits to soften the blow, Brown is simply extending one complexity as he reduces another.
The Conservatives have seized the political ground by saying that they would restore the 10p starting rate. A good dog-whistle policy, but the wrong one. It's time we scrapped the need for tax credits and took the poorest people – certainly those on or below the minimum wage – out of taxation entirely. That would be one great simplification. Another would be to cut out the other tax complexities and extend the 20p rate to everyone. It's called a Flat Tax, it works, and you can read about it here and here.
