It's been well commented on across the blogosphere that today's Budget effectively increased tax for almost everyone except those within a tiny sliver of earnings somewhere between £18K and £25K. This has been caused by the scrapping of the 10% rate at the bottom and the planned re-alignment changes to NI at the upper rate. The argument about those at the bottom then finds itself depending entirely on the tax credit system.
According to many Labour supporters it is not accurate to say people at the bottom will be hit because tax credits have been increased. However, whilst tax credits themselves have been increased they continue to exist in a system which means the marginal rate of tax for people on credits zooms in to the upper percentiles above 50 because of the impact of a pay rise or god forbid someone wanting to do overtime.
So what we effectively have from the budget is a tax hit on the relatively well-paid (I refuse to say rich because I'm not rich and I'm in this group) through NI increases, whilst simultaneously locking the lowest income groups into a credit system that maintains their reliance on the state for subsistence and discourages social mobility through overtime (let alone savings). This is of course assuming that all these people claim, and based on figures that I've read in Hansard there are many who do not (for whatever reason).
For anyone wondering who the people hit at the bottom are earning the £10 to £13K mark, they are, according to the Office of National Statistics.
- Playgroup leaders/assistants £12,466
- Kitchen and catering assistants £12,343
- Hairdressers, barbers £12,226
- Launderers, dry cleaners, pressers £12,077
- Bar staff £11,799
- Retail cashiers and check-out operators £11,766
- Floral arrangers, florists £11,651
- Elementary personal services occupations £11,617
- Waiters, waitresses £11,428
- Leisure and theme park attendants £10,698
If Brown had been really brave he would've left the basic rate the same and scrapped the 10% rate by increasing the tax free threshold by that extra couple of grand instead. That would have a real impact on enabling people at the bottom to move up the ladder by keeping more of their own money in their pockets, but then that doesn't create an easy "Brown cuts income tax" headline does it?
* It's worth noting that even Labour bloggers have been discussing the "this is really a tax rise" line. It's not just Tories.
Update: Have just noticed Ed Vaizey making the same point about the headline on Comment is Free.