Brown faces mutiny over abolition of 10p tax

MPs rally to the defence of low-income workers as students set to bear the brunt

Gordon Brown

Paris Gourtsoyannis
Thursday 24 April 2008 | 18:06:41 UTC, The Journal Issue 8

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A back bench revolt is brewing over the Labour government’s plans to abolish the 10p tax band.

Originally put forward in Prime Minister Gordon Brown’s last budget as Chancellor of the Exchequer in 2007, the proposals have drawn fierce criticism from Labour MPs who feel that the move penalises low income workers.

Led by prominent Labour Party figures, such as former Welfare Minister Frank Field, back benchers are threatening to embarrass the Prime Minister when the measures come to a vote on Monday 28 April.

“We have never had a measure where we are being asked to vote for a package that makes 5 million of the poorest people worse off, who are doing exactly what the government has asked people to do, that is work,” Mr Field told the BBC.

“It looks to me like this is a train wreck going to happen. I didn't come into politics to make my constituents who earn £6,000 a year worse off,” one Labour MP told the Guardian.

The leader of the Trade Union Congress, Brendan Barber, also condemned the proposed tax system.

"We have concerns that on a whole range of issues the call has been wrong, that the government has been paying too much attention to the siren voices of those campaigning for the super-rich and the corporate elite," he said. "They should not be intimidated by self-interested lobbies. They should have greater political confidence to set out their programme."

Tory and Liberal Democrat MPs will join any Labour rebels in opposing the government, heightening the chances of a defeat for Mr Brown and the current Chancellor, Alastair Darling.

The Prime Minister was forced to take time out from the schedule of his trip to the United States last week to avert the resignation of a senior parliamentary aide, Angela Smith, and avoid the embarrassing headlines that would result.

While no frontbenchers have yet broken ranks over the policy, the prospect of further resignations remains. Two further aides working under Cabinet Office minister Ed Milliband, have written to the Prime Minister to "to express [their] concerns over the effect that the 10p tax rate abolition will have on [our] constituents.”

Proposals to appease dissenting voices within the Labour Party are being leaked to the press in advance of Monday’s debate, with suggestions that the minimum wage could be raised or the tax credit scheme widened attracting most attention.

How does abolishing the 10p tax-band affect you?

Abolished to help pay for tax credits for economically vulnerable members of society, the eradication of the 10p tax band will hit students and pensioners hardest, as their low incomes cannot be supplemented with government benefits for young families or single parents.

A student earning anywhere up to £430 a month is free from all tax save nominal National Insurance contributions – which themselves have fallen as a result of other measures in the budget currently being debated.

However, during the summer months, when students often take on more working hours to help save to cover debts accrued during term time, young people will feel the pinch of the new tax code.

A student earning the minimum wage of £5.52 per hour and working 40 hours a week would earn £220.80 a week, or £883.20 per month. Of their income, only £453.2 is over the taxable threshold.

However, whereas under the old tax code, their tax burden would be £45.32, under the new system the same student would pay £90.64 – put simply, their tax costs have doubled.

As this generation of students prepare to graduate into a recession, with a fraught housing market, rising inflation and poor mortgage provision, a 10p increase in taxes will hardly be welcome.

Given the spending habits of the average student, it can also be argued that the government’s proposals are hardly economically sound, given that economic stimulus in the hands of the most fiscally prudent members of society – single parents – will hardly give the economy a boost.

What £45 could have bought you –

Two weeks worth of groceries

Gas and electricity in a shared four-bedroom flat

56 tracks downloaded from the iTunes store

A full tank of petrol for a 1L VW Polo

Half the price of a one-night city break in Brussels, travelling by Eurostar from London

25 pints of Carlsberg – £1.75 at the Three Sisters with a student card

What the government says:

"We are listening to people's concerns." Angela Eagle, Treasury Minister, speaking on BBC radio.

“You’ve got to get it into perspective. The basic rate of tax has been cut from 22 to 20p. People will notice that.” ‘Senior government source’ quoted in the Guardian.

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