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'No perfect solution' to 10p tax band row

22 April 2008
Categories: News , Income Tax
Why the controversy only now, ask commentators

Not matter how the row of the newly abolished 10p tax band is resolved, it will not benefit everyone, one of the UK's leading tax experts has warned.

As disquiet continues to rage over what many organisations and MPs see as an attack on low-income earners, John Whiting of PricewaterhouseCoopers believes there can be no absolute solution — and whatever is done is certain to increase the tax system's complexity.

He has also questioned why opposition to the controversial legislation has not been prevalent until now.

Former minister Frank Field's current push to delay the instigation of the new tax bands would be workable, said Mr Whiting, but measures such as the new, higher personal allowances for the over-65s would also have to be stalled.

'You would have to unwind the whole lot,' he said. 'The problem is that there are disparate groups affected by the loss of the 10p band.'

John highlighted three categories:

  1. Under-65s who have given up work, but are not entitled to a age-related tax allowance.
  2. Low-earning workers under 25, who are not entitled to working tax credit.
  3. Part-time workers.

There are a number of possibilities, each with its own difficulty, remarked John, who is chairman of the CIOT's management of taxes sub-committee.

'You could give age allowances to anyone aged 55 or over, but that would entitle a lot of people who don't need it.

'Working tax credits could be extended to under-25s, although that would be very costly.

'Perhaps it could be possible for HMRC to grant the 10% band to anyone who can produce absolute proof that they are a low-income earner.

'However, that would mean a massive amount of admin, and the potential for the system to be fiddled would be enormous.

John added: 'If anything were done, it would have to be pragmatic and would undoubtedly add complexity. It will help some but not all.

Finally, he questioned why the controversy over the 10p band abolishment has only recently risen.

'One does wonder why there was no fuss over this earlier [after the move was announced in the 2007 Budget].'

This view was backed up by Mike Warburton, senior tax partner at Grant Thornton, who commented: 'It's great that considerations on possible revisions to taxation of low-income earners are being discussed in the House this week, but why only now?

'Surely, when this problem was spotted in March last year, action could have been taken earlier to work out a solution over the proceeding 12 months before the changes took effect.'

The Liberal Democrat's deputy leader, former economist Vince Cable, was equally curious about the apparent delay to protests.

'The belated conversion of Labour backbenchers to oppose this tax rise is welcome, but it does raise questions of where were they on this issues last year,' he said.

'We have been arguing against this punitive tax measure for over 12 months, but it is only at the 11th hour that Labour MP's have decided to join us.

'Cuts in the basic rate of tax are welcome but this cannot be at the expense of those on very low incomes.'

Sections - income tax and NI

Categories: News , Income Tax
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