Brown unveils £2.7billion tax cut to end 10p rate row

14 May 2008 / by Rachel Mason
Gordon Brown made one of the biggest political and economic U-turns in modern politics last night when he announced a £2.7billion package of tax cuts in an attempt to end the row over the controversial abolition of the 10p tax rate.

In what the Guardian described as an 'emergency mini budget', the Chancellor Alistair Darling has put up the personal tax allowance by £600 in order that 22million basic tax payers – everyone earning up to £40,835 - will gain £120 this year.

Darling also told MPs he would lower the level at which 40p tax is paid - from £41,435 to £40,835 - so that higher earners do not gain from the change.

The move, seen as an attempt to compensate those who lost out when the 10p tax band was abolished, will benefit some of those affected.

But of the 5.3million households affected by the scrapping of the 10p rate, only 4.2million will receive either as much or more than they lost; Darling has said that the remaining 1.1million will see their losses 'at least halved'.

The biggest winners are those earning between £13,335 and £40,000, as they will gain once from the reduction in the basic tax rate from 22 per cent to 20 per cent and then again from the additional £120. Half of the £120 will appear as a lump sum in September pay packets while the balance will be paid at £10 a month for the following six months.

Although Mr Darling has denied that the plan is a political bribe ahead of the Crewe and Nantwich by-election on 22 May, Shadow Chancellor George Osborne has criticised the motives behind the move, telling BBC Radio 5 that is was a 'cynical' attempt to get voters on side.

Mr Osborne says he thinks the Chancellor has been "humiliated" into drawing up "a mini-Budget to make up for the mess the Prime Minister made in his last budget as Chancellor.

"Let no-one be fooled why you are making this statement today - not because you wanted to.... but because this divided, dithering and disintegrating government are panicking in the face of the Crewe and Nantwich by-election," he said.

Mr Osborne also pointed out that the statement says the compensation is just for this year, so, unless the Chancellor makes the same move again next year, those who did lose out when the rate was scrapped will be back to square one.

Mr Osborne is not the only one unconvinced by the surprise announcement; Lib Dem treasury spokesman Vince Cable, called the move a "short-term gimmick" while the BBC's political editor Nick Robinson said that the Government has effectively been forced into an "emergency budget" due to fears that a Labour rebellion might see a Commons defeat on this year's Finance Bill.

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