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Government says sorry for axing the 10p tax band

29 April 2008 / by Daniela Gieseler
The government yesterday apologised to low-paid earners for scrapping the 10p tax rate, with the Justice Secretary Jack Straw leading the way in an interview on Radio Five.

Responding to a caller who told him he was losing money Mr Straw said: "I am sorry that you have been placed in this position and it shouldn't have happened."

The changes were introduced a year ago by Gordon Brown in his last Budget as a Chancellor, despite warnings from independent economists that millions of earners might lose out due to the abolition of the tax band.

Mr Straw implied that the government had not completely understood the consequences at the time: "Sometimes, even with the best brains available to Government, there are inadvertent consequences of changes."

"We put our hands up to that, we should have known more about the impact of the abolition of the 10p tax rate."

Asked for a comment on Mr Straw's apology the Prime Minister followed suit later in the afternoon: "Well, of course, because it's unfortunate when things go wrong for people and we've tried to sort that out immediately over the last few days."

Gordon Brown had promised compensation for the 5.3 million hit by the abolition of the lowest tax band last week in an attempt to avert a rebellion among Labour backbenchers.

However, the Government is under renewed pressure as a new report by the Social Market Foundation estimated the cost for compensating all those affected to be up to £4.5 billion – a multiple of the amount the Treasury initially planned to set aside.

In addition, a calculation by the Institute for Fiscal Studies revealed that the Chancellor's compensation package would actually only help 2 million out of the 5.3 million households affected.

As the Treasury grapples with the different options available for compensating the victims of the abolition, charity Citizens Advice Bureau urges the Chancellor to find a quick and effective solution, including an extension of tax credits or an increase of the personal tax allowance.

"Every year Citizens Advice Bureaux provide advice on nearly 3.5 million problems to welfare benefit, tax credit, and debt. The effect of the removal of the 10p starting rate of income tax is therefore of great concern to us," said Katie Lane, social policy officer at the Citizens Advice Bureau.

"While we welcome the government's recent commitment to compensate those who have lost out, it is vital that any means can be introduced quickly, are backdated and are easy for people to receive. Any barriers, such as complex claiming procedures could cancel out any positive impact."

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