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Mini budget special: The 10% solution

13th May 2008
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The chancellor, Alastair Darling has announced a £600 increase in the previously budgetted 2008/09 personal allowance as a “compensation package” for lower earners affected by the abolition of the 10% band for earned and pension income. This measure also reduces the higher rate threshold to compensate and so higher rate tax paying earners do not also receive the £120 windfall, which applies for this tax year only.

The effect of the change for a basic rate taxpayer on £25,000 p.a. is as follows:

Before: After:
Income band
Tax rate
Tax due
Income band
Tax rate
Tax due
5,435
0%
0
6,035
0%
0
19,565
20%
3,913
18,965
20%
3,793
Total:
£25,000
£3,913
£25,000
£3,793
Result:The basic rate taxpayer becomes £120 better off.

Gordon Brown had announced the removal of the 10% tax band for this year in his 2007 budget, but it seems that MPs, cross party were unable to appreciate the full effect of the tax change until recently. Darling in this mini-budget has now silenced Labour's vociferous tax rebels and attempted to firm up his party's position ahead of the Crewe and Nantwich by-election.

Some of Accountingweb.co.uk's members were very quick to point out that the chancellor had made an error in his speech, he told the House of Commons that, “as the £600 increased personal allowance applies not just to basic rate taxpayers but also to those paying tax at a higher rate, I am therefore reducing the threshold at which an individual starts to pay tax at the higher rate by £600.” Doing the maths, this would allow higher rate taxpayers to also share in the windfall.

HMRC corrected the Treasury's embarrassing blunder on its website and announced instead, “To reduce the higher rate threshold as announced by the Chancellor, the basic rate limit will be reduced by £1,200 from £36,000 to £34,800. Higher rate taxpayers will see no difference in the amount of tax they pay.

The effect for a higher rate taxpayer on £50,000 p.a. is therefore illustrated as follows:

Before: After:
Income band
Tax rate
Tax due
Income band
Tax rate
Tax due
5,435
0%
0
6,035
0%
0
36,000
20%
7,200
34,800
20%
6,960
8,565
40%
3,426
9,165
40%
3,666
Total:
£50,000
£10,626
£50,000
£10,626
The effect of the change is that the tax liability of anyone who currently pays tax at 40 per cent will be unaffected by the increase in the personal allowance. Those brought into the higher rate will gain by up to £120 this year. The change will apply for PAYE purposes in September 2008 when basic rate taxpayers will receive an extra £60 followed by £10 per month until the end of the tax year.

Further example of the increase in personal allowances: No effect on earned or pension income of £41,435 or higher

Before: After:
Income band
Tax rate
Tax due
Income band
Tax rate
Tax due
5,435
0%
0
6,035
0%
0
36,000
20%
7,200
34,800
20%
6,960
600
40%
240
Total:
£41,435
£7,200
£41,435
£7,200

Editorial comment: The 10% savings band
The chancellor did not make any mention as to the effect of the change on the 10% savings band. HMRC is expected to publish revised guidance on this sadly complex topic in due course. Its illustrative examples, posted on its website last month are now of course out of date.

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By Anonymous
05th Jun 2008 16:43

Never mind James
you just snooze on I know that it is dificult for you to understand how finance works, but there ARE some of us who are awake to the con tricks used against the tax-payers,

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By Anonymous
05th Jun 2008 11:29

In summary
James I don't know about, "there seems to be too much politics of envy from a number of the contributors" from me there seems to be too much politics of GREED from a number of the contributors"

my personal politics are the politics of the Mensch, and for those like James who know their Latin, but perhaps not the Yiddish, that means being a decent honorable human being,
rather than that of a mamzer and a gazlen, go look it up for your-self

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By Anonymous
05th Jun 2008 11:14

and those who REALLY understand...
here's how it REALLY works

A mega-rich business man gets a group of nine others together for a regular dinner every night, they agree with the business man to "Pool" their money and let him "Negotiate" the bill, one of them, an accountant, is appointed "Auditor" to watch the money.
the business man and the bar owner agree on £100 a night but to make out the bill to £120, but not to tell the others if he wants the business, the owner agrees.
First night the BM (Business man) collects £12 from each of them and taking the auditor with him goes to pay, they pass the bar he says to the auditor, "Have a brandy on me, don't tell the others" the BM goes and pays the bar-owner, he pays over £100 and pockets the other £20.
result the "Auditor" gets a free brandy each night, the BM makes £8 (9 lots of £12 = £108 less the £100) and a free meal, every-one-else pays £2 over the odds.

This goes on each night until the BM tells the bar-owner, "We would like the following changes to the bar, if we are the continue to eat here every night" now the bar-owner, is pleased to have a regular £100 every-night so he agrees, but finds out that the changes means that he gets fewer casual customers and has lost some old regulars, but what the heck, he has a regular £100 a night.

Next the BM tells the owner, "In future you must charge us only £80, but keep on drawing the bill to £120", the owner now relies on the group as almost his only income, so is forced to agree.

The BM continues to collect the money, "Treat" the "auditor to a free brandy, pays the owner £80 and pockets the other £40
Result the "Auditor" gets a free brandy each night, the BM makes £28 (9 lots of £12 = £108 less the £80) and a free meal, every-one-else pays £2 over the odds and the owner is reduced to near bankruptcy

and THAT is how it REALLY works

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By mydoghasfleas
04th Jun 2008 17:07

In summary
James

I've seen the story but it does not take away the truth it makes which is fairness is very subjective.

I mentioned this string of correspondence to a "learned friend". His response was

"That so many finance professionals could even for a moment think that in a slab-based system of tax (the first slab being tax-free, with each slab being of non-zero width and associated with a higher rate of tax than was the preceding slab) one could precisely compensate for an abolition of one slab by changes to other slab thresholds or tax rates, demonstrates but one thing.

That thing is the widespread need for remedial courses in basic algebra.

There is simply no need for examples to illustrate that sus domestica won't volitate.

No wonder that most of Gordon's thievery has remained undetected by the majority in the profession. He paid attention in class."

I only stuck my oar in due to the hold times with HMRC; there is a limit to what you can do whilst Pachabel's canon plays; this was one option. However, there seems to be too much politics of envy from a number of the contributors and I think this string has run its course. I am out of here, never to return.

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By Anonymous
04th Jun 2008 17:05

and those who understand
totally agree, if they think that they can earn the same money over-seas, LET them, because they will leave the same size hole that they would do by taking their hand out of a bowl of water.

no one but NO one is indispensable, there are plenty of other people just waiting to do their job and earn that money, let them go abroad and see if they can still earn that money

it never ceases to amaze me the ridiculous extent to which some people will go to to back-up their un-supportable support of the super-rich, do they see them-selves as possible future super-rich, or do they feel by supporting the super-rich, the super-richness it will some how rub off on them

this is exactly what the super-rich rely on to keep us plebs in our places

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By silicondale
04th Jun 2008 16:53

and those who understand...
... well enough to realise this is a completely false analogy ?

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By mikewhit
30th May 2008 13:29

Uneconomic
@Payroll man:
Not only marginal rate, but marginal utility of the earned/taxed £1 ...

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By Anonymous
29th May 2008 11:37

Progressive, Flat or Fudge?
In any discussion about the fairness of taxes, one should distingusish between the overall tax burdern each individual bears and each individual's MARGINAL rate of tax. To the extent that the tax system determines behaviour (whether to work or not, whether to remain in the UK or not), it is the marginal rate that is important, not the overall burden.

The system we have is a fudge whereby, when you take into account the effect of NICs and tax credits, the marginal rate suffered by some lower paid is much higher than that suffered by the higher paid. Any system which starts taxing income before it starts withdrawing benefits is bound to suffer from this so-called "poverty trap". This means that at least some low earners will prefer to remain on benefits rather than seek better paid work. Is this fair on everyone else?

Governments have realised that a marginal rate of much more than 40% will drive out many high earners and would probably reduce the overall tax take. If not then higher earners would already face a higher marginal rate. Instead, they've slapped the highest marginal rates on the low earners who are less likely to move away.

Consider a hypothetical system in which there is a personal allowance of £20,000 and a sigle tax rate of 40%. Your tax liability is calculated by deducting the allowance from your income and applying 40%. If your income is below £20,000 this results in a negative liability, or tax credit. Someone with no earnings ends up with £8,000 net income. Someone earning £15,000 ends up with £17,000 net income. Someone on £25,000 ends up with £23,000 net income. And so on. There are no other benefits or direct taxes (aka NICs).

This system is "progressive" in that the overall tax burden as a proportion of overall earnings rises continuously and trends towards 40%. It is also "fair" in that the marginal rate suffered by everyone is the same, 40%. Of course there would need to be some restrictions to prevent people claiming the tax credit as soon as they've stepped off the plane and claimed asylum.

No one NEEDS £100k or more to survive, but the the fact that they can aspire to it is what makes a successful and dynamic economy. Surely the fairest system is one in which everyone gets to keep the same proportion of every extra pound they earn from working towards fulfilling their aspirations.

The hypothetical system described above would also have enormous benefits in terms of simplicity. Unfortunately, ANY reform of our current system requires a strong political mandate and sound public finances. We don't have either and are unlikely to do so for a while so we'd better get used to the sort of fiddling we've seen with the 10% rate.

PM

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By Anonymous
29th May 2008 11:35

NOT a wind up
Mick, 28 May 2008 @ 16:55 PM
Surely a wind up by Stevan?!
Surely Stevan can't actually believe the rubbish he is posting on here. If not, then perhaps he ought to leave the country and do some volunteer work overseas where he can feel better about himself and not feel guilty about owning two coats etc!


My reply
this is the difference between you and me, I HAVE lived and worked abroad, (as an itinerant laborer before I reached your shores as a Displaced Person,) trying to find work to feed my-self and earn maybe a corner of a barn in which to sleep, I have been grateful for the generous peasant farmer who has given me that work and maybe an old coat of his, when I had none, so I KNOW about the difference between two coats and none and I have always found that the poor were more generous than the rich.
The poor KNEW what poverty was and help one-another, the rich only bleated about how much of their wealth they had to pay, the poor shared what little they had with a good heart, while the rich simple set their dogs on me.
Most people in the UK are VERY lucky to live in a state that at least has the semblance of caring for the poor, even if Nu Labor are destroying that.
As an actor/entertainer I have at times earn very good money, and have never objected to paying the high tax that this attracted, from me this was just paying back to society as a whole what it had give me

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By Anonymous
28th May 2008 17:44

Mick -
Sorry to disagree. Stevan is not talking rubbish. In fact the concept of redistributive taxation is at the root of our civilisation. Without it, the whole concept of society falls apart and you just have a free-for-all, with (to continue the coat analogy) those who are able cornering the market in coats, and those who aren't, freezing to death.

Of course it is fair that someone who earns £10,000 need pay only £2,000 in tax (or preferably no tax at all) while someone who earns £5,000,000 pays £2,500,000. If you have the same tax percentage for everyone (and this idea of a 'flat tax' is a neo-con favourite) then the poorest are denied what they actually NEED to survive.

It could be argued that since everyone COULD survive on £10,000 a year, then someone with a £5,000,000 income ought to pay £4,990,000 in tax. I wouldn't go that far. However, a reasonably progressive income tax system IS fair.

To pick up another point - about the ultra-rich who might consider relocating overseas. I say again, good riddance. There is not a shred of evidence that their contribution as individuals to the economy or to society in general is worth trying to keep them here. Although 7 and 8 figure incomes have become the norm in the upper echelons of some areas of business, it doesn't mean that they are justifiable in terms of the real contribution of those individuals to the country's economy. Fortunately the majority of higher earners are not in this category. Although they might be unhappy at higher taxation (who isn't?) they would see the social justice of it, if it were explained properly - something that governments are notoriously bad at.

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By Anonymous
28th May 2008 12:10

yes it IS fair
1 Is it fair that someone on £5,000,000 should pay £2,500,000 (if a 50% band were introduced) tax on the income and someone on £15,000 pay £2,000. Without going right down to user pays is it fair for someone pay 1,250 times as much as someone else?

is it fair that the person earning £10'000, ends up trying to live on £8'000, in other words less than 1/300th of the millionaire. How much of the £2'500'000 can the person really NEED or sensibly spend, shouldn't common decency mean that the mega-rich should help the dirt poor, how many in the UK decry other countries where there are obscenely rich, while other die from poverty, well folks the UK is no different


2 Should the person paying more have a larger say, would that be fair?

they always have, they normally have a "Back-door" to the PM, or use black-mail, "Do as I want or else"


3 If someone had no coats and you had two, would it be fair that they took one of your coats without you having a say?

Too BLOODY true, and you would too YOU if you were the one with-out a coat, in fact if you were at all decent you would be the one to GIVE your second coat, how many coats can you wear, the same as how many houses can the mega-rich live in at one time, when there are home-less dieing for want of food, warm clothes, and a dry place to live


Consider 1 and 3, essentially it is the same question, particularly in a country where wealth is judged by the number of coats owned.

isn't this typical, from a country where people judge OTHER countries by how many people DON'T have coats, NO country can ever be considered civilised until ALL it's citizens have enough to eat, adequate clothing and a warm dry place to live, with PROPER free medical care

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By mydoghasfleas
28th May 2008 11:14

Fair
I opened last Friday by saying I thought I would be silly because that was the way this was going. It just gets sillier, with correspondents becoming more entrenched.

I liked the comment about families clubbing together to buy a tank. Essentially that is what politics is in its purest form (polity). That would be consent by all with representation from all.

If there are just a few ultra-rich (undefined) and selfish (also undefined) people who would leave the country, you defeat your own argument, if there are so few, it would make little or no difference to the tax take, so why tax them more?

It still comes back to fair. We each have a view of what is fair but that does not mean everyone or even anyone shares it.

1 Is it fair that someone on £5,000,000 should pay £2,500,000 (if a 50% band were introduced) tax on the income and someone on £15,000 pay £2,000. Without going right down to user pays is it fair for someone pay 1,250 times as much as someone else?

2 Should the person paying more have a larger say, would that be fair?

3 If someone had no coats and you had two, would it be fair that they took one of your coats without you having a say?

Consider 1 and 3, essentially it is the same question, particularly in a country where wealth is judged by the number of coats owned. Silly? Can 1 be unfair and 3 be fair? It's perspective not fairness.

This should be a discussion about jiggling the 10% band not hustings.

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By Anonymous
27th May 2008 17:14

Let's be fair about it, it doesn't matter whether it's nu labor or conservatives, they would both sell their grand-mothers if they could, the only difference is that the conservatives would probably deliver

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By AnonymousUser
27th May 2008 16:50

Funding your tax cut
Mike,

I thought that the cut inthe main rate of CT was to be paid for by the restriction of capital allowances. Similarly the increase in small co rate of CT is to be counteracted by the anual investment allowance. Clearly not an exact set-off for every company, though.

As for this latest hand-out, to answer my own question of 19 May, I read a few days ago that according to the Daily Express (insert your own caveat about accuracy) the government had made about £500m extra from the increase in the price of oil in April and half of May. That's about £10m per day, so on that basis they can afford to give away £2.7bn over a whole year. No idea what taxes are included in the DE's figure though. Could be VAT, CT, PRT, and maybe even PAYE & NIC on the fat bonuses the oil co bosses will get for their great work in boosting profits!

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By mikewhit
27th May 2008 12:13

Peter and Paul
Surely the 'compensation' for doubling of 10% rate is being paid for by the increase in CT for small companies .... or is that going towards paying for the reduction in CT for "proper" (as the Govt. sees it) businesses ?

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By Brian Smith
26th May 2008 15:23

Replace step taxes with transitional taxes.
Remember when we had the 19% CT Rate and the NCD Rate? The CT Comp for a 20k profit was :-

(50,000-20,000) x 20,000/20,000 x 19/400

The underlying idea was beautiful in that for every extra pound earned, the tax rate increased by a tiny fraction.

There are two great and obvious benefits to this approach if it were applied to personal taxes:
1. The lower paid have a lower tax rate (and vice-versa).
2. And only accountants would really understand it.

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By Anonymous
26th May 2008 12:10

and on your last point ...
I am amused by the use fair and tax....

Charging directly for use of services is all very well, up to a point. For any service which is an 'optional extra' this may be acceptable (entrance fees to English Heritage ancient monuments, perhaps). But charging a patient for a cancer treatment is not. Charging those who can afford it but not those who can't is also unacceptable as this requires means-testing, itself unfair - it hurts those near the bottom of the heap who might have saved a little but are not wealthy, and indirectly rewards those who have been imprudent and not bothered to save at all, or are up to their ears in debt.

There are also services provided by government which are not personal but more general: for example transport infrastructure, defence, etc. How would these be charged for ? Would a group of families be asked to club together to buy a tank or to build a mile of new railway track ?

As the poll tax debacle showed, and more recently Council Tax protests, any tax which is not related to the person's ability to pay it is unfair, is perceived as unfair, and will lead sooner or later to social unrest.

As long as tax is needed to fund public services, the least unfair form of tax is progressive direct taxation, because it does not place an excessive burden on those least able to pay it. Those required to pay tax at say 60% will only be those whose remaining 40% is still far higher than the gross pay of the majority of people - i.e. enough for a very comfortable life style. Nobody actually NEEDS to live in a palace and have a choice of gas-guzzling Rollers and Porsches to drive.

If at the same time you were also to minimise the iniquities of double taxation (e.g. from inheritance tax decimating already taxed money) then the whole system might be seen, even by the high earners, to be more rational and justifiable.

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By Anonymous
26th May 2008 12:02

Peter ...
I'd like to take you up on a few points...

First, it would break another New Labour pledge to call NIC a tax as it would push up the higher rate.

Well, New Labour is dead now, isn't it ? (and since when did their pledges count for much anyway? Remember their binding 2002 pledge on university fees - how long did that survive after the election?) And as soon as they can persuade Gordon (and his cronies) to step aside, they can get back to some principles. I don't see that restructuring income tax and NIC would actually break any pledges. After all, that pledge itself was only ever about spin. If they wanted they could call the replacement something different such as "Progressive Tax" and claim to have abolished income tax altogether !

Second, abolishing NIC would necessitate a universal state pension as the pension correlates to contributions. This would lead to public sector job losses (not just of MPs) as it would knock out so much administration caused by the bolt ons of pension credits, supplementary pensions and the ilk.

And that's a bad thing ? It would save an enormous amount of public money so taxes could be reduced. Fortunately we are still (for a while at least) in a situation of full employment. Would be interesting to see former tax inspectors out picking the Christmas brussels sprout crop.

VAT. A consumption tax gone badly wrong.
Progressive taxation is fairer, only if you are not on the receiving end of the highest rates. Taxing till the pips squeak does not work when the pips are mobile and can relocate to a lower tax area. It was true in the 70's and more so now.

Quite frankly do you really care if a few ultra-rich and selfish people are going to leave ? These are the people who are probably already avoiding paying their fair share of tax by keeping their businesses offshore and their wives in Monaco. Who ever demonstrated that these people are the engine of our economic success anyway ? Let them go and leave their jobs for ambitious but woefully underpaid engineers and scientists to fill.

However, I never suggested taxing till the pips squeak (nor did Stevan). Progressive taxation does not have to be punitive class-war taxation.

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By mydoghasfleas
23rd May 2008 17:13

Thank you Steve H, (NO relation)
As it is Friday afternoon and I am whiling it away on not getting through to the accounts office, I thought I would get silly about this becuase everyone else is.

First, it would break another New Labour pledge to call NIC a tax as it would push up the higher rate.

Second, abolishing NIC would necessitate a universal state pensions as the pension correlates to contributions. This would lead to public sector job losses (not just of MPs) as it would knock out so much administration caused by the bolt ons of pension credits, supplementary pesnions and the ilk.

Third, it would bring taxation unearned income into line with taxation of earned income. For the past 30 years, earnings have been taxed higher, before it was the other way round, (Investment income surcharge).

Employer's contributions were so called because Selective Employment Tax one of the predecessors was called was a tax on jobs. Apparently calling it a contribution really makes a difference (Duh).

VAT. A consumption tax gone badly wrong.

Progressive taxation is fairer, only if you are not on the receiving end of the highest rates. Taxing till the pips squeak does not work when the pips are mobile and can relocate to a lower tax area. It was true in the 70's and more so now.

I am amused by the use fair and tax. Any tax is unfair, if not in principle then in application. What is the justification for basing any system on ability to pay, instead of the use of services? I am not advocating a user pays system but if you are going to rewrite the existing structures rather than tinker with them you should question the initial premises.

Must go Accounts Office is taking calls

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By Anonymous
21st May 2008 23:01

What's temporary?
Well, judging by comments made on last nights Question Time MP's are now expecting more developments...in the Pre-budget report.

The 2008 Finance Bill is still not home and dry, it appears that the widespread dream amongst tax writers, commentators and tax bloggers that this state of confusion will be continuing for some time is now confirmed.

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By Anonymous
20th May 2008 11:31

some lower paid still worse off,
Andrew Dodsworth, 19 May 2008 @ 21:40 PM

some lower paid still worse off quite right

See my worked example below in "It's STILL a fiddle"

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By MikeBellisimo
20th May 2008 12:06

This explains it all....
"What is being funded by borrowing is the public expenditure that would have been paid for by the tax if it had not been cut. "

New Labour. New Economic Theory.

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By AnonymousUser
20th May 2008 12:01

A tax cut is a tax cut!
The £2.7 billion tax cut is not being funded by borrowing.

What is being funded by borrowing is the public expenditure that would have been paid for by the tax if it had not been cut.

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By Anonymous
20th May 2008 11:36

is 'Ebeneezer Cuckpowder' a Labour Party plant?
Clive MacDonald, 17 May 2008 @ 23:20 PM

Labour Party Stooge?
I can only assume 'Ebeneezer Cuckpowder' is a Labour Party plant"


No the that's Alister Darling, in fact he's a turnip, Gordon Brown works him with his foot

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By Anonymous
20th May 2008 17:14

Nothing..new or nu labor about it
but surely the expenditure SHOULD be funded by income/taxes, not by borrowing, if one ran one's house-hold budget by financing expenditure by borrowing, one would soon end up in the bankruptcy courts. or are you advocating even MORE cut in public services

Except of course Brown keeps HIS borrowing/liabilities off balance sheet, I'm going to try that next year with my income, "Sorry Mr. Tax-man, that income isn't shown because it's 'Off balance sheet' just like your boss"

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By aburt01
23rd May 2008 10:58

Case for simplification...
was lost, once the politicians started fidgeting on their tight marginal seats, and started introducing all these nonsense work-arounds.
10% is easy to calculate is it not? It just did not sit right with me when Jack Straw came on the radio to explain "sorry, with all the best brains in Government we did not realise scrapping 10% band in one fell swoop, (an immediate increase from 10 to 20%) would hurt our constituents pockets." All they needed to do was reduce the 10% band width gradually, as they are doing quietly with the N.I. contracted out rebate. (Have you noticed NI category D taxation will be increasing as the rebate is gradually removed, to eliminate the advantage over category A?)
Perhaps they and their advisors should take a long hard look in the mirror.
They perhaps need a lesson in what it is to be low paid, on top of that the prospect of an under-funded pension scheme in their retirement.

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By Anonymous
23rd May 2008 10:56

Thank you Steve H, (NO relation)
"I don't see anywhere that Stevan suggested 98% tax, so please don't set up and knock down your own aunt sally."

Thank you, you made my point more elegantly than I did


"The fairest and simplest form of taxation is progressive direct taxation. A generous personal allowance, low starting rate (the 10% was good) and then steadily higher tax bands with increasing income. Simple principle - tax people according to their ability to pay. Same principle could (and I believe should) apply for Council Tax - which would remove a lot of anomalies and ease a lot of hardship and bureaucracy. "

EXACTLY


"As for VAT, the application of this tax is so broad as to be punitive - and it has no relationship whatever to people's ability to pay it. What was wrong with the old system of purchase tax restricted to items that almost everyone could agree were luxuries? The concept of paying VAT (even at a reduced rate) on necessities like home heating, home repairs and improvements (such that it can be cheaper to demolish an old house and rebuild, rather than renovate), is to my mind quite wrong."

Totally agree, it is ridiculous that it has been made cheaper to knock down perfectly good homes and then re-build them, rather than repairing, this can not make sense either from REAL economic reasons OR from environmental reasons


"As for NICs, I see no reason why there should be a ceiling. They should just keep on going up as a straight percentage of income, or even increase progressively with higher incomes. Since these are nowadays really a part of income tax, the result is that lower earners can actually be paying a higher proportion of their income in tax than higher earners. I think the simple answer is to scrap the concept of a separate National Insurance and simply combine it with income tax. Employer's NIC will then be seen for what it is - an employment tax, pure and simple - and could be retained or abolished according to the political case for or against it. "

another good reason for doing this would be that, the sort of people that this would affect i.e. higher earners, seem to have no problem finding the money for private medicine, so why can they not contribute more to the NHS

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By mikewhit
22nd May 2008 23:20

Lab rats
And if anyone wants some persuasion that progressive taxes are more humane, in this post-10% period, take a look at this item from the New Scientist (http://www.newscientist.com/article/mg19826574.800-60-seconds.html):

"Depressed people take the loss of a reward harder than happier people - and applying the same idea to animals could take some of the guesswork out of understanding how they are feeling. For instance, a new finding that rats in basic housing respond more strongly to the absence of food than rats in better conditions may indicate that the less well housed rats are experiencing some distress"

So extrapolate that to "people in basic housing" having their tax increased ...

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By Anonymous
22nd May 2008 17:09

Clive -
I don't see anywhere that Stevan suggested 98% tax, so please don't set up and knock down your own aunt sally.

The fairest and simplest form of taxation is progressive direct taxation. A generous personal allowance, low starting rate (the 10% was good) and then steadily higher tax bands with increasing income. Simple principle - tax people according to their ability to pay. Same principle could (and I believe should) apply for Council Tax - which would remove a lot of anomalies and ease a lot of hardship and bureaucracy.

As for VAT, the application of this tax is so broad as to be punitive - and it has no relationship whatever to people's ability to pay it. What was wrong with the old system of purchase tax restricted to items that almost everyone could agree were luxuries? The concept of paying VAT (even at a reduced rate) on necessities like home heating, home repairs and improvements (such that it can be cheaper to demolish an old house and rebuild, rather than renovate), is to my mind quite wrong.

As for NICs, I see no reason why there should be a ceiling. They should just keep on going up as a straight percentage of income, or even increase progressively with higher incomes. Since these are nowadays really a part of income tax, the result is that lower earners can actually be paying a higher proportion of their income in tax than higher earners. I think the simple answer is to scrap the concept of a separate National Insurance and simply combine it with income tax. Employer's NIC will then be seen for what it is - an employment tax, pure and simple - and could be retained or abolished according to the political case for or against it.

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By Anonymous
22nd May 2008 17:05

Typical
when a suggestion is made that some-one doesn't like they attack it by taking it to an extreme,

but then Mr.McDonald would obviously like to see the obscenely rich and vastly overpaid not having to pay any tax, or maybe THEY should have the 10% band, how about that a 10% band for all earnings for those earning over £100'000,
because of course we all know how hard it is for them these days, only being allowed to keep a miserly £80'000+ of their £100'000, while those who earn a munificient £15'000 get to keep a HUGE £7'172
(see how it works)

If you earn it in the UK we tax it in the UK, the same as they do it the USA and in Japan, THEY don't seem to have a problem with "Global Economy", which from me is just an excuse for not taking a FAIR sum from the mega-rich to help the dirt-poor

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By clivemacd
22nd May 2008 12:10

Bring Back Supertax?
Most people realise that we now operate in a global economy, hence the problems national governments have in setting tax rates and regulations which are appropriate. The case for 98% tax rates and the rest of what would now be a 'Fortress Britain' tax policy was lost in the implosion of the high-tax UK economy under Healey and Callaghan in the 1970's.

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By Anonymous
22nd May 2008 11:00

Let's stop fannying about
"But we will continue to have this nonsense until somebody finally stands up and makes the case for a direct progressive income tax as the simplest and therefore fairest way of paying for public services."


quite right does any-one really NEED £100'000 plus a year, especially when it means, as it in-variably DOES, that poorer people on under £15'000 are made even poorer.

Double figure per centage pay rises for some (e.g. MPs and already over-paid company directors, many who are directors of more than one company), while the police get only 1.9% instead of the, already derisory, 2.5%

Hit the obscene pay packets hard, bring back "Super-tax", and stop these, "Non-doms" avoiding any tax, do like the USA if the money is earn/generate/created in the UK, TAX it in the UK

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By NeilW
22nd May 2008 09:13

Tax increases - are they now banned?
What is interesting from the discussion below is that nobody, but nobody is ever required to pay *higher* taxes. And people get 'compensated' if they do.

Part-time workers in a high household income outside the tax credit regime *should* be paying the extra tax. What one partner gains from the 20% rate the other pays back - and probably a bit more. Why should they gain while the *genuinely* poor suffer (assume a Labour mindset here for a minute).

Anybody outside the tax credit regime should surely alter their behaviour to put themselves *inside* it (that is after all the alleged point of targeted measures). And if they don't fit, then I'm afraid they cannot be 'poor'.

Fundamentally what you have with this entire mess is the usual complaint from a docile population about direct taxes going up and a government that has designed the most horrendously complex targeted system and then hasn't the bottle to stand up for the selections it makes.

This situation where the basic rate of income tax keeps coming down (only for the cost to be put on something else - usually 'shadow income tax' aka NIC) is crazy. But we will continue to have this nonsense until somebody finally stands up and makes the case for a direct progressive income tax as the simplest and therefore fairest way of paying for public services.

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By AnonymousUser
21st May 2008 17:18

What do you honestly expect?

(Hint) our beloved leader is a politician.


To quote from Golding's Lord of the Flies, "What do you expect from a pig but a grunt?"

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By Anonymous
21st May 2008 16:32

Eh?
"What is being funded by borrowing is the public expenditure that would have been paid for by the tax if it had not been cut."

"If you cut public expenditure you don't need the borrowing that is currently required because the borrowing is actually funding the expenditure (and not funding the tax cut)"

Our Dear Leader once said that "over the economic cycle, the Government will borrow only to invest and not to fund current spending". Looks like many people do not understand what he meant. Also looks like our Beloved Leader did not mean what he said.

PM

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By mydoghasfleas
21st May 2008 14:59

What's temporary and what's not
So we have a temporary increase in personal allowances matched wiht a reduction in the higher rate threshhold. Is anyone running a book for the former disappearning next year whilst the latter stays?

For anyone commenting about changes to allowances being made in the year being difficult, I think I remember 2 or possibly 3 changes in the same year in 1997/98 - back in the days when calculators had red lights and thought of as high tech.

Must go my carer has some warm milk for me.

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By AnonymousUser
20th May 2008 13:04

Nothing..
..new or New Labour about it.

If you cut public expenditure you don't need the borrowing that is currently required because the borrowing is actually funding the expenditure (and not funding the tax cut)

Obvious isn't it?

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By Anonymous
20th May 2008 10:01

Tax Cut??
A tax cut is not really a tax cut if it is financed by increased borrowing; one day that money has to be paid back.

Would all basic rate payers have gone out and borrowed an extra £120 each to make up for the loss of the 10p rate? I think not, so Darling has decided to do it for them. A bit like one of those "consolidate all your loans into one affordable package" deals.

Trouble is, when the time comes to pay back the borrowing members of this government will be long gone, having made thousands on their memoirs, and will be enjoying a gold-plated pension.

Our public spending requirements are now such that this government was unable to reduce public borrowing during the "good times" of the past ten years. Perhaps there should be an inverse link between ministers' pensions and the size of the public debt when they leave office. This might teach them that we need to live within our means.

PM

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By andrewdodsworth
19th May 2008 21:40

some lower paid still worse off
According to my calculations anyone earning between £6,845 and £10,500 is still worse off than they were last year. If the personal allowance had just gone up to £5,435 then they would have expected to be better off - the corresponding salary required to meet those expectations is now £12,815!

For those on minimum wage this is still a kick in the teeth.

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By AnonymousUser
19th May 2008 18:12

Clearly...
...the use of Irony is wasted on many AWeb readers!!

Whether Brown and Darling intended or even wanted it is irrelevant, the fact is they have implemented a £2.7 billion annual tax cut which is a significant benefit to the economy, not a cost.

So where's the beef?

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By AnonymousUser
19th May 2008 17:15

Commended??
Agreed, Clive. Theses changes have been brought in as a patch-up job. Any stimulus to the UK economy is accidental. Ebenzeer, what are you on?

Harking back to Michael Schenker's comment, does any one know how much extra VAT the govt gets from every 1p on the price of a litre of petrol or diesel? Given the price has gone up by about 20p in no time, I would not be surprised at all if it is more than the £2.7bn that is being given away in the 10p band / personal allowances fiasco.

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By Anonymous
14th May 2008 11:00

Tony
Given that the compensation package was meant to be for those affected, maybe that's what he did mean...originally. A nice solution as you say!


Nichola Ross Martin
Tax editor, AccountingWEB.co.uk

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By clivemacd
17th May 2008 23:20

Labour Party Stooge?
I can only assume 'Ebeneezer Cuckpowder' is a Labour Party plant. Anyone who suggests that the Government should be 'commended' for creating this situation cannot be serious.

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By AnonymousUser
16th May 2008 19:06

Tax cuts...
...do not cost the country anything!

They may cost the Exchequer something but the Exchequer is not the country.

For the third time on this thread: tax cuts are not a cost. They benefit the economy!!

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By Anonymous
14th May 2008 10:16

NI
Does anyone remember the intention to align upper limits of NI with tax too? That fell by the wayside in the last budget, so I suppose that it makes no odds that the starting limit bears no relation to tax either.

What a muddle!

The cost of these changes beggars belief:
All HMRC's 2008/09 employer CD roms and tables are now wrong.
All 2008/09 payroll and SA tax software will need another fix
All printed tax data cards are wrong
Thousands of websites need updating
Tax annuals currently in production will all need changing, and what about the 2008/09 tax guides which are now all wrong?

Ouch!

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By AnonymousUser
14th May 2008 10:28

a simpler solution may have been
to amend the tax code for those people that were affected ie mainly people under 25 on a low wage and womenfolk between 60-65.

the personal allowance changes could then have been brought in for 2009/2010.

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By AnonymousUser
14th May 2008 09:55

Question:
For those of us who do not rely on HMRC published tax tables in order to compute PAYE deductions, are we entitled to anticipate the increase earlier than September? I suppose this question also applies to changes in tax rate bands that come into effect annually from 06 April following the March budget.

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By mikewhit
14th May 2008 08:31

Story so far
So now, a U-turn on a U-turn (600->1200) ?

Do we now need a post-pre-post-Budget report ....?

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By AnonymousUser
14th May 2008 08:23

Any change to NI?
I have assumed this mini-Budget has not affected the NI thresholds as they have not been mentioned.
If that is the case we will have people starting to pay NI at a wage of £5435 p. a or £105 per week, while tax is not payable until wages reach £6035 or £116 per week..
Also the starting point for class 4 NI will be out of sync with the tax threshold.

Has anyone tried to calculate the total cost of rewriting all the Payroll programs in the country and the cost of installing the updated software?

What about all those tax cards that were printed in March? - A huge waste of money there too

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By AnonymousUser
14th May 2008 07:53

The Chancellor...
...should be commended for finally realising that tax cutting is exactly what is needed to stimulate the economy and keep us out of recession.

It may have taken him a long time but at last he is getting the economics right. Let us trust that we will see much more tax cutting in the future.

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