The UK Government is facing increased opposition from MPs over its decision to abolish the 10% starter rate for income tax. The changes which came into affect at the beginning of April mean the 10% starter rate is being abolished for non-savings income. Meanwhile the basic rate has been reduced from 22% to 20%.
The tax changes which were announced in last year’s budget will affect those Individuals on a low income, particularly groups such as low-paid workers without children and pensioners aged between 60 and 64, who would have paid income tax at the starting band of 10% and will now have to pay the 20% rate. Although the changes have been controversial, Child Benefits, State Pensions and tax credits have all gone up. It is hoped these increases will minimise the number of people who will loose out as a result of the tax changes. The main losers of the changes are likely to be childless single adults earning less than £18,500 per year, who will not benefit from the increases in tax credits.
Chancellor, Alastair Darling, has now stated (23rd April 2008) “For pensioners aged 60-64, whose incomes tend to be more stable, we have put in hand work to see if those households who have lost out from the removal of the 10p starting rate of income tax can be helped through the mechanism that already exists to pay the Winter Fuel Allowance. As a sign of the Government's intent, we do not wish to wait unnecessarily until November. Whatever conclusions we come to these the changes will be backdated to the start of this financial year. For other low-paid families currently outside the working tax credit system, while we will examine in our review all practical propositions, our focus is on potential changes to the tax credits system to allow the average losses from the removal of the 10p starting rate of income tax to be offset”.
However, while the Treasury has confirmed that it will back date the extra winter fuel allowance payments, it said it is not in a position to say it can do the same for the tax credits. The position regarding any financial compensation to non-pensioner groups will have to wait until the autumn pre-Budget report is delivered and it is unlikely that tax credit changes will be back dated.
MPs are due to vote on the new changes next week.
© Northern Ireland Association of Citizens Advice Bureaux (NIACAB) 2008
