Magazine article Public Finance

MPs to Review Budget Losers despite 10p Tax U-Turn

Magazine article Public Finance

MPs to Review Budget Losers despite 10p Tax U-Turn

Article excerpt

The Commons Treasury select committee is to pursue its inquiry into the effect of the Budget on low-income households in spite of the government's U-turn on the 10p tax rate.

The inquiry was announced as the furore over those who lose out through the abolition of the 10p rate reached its height

Significantly, Chancellor Alistair Darling conceded Labour backbenchers' demands on April 23, in a letter to the committee chair John McFall. The chancellor said this autumn's Pre-Budget Report would include a package of measures to compensate lowpaid workers and pensioners.

McFall, meanwhile, stressed that the inquiry would continue, with the aim of reporting back as early as June, ahead of the final stage of the Finance Bill, which implements the Budget He said the inquiry would increase the amount of factual information available on those who are losers under the change.

The inquiry's terms of reference are likely to be published next week. 'It will attempt to pinpoint the exact number of people who are still losing out as a result of the abolition of the 10p starting rate,' McFall told Public Finance.

'We will also examine what challenges there are for the government in meeting the concerns of the losers, whilst continuing with the strategic aims of eliminating child poverty and fuel poverty and maintaining incentives for those returning to work.

'We will hold a clear debate in the public arena on what the options are and how much they might cost.'

The Liberal Democrats claimed that it would cost the Treasury an additional £1.23bn to fully compensate all the people affected by the abolition of the 10p rate through the mechanisms outlined by Darling.

They said the Winter Fuel Allowance would have to almost double from £250 to £482, while the minimum wage would have to increase to £9.49 an hour. The LibDems added that the tax credits system might not be an ideal means of redistributing wealth as current take-up among eligible childless people was only 22%.

Despite his concessions, Darling said there would be no return for the 10p rate, which was a 'transitional measure' to help low-income households. Its removal will be enacted by the Finance Bill, due to be debated in the Commons on April 28.

'There are better ways of achieving the purpose of improving the position of those in poverty and to make sure in every decision we take that we help those on low incomes,' Darling's letter states. …

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