Income Tax: Do you agree with the Govt’s changes? Poll results/discussion

Former_MSE_Lawrence

Poll Started 21 April 2008:

Income Tax: Do you agree with the Govt’s changes?

There’s a possible backbench rebellion against the govt’s 6 April tax changes. The basic rate’s been cut from 22% to 20%; but the old 10% starting band has been dropped to pay for it.


The main winners: Those earning above £15,075 pay less tax.
The main losers: Those earning between £5,435 and £15,075 pay more tax. Some people will have this made up by tax credits but its estimated 5.3m won't.


Calculate your tax gain or loss.

Which of these is closest to your view…

A. I approve. All basic rate taxpayers now pay the same lower 20% rate, and it's lower, so it's good. 17% (1825 votes)

B. I disapprove. It’s not fair that those on lower incomes must now pay more. 83% (8670 votes)


This vote has now closed, but you can still click 'post reply' to discuss below.

kavomix

The lower paid are dramatically affected by the loss of the 10% tax bracket. However the media picked up on this fact too late.

Also I would like to argue the figure of £15,075 quoted by Martin. The figure for the people that are affected is higher than that. Admittedly people earning over £15k will see an increase in their pay cheque of a few pence, this is not because the new tax system works to your advantage. It’s because the personal allowance for both NI and Tax have increased. This means you don’t start paying till you earn more. The increase on tax has gone from £5225 to £5435.

However, what people fail to realise is that this increase would have still happened under the old tax system. So to compare the old and the new correctly, (to work out who is quids in, and who is left out to dry) you need to run an example of how much tax you would be paying this tax year if the whole tax system was left the same and the normal increases to the personal allowance and 10% bracket had taken place.

Below are some worked examples.


2007-08 tax year (PA = 5225, 10% = 2230, BR = 22%)
£10,000 - Tax = £782.90, Pay =£9,217.10
£12,000 – Tax = £1,222.90, Pay = £10,777.10
£15,000 – Tax = £1,882.90, Pay = £13,117.10
£19,000 – Tax = £2,762.90, Pay = £16,237.10
£20,000 – Tax = £2,982.90, Pay = £17,017.10
£40,000 – Tax = £7,382.90, Pay = £32,617.10

2008-09 tax year (PA 5435, 10% = 0, BR = 20%)
£10,000 - Tax = £913.00, Pay = £9,087.00
£12,000 – Tax = £1,313.00, Pay = £10,687.00
£15,000 – Tax = £1,913.00, Pay = £13,087.00
£19,000 - Tax = £2,713, Pay = £16,287.00
£20,000 – Tax = £2,913.00, Pay = £17,087
£40,000 – Tax = £6,913.00, Pay = £33,087.00

2008-09 tax year if using old tax system (PA 5435, 10% = 2320, BR = 22%)
£10,000 - Tax = £725.90, Pay = £9,274.10
£12,000 – Tax = £1,165.90, Pay = £10,834.10
£15,000 – Tax = £1,825.90, Pay = £13,174.10
£19,000 - Tax = £2,705.90, Pay = £16,294.10
£20,000 – Tax = £2,925.90, Pay = £17,074.10
£40,000 – Tax = £7,325.90, Pay = £32,674.10

Look through the above (I know its hard because its posted in a forum on the web and not laid out nicely) and you will notice that people earning £19,000 are officially earning less than they would have if the old tax system had carried through to this tax year.

This comparison is needed to show the true extent of the effect of the removal of the 10% bracket. Removing the 10% bracket does now make it easier for you to work out if you’ve over/under paid tax, and a simpler tax system is good. However the lower paid are hit quite badly. If our country was still in a boom and our country finances were well managed, then the government could have implemented an increase in the personal allowance to make up for the loss of tax for the lower earners. Also the system can’t and won’t change just over night. HMRC would have to prepare their computers to work out the whole new tax system, software not just for HMRC but also employers would have to be updated again etc etc
So if any back down was to happen, it would not take affect until next tax year as now is too late. This all should have been raised when Gordon Brown stated it in his last ever Budget.


(Please note i have run these figures quickly so there may be minor mistakes)

MSE_Martin

Hi Kavomix

Thanks for the very interesting post. I was aware of these discrepancies when I wrote the poll - though hadn't crunched them in the way you had.

I decided to keep the poll simple; so i couldn't be accused of gerrymandering it - one could also argue that some have lost out due to inflation but again I thought I would keep the poll simple and link the explanation of the changes

Martin

piloti

There was a time when there were only three classes of people : Upper Middle and workling class.
This Gov' [Labour] has created an extra class beneath Working : Dependency Class, ie those who earn nothing / little, therefore contgribute nothing / little but use a disproportionate amount of services, from Social to Health to Education.
Tax Credits [awful new labour vulgarisation] should be earned, not simply given. Earned by doing social work [ie, work for the community] including looking after old people, street cleaning, park cleaning / gardening etc......
Or would that be considered to be impinging on others human right to scrounge.......

P.

johncolescarr

piloti wrote: »

There was a time when there were only three classes of people : Upper Middle and workling class.
This Gov' [Labour] has created an extra class beneath Working : Dependency Class, ie those who earn nothing / little, therefore contgribute nothing / little but use a disproportionate amount of services, from Social to Health to Education.
Tax Credits [awful new labour vulgarisation] should be earned, not simply given. Earned by doing social work [ie, work for the community] including looking after old people, street cleaning, park cleaning / gardening etc......
Or would that be considered to be impinging on others human right to scrounge.......

P.

I fundamentally disagree with your comments. I think the move to increase the tax on the poorest members of society is disgraceful. Remember, income tax can only be paid on money that is earned, by definition. The people to loose out the most will not be the 'scroungers' as you call them but those working on a miniscule salary and will be struggling the most to get by. Many of the people affected by the new tax banding will be the street cleaners, social care workers, park cleaners and gardeners that you refer to. The tax credit system allows parents to go out to work and contribute to society, where if these didnt exist the claiming benefits would give a greater income - how ridiculous is that!

As a developed country we should be pround that we can give basic necessities to the vast majority of the people that live in Britain, what would be the alternative, the depravity that we see in the developing countries?

cowbutt

I'm in favour of progressive inflation for the simple reason that small amounts of money are far more important to people on lower incomes than those on upper incomes. I also think that the tax system is over-complex, and suspect that usually any revenue losses will cancelled out by savings in collection and administration of the system.

I reserved judgement on the abolition of the 10% rate last year because the personal allowance figures for 2008-2009 weren't announced at the same time. If personal allowances had been significantly increased to around £10-15K, then I'd have had little problem with the move as my calculations indicated it'd be neutral for anyone with an income under the national average of £22K. Furthermore, it would have simplified the tax system a little.

Unfortunately, the personal allowance was simply indexed according to inflation figures.

seh567

As one who is affected it is a disgrace! I am a female pensioner and apart from a reduced government pension of £54 per week I have a small company pension paying £350.00 per month. I've just worked out that after my tax allowance I will be paying double the amount of tax (£29 from £14) for the year 2008/2009 due to the fact I am now paying 20% instead of 10%. I am unable to supplement my pensions with pension credit as I have savings over the allowance threshhold, which I scrimped and scraped to save whilst working to have a better quality of retirement. Seems I have been penalised for being thrifty in the past.

garyrjb

No-one is better off. we are all being well and truly ripped off. I earn a good wage on paper but am worse off than I have ever been. Petrol costs are extortionate £3500 a year just to get to work!! Rising prices means more VAT for the tax man. Annual payments on mortgage 12k I dont live in palace I just live in the South east. We are talking about people being £130 worse off as opposed to some one like me being £260 better off. We are all worse off!!!
I heard someone say he is doing a weekly commute from Berlin because it works out better for him. This is madness what did I miss!!

rant over.

bagby

I dont really understand the tax system but in my own simplistic way, if a person is on a low income then how can it be right that they are penalised in this way by paying more tax and people on higher incomes are better off through this tax system. I would gladly agree to paying a higher rate in tax as this would not mean too much out of my smallish wages but the higher earners would, quite rightly, pay more into the system.

cruachan_2

I favour simplifying our minefield of a taxation system. Respecting those on low incomes for whom 10% was an important concession, I suggest that a similar level of benefit could have been achieved by increasing personal allowances.That would cut clerical work, reduce confusion, and still give the best deal to people on low incomes.

ceridwen

I voted that I disapprove of the changes. I am glad taxrate of 22% has been amended to 20% - but it should not have been at the expense of removing the 10% tax rate.

I have a "vested interest" in this one - as I fall in the low salary bracket whereby I am going to lose out because of this. I know I wont see very much difference at all in my takehome pay - but that is only because this has happened at the same time as the raising of the Personal Tax Allowance for the year (which, incidentally, has not been raised enough to allow for inflation - so there has in effect been a real cut in how much we are allowed to earn before tax starts being payable on it).


Incidentally - it would be interesting if anyone could work out what the Basic Personal Allowance would be now if it had kept pace with inflation. There must be someone more maths-minded than myself who can find an online calculator showing what an amount of money in year x needed to be in year y to be the same in real terms (after allowing for inflation).

Thanks M.S.E. Martin for running this poll and giving people the links to work out their own position properly as to how they are affected.
It is all well and good for the Government to state one can get the lost money back in other ways - but that is not the case if your salary is the only income you get and you dont have children. I'm not eligible for Working Tax Credit or anything - because, though my income, is too low its not low enough to qualify for anything. Childless poorly-paid people copping it again in fact - but we must spend money on the priorities of course:rolleyes: - like letting the rich off the hook taxwise and, of course, covering the billions of £s for these endless conflicts (oil wars in Iraq, etc). (Just hasten to add for those not used to the British cynical sense of humour - I am very much against these oil wars.)