Vince on Labour's 10p tax-con U-turn

by Stephen Tall on May 13, 2008

Once again, it was Lib Dem shadow chancellor Vince Cable who asked the hard questions of Alastair Darling today, as Labour’s Chancellor attempted to put right his boss’s blunder in penalising 5.3 million of the nation’s poorest by doubling their tax rate.

Vince’s Commons’ response is reprinted from the Hansard transcript below. Particularly telling, however, was Mr Darling’s answer to Vince’s first question, asking exactly how many of the 5.3m victims of the Prime Minister’s decision will be compensated:

I said in my statement that 4.2 million households will receive as much as, or more than, they originally lost. The remaining 1.1 million householders will have their loss at least halved. In addition, those people might be benefiting from tax credits and other measures. I set out to try to offset the average loss; I think that that is what the majority of people in the House wanted us to do.

Labour MPs appear relieved that this ‘prudent’ Prime Minister is borrowing £2.7 billion to get the Government out of a tight hole. But how they can be pleased with a measure which leaves over one million of the poorest worse off is beyond me. If these had been Lib Dem or Tory proposals you can guarantee Labour supporters would have been roundly condemning them – and quite right, too. The gullibility of Labour MPs is almost as bad as their leader’s profiligate incompetence.

Anyway, here are Vince’s words of wisdom:


Dr. Vincent Cable (Twickenham) (LD):
I of course welcome measures to lift low earners out of tax, and for a few hours this announcement may well get the Chancellor out of the difficulties that he created for himself. How many of the 5.3 million losers will be fully compensated by the measure? A quick back-of-the-envelope calculation—that is all that he has allowed us to do, because he is hiding behind market sensitivity—suggests that to compensate the losers, he would have needed to raise the threshold by £1,000. Clearly the Treasury has done the sums and has looked at the various categories, including pensioners, low-paid workers, and part-time and full-time workers. Can he tell us precisely how many of the 5.3 million losers will be fully compensated within the year?

Secondly, the Chancellor has imposed an apparent levy on high earners; the money will be clawed back from them. How long will that measure be in place, and how much of the £2.7 billion cost will be paid for by that route, rather than through additional borrowing?

Can the right hon. Gentleman also explain in a little more detail his reasons for rejecting the idea of a tax rebate? Over the past few days, I have had discussions with tax practitioners, including people from the low incomes tax reform group, which I know he relies on very heavily. That group suggests that it would be perfectly simple for the Inland Revenue to calculate the tax that people would have paid under the old 10p/20p system, and rebate them fully for their losses. The group will come forward with a proposal to that effect in the next few days. Why is the measure that he described more complex than that, and why does it do less to guarantee payments?

Finally, the Chancellor is quite right to focus attention on the low-paid workers, many of them earning well below the minimum wage, who pay tax. It is welcome that he is moving in the direction of lifting them out of tax. All of us will have to focus on how that is done and how it is paid for. I hope that today’s measures are not just another short-term gimmick, but the beginning of a process through which the low-paid pay less tax.