Did the Chancellor mislead the house?

Just looking at the statement that Alistair Darling gave to the house of Commons today in which he announced that the threshold for higher tax would be reduced and said “I am therefore reducing the threshold at which an individual starts to pay tax at the higher rate by £600.” However when one looks at the HMRC press release it states something different and says “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.”  The press release then states that higher rate taxpayers will not lose out. Now my maths might be slightly dodgy here but the tax free threshold goes up by £600 so as the basic rate is 20% that is a saving of £120 in tax. However if the 40% threshold is lowered by £1200 pounds then that means that an extra £1200 is charged at 40% tax equating to £480 less the £120 benefit of the tax free threshold so higher rate taxpayers will be worse off to the tune of £360 pounds it seems, or about 99p a day worse off. Please someone correct me if I am wrong.

Somewhere along the line someone was being misleading. Also when did we become customers of HMRC? Can we withdraw our custom?

Update:- Just looked at the tax bands for 2007/08 and the 40% rate kicked in at 34,600, as a result of the budget that was indexed up to 36,000. From the press release today the level has been bought down again to 34,800 all but cancelling the indexation in the budget. This is major fiscal drag and will trap new people in higher rate tax.

Update 2:- Having looked again at a simple tax calculator it appears that the £1200 difference does mean that higher rate tax payers get no benefit from the increased personal allowance, however the point stands that Darling said that the Higher rate threshold was being reduced by £600 not £1200.

10p tax the Climbdown

So Alistair Darling has finally been forced into a humiliating backpedal over 10p tax. He has been forced into a wide-ranging compensation package that has literally blown a hole in the governments finances. In order to pay for this U-turn they are adding another £3bn pounds to borrowing for the current financial year. They are raising the personal allowance by £600 pounds for this year, although it is unclear what the base for indexation will be for next year so they could claw it all back in 2009/10 tax year. Simultaneously they have reduced the threshold for 40% tax by £600 pounds. So effectively the only people who will benefit are standard rate taxpayers. A few people will now be taken out of tax altogether but now an unknown extra group of people will find themselves in the higher rate of tax bracket. I doubt that they will be happy about this.

The whole farrago is instructive. Let us be clear raising the tax threshold is right in principle. However this is not a principled move by the government. The government have partly done the right thing but only under severe duress, for political reasons. If they could have got away without compensation they would have done. The biggest bugbear I have is how they have financed this, they have financed this by simply adding to the PSBR. We should be clear that government borrowing is simply deferred taxation or deferred spending cuts. At some point the money borrowed has to be paid back, so either spending gets reined in or taxes go up. There is no pain free way of repaying this money and £3bn is roughly an extra penny on basic rate income tax.

The problem the government will now find is that once the mood has turned even when the government gets things right Labour will not get the credit. The public will bank the good deed and carry on intending to vote the government out. This is because the public will be highly cynical of the motives, they will see all good deeds as electoral calculation and all bad deeds as malign. The government is now past the point where it can seek credit for its moves. I still expect the government to take a hammering in Crewe & Nantwich, and I expect that within a few days new disasters will overtake Labour. As John Major and a queue of Conservatives will testify, once the wind changes direction there is literally nothing you can do but brace yourself for the worst. Labour needs to start bracing.

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