Taxing times

Taxing times

The British tax year was originally fixed by 18th-century fears of transition. Landlords and taxmen worried that the 11 days dropped in the transition to the Gregorian calendar would diminish their revenues. Thus the financial new year, by ancient custom marked on March 25, was pushed into April. The transition to a new fiscal year occurred yesterday, and it is giving Labour MPs some fears of their own.

The anxieties can be traced back to Gordon Brown's last great conjuring trick as chancellor, performed in the budget last year. He pulled from his hat a startling 2p cut in the basic rate of tax. But once the smoke cleared, it emerged he had paid for it by scrapping the 10p band - a band he had himself introduced, with great fanfare, just a few years before. Now the reforms are starting to bite, and a Treasury select committee report published today reveals that while Middle England is gaining, many who can ill afford it are being short-changed. Part-timers, most of them women, are especially likely to lose out. At a private meeting last week, several MPs badgered the prime minister to do something about it. Some whispered that, after a decade of supporting the low paid, Mr Brown now seems bent on punishing them instead.

That is not quite fair. The budget last month reverted to Brownian form, by funnelling cash to the poor; and this week's changes are modest in the context of Labour's significant overall redistribution, with the average loser being hit.....continued below

Advertisement starts

---

---

Advertisement ends

by around £2 a week. Precisely because Mr Brown took with one hand while giving with the other, the effect on most pay-packets is slight. For low-paid full-timers, even those on the minimum wage, the basic rate cut offers some relief. Low-earners with children - and some without - end up better off overall, thanks to tax credit increases that also apply from this week. And for everyone else, the automatic increase in the tax-free allowance helps disguise the pain. True, this is merely an adjustment for rises in living costs over the year, but the immediate effect will be to cut the number of "overnight losers" by more than half.

Ditching the 10p rate, then, is not quite Mr Brown's poll tax. Some, though not all, of the fretting about it is a sign of wider Labour anxiety on the whole question of tax. The same anxiety was reflected in last week's rapidly retracted complaints about rising alcohol duties from the licensing minister, as well as in last month's Treasury reversals over capital gains. Behind in the polls, Labour has grown fearful of doing anything that requires taxpayers to cough up anything extra. All the more so, because the Lib Dems - who could once be relied on to argue for higher state spending - are heading in an economically liberal direction. This is an uncomfortable position for a social democratic government. Egalitarian ends are more easily pursued when state spending is increasing - pounds, rather than people, are equal in the market; but each voter (at least in theory) has an equal say over publicly funded programmes. That logic has implications for Blairites, as well as Labour traditionalists. Alan Milburn, who has recently called for a downsizing of central government, cannot escape the fact that the autonomous schools and hospitals he supports still depend on tax funding.