Government tax policy fiasco still leaves 1.1 million worse off

12.31.30pm BST (GMT +0100) Tue 20th May 2008

Many people in Chelmsford could still be over £100 a year worse off following the Government's latest tax tinkering, according to Chelmsford Liberal Democrat Stephen Robinson. In March 2007, Labour announced the abolition of the 10p tax rate in a bid to win the general election that never was. Last week's panic adjustment to tax allowances is designed to help them cling on to the Crewe & Nantwich seat in this week's by-election.

Said Chelmsford Lib Dem Parliamentary Candidate Stephen Robinson, "Labour are desperately trying to backtrack from their previous disastrous decisions but still have not managed to get it right. This u-turn leaves still 1.1 million of the lowest paid workers losing up to £100 each.

"Furthermore, the idea that the Conservatives are trying to help the poorest people is laughable. When this was first proposed in 2007, they refused to support a Lib Dem plan for a compensation package, and they have no clear policy for an alternative now."

The Lib Dems are campaigning against the 10p rate abolition as part of their Fair Deal for Chelmsford. More details including a petition at www.cmld.org.uk/news/000210.html

Explanatory note:

The new proposals

1. 1.1 million people earning between just over £6,500 and £12,800 will still lose out under Labour's abolition of the 10p rate.

2. Of the 1.1 million people losing under Labour's current plans, some will still lose up to £100 per year.

3. Of the £2.7bn spent on increasing the personal allowance, only around £630m - less than a quarter - will actually go to the 5.3 million people who lost out under the 10p rate, making it an extremely poorly targeted policy.

4. This additional spending will mean that net government borrowing for this year will rise to £45.7bn, a 6% increase from what was predicted two months ago and a 50% increase from what was estimated just one year ago.

History of the debate

In June 2007, in the House of Commons, after the tax rise was first announced, the Liberal Democrats and a small group of Labour backbenchers proposed an amendment to the Government's Finance Bill. This would have made the Government compensate those people on low incomes who would end up paying more under Labour's tax grab plans.

Conservative spokesperson Theresa Villiers MP said "We cannot support it". See

www.publicwhip.org.uk/division.php?date=2007-06-25&number=151&display=allpossible

The Conservatives only woke up to this issue and started making a fuss this year (after the changes came in and when they saw the press were interested in it). More than a year after the Liberal Democrats first raised the issue.