Thursday, 24 April 2008

The 10p Tax Band

Last year, the then Chancellor of the Exchequer Gordon Brown, the man who is now the UK's prime minister announced the abolition of the 10% tax band (it is called the 10p band as you pay 10p (pence) in every £1 that you earn within that band, which is 10%), this abolition is now coming into force and 70 Labour MPs were threatening to vote against the application of the move but have been bought off with concessions on benefits for low earners in terms of fuel and other expenses. Before I launch into why the abolition is so wrong, a quick recap on the British tax system. Basically anything you currently earn up to £5,435 (€7065; US$10870) you pay no tax on. For earnings from £5,436-£7,755 you pay 10%; for £7,755-£36,000 you pay 22% (though only 20% on savings earning this much) and for everything over £36,000 you pay 40%. Remember that the average salary in the UK is £24,400 and 80% of the population earn that amount or less.

The average wage for people working for Tesco, the UK's largest (and richest) supermarket chain was £11,594; it employs 260,000 people in the UK and is the largest non-public employer. Remember too that if the top 1000 richest people in the UK actually paid the amount of tax they are supposed to then the government could reduce the 22% tax band to 17% and still receive the same income. Obviously the 10% band benefits all taxpayers in the UK, but it is disproportionately beneficial to the 6 million people (20% of the workforce) in the UK who earn less than £10,000 (€13000; US$26000) per year.

It is astounding how many websites you see praising the multi-millionaires and conversely saying that the reason why so many people earn less than £10,000 a year is because they are simply lazy and that if they tried they could earn a lot more. Do you really think people like being poor? There are some lazy people, but the majority of people work hard. Do you think those who turn in long hours and multiple shifts working in Tesco stores or petrol stations or factories are lazy? Of course many of the people who earn these salaries work part-time, most typically so they can raise children or look after elderly relatives, taking a burden off the state for which they are not paid. Most poor people work far harder than the rich and yet they continue to be abused. I thought this attitude had died with the 1980s but researching this posting I found that unfortunately it is still all too prevalent. It reminds me of the lyric from the The's 'Infected' album the track 'The Mercy Beat' has the line 'everybody can be a millionaire so everyone has to try'. Of course 99% of the population want to be millionaires and in 2007 there were 471,500 businesses started in the UK alone up from 457,200 in 2006. So there are literally hundreds of thousands of people every year trying to become a success and given that in September 2007 in the UK 835,800 people were claiming jobseekers' allowance for being unemployed, this is equivalent to every one in two unemployed people trying to get a business going. Of course many of these businesses are started by people in work, but many must begin to draw in unemployed people too. Of course setting up a business does not earn you big money, in the UK in 2007 75% of entrepreneurs were making £20,000 or less (so below the average annual salary) and 49% of the total were making £10,000 or less (so in fact would have been better off getting a job at Tesco rather than setting up their own business). Britain is a low salary economy and it is going to get harder to raise yourself out of that rut. Last year it was reported that 100% of the income of new house mortgage holders earning the average annual salary noted above, goes on household expenditure: mortgage, council tax, utility bills the report did not even include food or petrol. Prices in these areas (bar the mortgage at present) continue to rise far slower than salaries so there is no capacity for savings or even disposable income. It is sickening to see people claim that those on low incomes are lazy, in fact the bulk of them are working extremely hard to keep their heads above water. It is not about effort it is about the huge imbalance in British society which has been widening further since the 1970s. The super-rich are in control and making us subsidise their lifestyles. That is simply perverse.

In total 1% of the population owns 34% of the wealth in the UK. The head of Barclays Bank earns £250,000 per year and gets £22 million per year in bonuses; the founder of earned £103 million in a year. You could employ 10,300 people (the number of people that Tesco employs in Northern Ireland) earning £10,000 per year for a year for the same amount of money, is he really worth that much? To the 3 million people who earn more than £100,000 per year a loss of about £230 per year is not going to mean much with the abandonment of the 10% bracket, but for those under £10,000 it can cover the cost of your fuel bill for half the year or your food for a family for a month, it is a big difference. This change will also hit women, who make up more of the workforce, harder as on average they earn 17% of the salary of their male counterparts but remain predominantly the breadwinner in single-parent families, which helps explain why children are over-represented among those people deemed as being in poverty in the UK.

Brown has won over the Labour rebels by promises of compensation for the poorest. Yet, that is not the same as maintaining the 10p tax band. Compensation means control and as I have long stated on this blog this Labour government seeks ever greater control. Everyone is affected by a tax band when they earn sufficient income to enter it, but only people who are targeted or have the time and ability to apply get compensation. This allows the government, as it clearly wishes, to designate money to those it sees as the 'deserving poor' (to use the Victorian phrase) and keep it away from the 'undeserving poor' for whatever reason because of their lifestyle or the choices they make. The government will be equipped with yet another tool to shape people's lives, to go into particular jobs or move to particular areas with the carrot of being offered this compensation or the stick of having it removed if they do not comply. This comes at a time when food and fuel prices are continuing to rise seemingly inexorably (my own grocery bill has risen by 20% in the past year despite growing vegetables in this household to supplement the food we buy) and you are lucky if your salary has risen by 3% when fuel is rising 11% per year at present. This is another step by the government to increase its police state powers.

I am not averse to taxation. I believe people in my income bracket should pay more and should fund better services out of that. In fact I believe in more taxation, but rather than doing what the government is currently doing, i.e. raising taxes for the poorest people in society, I would raise them for the very rich. Back in 1979 the pattern of taxation was very different. That June, the first budget under the Conservatives the basic rate (currently 22%) was lowered from 33% to 30% and the top rate (currently 40%) fell from 83% to 60%. There were very rich people, lots of millionaires in the UK of 1979 and even the Conservatives could stomach such rates of tax which are not exceptional. France has a top tax bracket of 52.75%; Germany 42%. However there is a shift in all of Europe to lower tax rates in the highest category. This is because governments really no longer have any control over their fiscal policies, they are dictated to by the turbo rich who threaten governments into passing policies which favour them otherwise they threaten to take their money elsewhere. Across Europe they are bullying governments into reducing the burden on them and not even properly collecting the taxes that they should be paying. An increase say to 45% for people earning over £100,000 per year and 50% for those over £250,000 would make minimal difference to those earning such large sums but would immediately increase the revenue coming in.

Maybe it is too late. Perhaps Brown is afraid that if he challenges the ultra-rich his government will be brought down by a flood of funds from the UK. These people seem not even to tolerate even minor amendments which in reality they would not even notice. Their agenda seems to move to something like 18th century France where the nobility was exempt for taxation whereas the lowliest peasants had to contribute to the extravagance of the royal court. Of course Brown has a desire for compensation in the place of a lower tax band, not only does it keep the ultra-rich happy but it gives him more control over the masses. How is it that discredited political stances discredited two hundred years ago seem so suitable for present day UK politicians? Brown you are a coward, a bully and seeking to head an authoritarian state. Listen to the backbenchers and change your ways before you wreck British society.

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