We have already commented over the last year that those on the lowest incomes will have a significant rise in their tax bills from 6 April 2008.

Increase in tax charge

Just to recap on why this is happening. From 6 April 2008 the 10% starter rate for tax is abolished. At the same time the basic rate is reduced from 22% to 20%.

If you are on a low income the benefit of the latter change is outweighed by the removal of the 10% band. That will result in people whose annual income is around £15,000 or less paying more tax from 6 April than they are now.

For example:

Income              Tax/NI in 2007/08             Tax/NI in 2008/09

£7,000                375                                  482 

£10,000              1311                                1412

£15,000              2961                                2962

£30,000              7911                                7612

The alleged tax credits offset

Press reports suggest that increased tax credits will offset these tax rises. But there are many in this situation who are not entitled to tax credits, and many others who are eligible but do not claim them.

For a start, any childless person under 25 years of age without a disability is not eligible for working tax credit.  Within that broad category are many in need of support, in particular:

• school-leavers searching for their first employment;
• those leaving university with loan debt.

Examples of others who are not eligible for working tax credit are:

• most childless people of 25 years of age and over who work less than 30 hours a week;
• anyone who works less than 16 hours a week;
• people coming off incapacity benefit and entering work, but not able to work for the requisite number of hours each week;
• migrant workers whose immigration status prevents them from having recourse to public funds

Pensioners

Pensioners aged 60 to 64 lose out because they do not benefit from the big increase in the age allowance for the over-65s, which is meant to compensate for the loss of the starting rate.