Chancellor signals more of the same

Published on 5 December 2005

Although the Chancellor signalled changes to tax credit overpayments of some significance, when it came to income tax, national insurance and tax credits generally, it was largely "as you were". There has been no dramatic attempt to take people on exceedingly low incomes out of the tax net so we have the continuation of the strange scenario of HMRC taking with one hand and either themselves, or the DWP, giving back with the other.

Income tax and national insurance

This afternoon the Chancellor announced that the basic personal tax allowances and national insurance thresholds for next year (2006-07) would be raised by broadly the rate of inflation.

LITRG exists to help those on low incomes cope with their tax and tax credits. The fact that so many people on low incomes pay tax at all is due to the failure of tax allowances to keep up with inflation over the past three decades.

While the Government prescribes half the national average wage as the poverty measure, it charges income tax on, and collects national insurance contributions from, people earning less than half that amount. Then it pays them welfare benefits to plug the gap, with all the complexity and errors that entails.

While we wholeheartedly support the concept of a national minimum wage, it makes little sense, when working for less than 20 hours a week at that rate of pay, puts you firmly into the tax net.

Tax credits

The amount of eligible childcare costs to be reimbursed through working tax credit will be increased from 70% this year to 80% next. This is in line with last year's undertaking, and will greatly extend the income range of people entitled to the child tax credit.

(05-12-2005)

Contact : John Andrews (Tel: 0844 579 6700 Fax 0844 579 6701)