The Budget... reading between the lines

Published on 23 March 2006

Very often it is the things which are not said during a Budget speech which give the greatest cause for concern. These can sometimes be seen more clearly after a day or so of reflection. We worry that the continuing complexity of the tax and welfare systems, coupled with inadequate resources and a low priority given to those on low incomes will mean a continuing deterioration in service.

Here are the signs that things will not improve:

  • The customers of HMRC that the Chancellor has asked to be targeted for help for simpler administration (Sir David Varney’s review) are to be big business.
  • The review of HMRC’s online services provided to its customers (a review published with the Budget by Lord Carter) fails to consider changes that would significantly improve the lives of those on low incomes.
  • All references to the “right amount of tax” or the “fair share of tax” to be paid by HMRC’s customers omit any reference to the many millions of pounds that the poorest overpay every year and which is kept by HMRC and never repaid.
  • The personal allowance is only increased by £140 for those under 65 to £5,035 per annum. This means people get within the tax system on only £97 per week when the national minimum wage from October for a 35 hour week will be £187 per week. This will mean many more people receiving Working Tax Credit from HMRC with one hand and paying tax to HMRC with the other.
  • The personal allowance for pensioners of 65 and over has only increased by £190 per year for those up to 74 years of age. Those over 74 get a further addition of just over 19 pence per week on top by way of increase! Another complexity which has just been allowed to continue.
  • A 16 year old on the new National Minimum Wage of £3.30 per hour will start to pay tax if they work 30 hours a week. What message does this send?
  • HMRC are already in the midst of a major staff cutback and now the Chancellor has announced that HMRC will be required to spend 5% less each year from 2007-08. This will inevitably mean a poorer support service for those who need it most. Those on low incomes always tend to get left behind on cutbacks, as they are not a major risk to tax revenues.
  • A widow aged 64 whose only income is her State Pension of £100 per week currently has to file a Self Assessment Return by 31st January after the end of the tax year (which is a ludicrous burden in itself). If she does not have access to a computer and is not prepared to file online she will be required to file her Return by 30th September from 2008.
  • The widow in the example above will pay tax to HMRC whilst at the same time having to claim Pension Credit from the DWP. The take up rates for Pension Credit are poor.

LITRG believes that a compassionate society should not leave the poorest with the greatest proportionate administrative burdens. Fine words in Budgets are not making life easier for the poorest in their dealings with HMRC.

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