Taxing the poor

Edinburgh Evening News, 22 April 2008

I was in the Chamber of the House of Commons last year when Gordon Brown delivered his final budget speech as Chancellor. In a piece of pure political theatre, he waited until the last moment to announce triumphantly that he was cutting the basic rate of income tax by two pence.

It was supposed to be a political master stoke, a closely guarded tax give-away designed to boost his popularity and propel him towards the top job. I remember Labour MPs at the time cheering wildly as their man appeared to have pulled a political rabbit out of the hat.

Perhaps a few more of them should have stayed in the Chamber that day to hear my colleague Vince Cable, the Liberal Democrat Treasury spokesman point out that the plan to abolish the 10p starting rate to fund the income tax cut amounted to “asking the poor to subsidise the rich”. Back then it was an argument that few wanted to hear – today is a row that threatens to engulf the Government.

The Media is billing the dispute as a Labour Party squabble which threatens Brown’s job with both he and the Chancellor rightly taking political flak for their decisions. However, in reality those worst hit by the whole affair will not be the politicians, but rather some of the poorest and hardest working people in society. While the Prime Minister may see his poll ratings slump, for some of the lowest earners, it will be their wallets that will feel the pinch.

The Institute for Fiscal Studies has warned that 5.3m households will be worse off as a result of the changes with childless couples, young workers and people who have retired early among those affected. During the last two weeks while parliament has been on its Easter break I have spent the time in my own constituency, knocking on doors and attending community meetings and events. It is clear from listening to local people that there is a genuine concern over the impact of the abolition of the 10p rate. The question that is raised again and again is why a Labour government is introducing tax changes that will hit hardest those who can least afford it.

Last weekend, the Chancellor came as close as he could to admitting that the Government had made a mistake when he said that he could not rewrite the budget. However, let us make no mistake – the Government have had over a year to act and have failed to do so. Alistair Darling could have taken action help those hardest hit in his first budget as Chancellor just months ago, but he failed to stand up to the Prime Minister when it mattered.

Next Monday, parliament will have to decide if will back the Prime Ministers plans, or if it will instead support an amendment to compensate those who have lost out as a result of the tax changes. Like many MPs I was first motivated to get involved in politics out of a desire to help the least privileged in society and so I will be voting for the amendment. Labour MPs of conviction will now have to decide whether to prop up an increasingly shaky Prime Minister or to vote in line with their principles.

When Gordon Brown became Prime Minister, many people across the country hoped this would mark a shift in approach towards a fairer more redistributive society. Brown was after all a politician who had built his reputation around the twin pillars of economic prudence and concern for helping the poor. In the light of the 10p tax rate debacle, at least one of these pillars is crumbling. Either it is an economic gaffe which calls into question the basic competence of this Government, or it underlines again that the days when Labour could be trusted to stand up for the poorest in society are long gone.