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Minister defends tax rate changes Pressure mounts over tax changes
(about 2 hours later)
The government has defended its decision to abolish the lowest 10p rate of income tax after a committee of MPs said it would hurt low earners. Ministers are coming under increasing pressure to rethink scrapping the lowest 10p rate of income tax, amid warnings it will hurt low earners.
Cabinet Office minister Ed Miliband said reversing the policy would be "wrong", making the system "less fair". The Commons Treasury committee warned that single people without children, earning less than £18,500, would lose up to £232 a year.
But the Treasury committee warned that, under government changes, childless single people earning less than £18,500 would lose up to £232 a year. The Tories said it was a "tax-grab" on the lowest paid, and 73 Labour MPs have signed motions expressing concerns.
The Conservatives said this was a "tax-grab" on the lowest paid. But the government said reversing its policy would be "less fair".
In last year's Budget, the then chancellor Gordon Brown cut the basic rate of income tax from 22% to 20% and increased tax credits. But he also scrapped the lowest, introductory -10% - rate of income tax. In last year's Budget, the then chancellor Gordon Brown cut the basic rate of income tax from 22% to 20% and increased tax credits. But he also scrapped the lowest, introductory - 10% - rate of income tax.
The changes came into force at the weekend. The changes came into force at the weekend, but MPs can still vote to reject them.
'Unreasonable target''Unreasonable target'
In its report, the committee claimed households without children or anyone over the age of 65, and on incomes of under £18,500 a year, would be the "main losers". In a report, the Treasury committee claimed households without children or anyone over the age of 65, and on incomes of under £18,500 a year, would be the "main losers".
Chairman John McFall, a Labour MP, said they seemed an "unreasonable target for raising additional tax revenues to fund the benefits of tax simplification and meeting the needs of children in poverty".Chairman John McFall, a Labour MP, said they seemed an "unreasonable target for raising additional tax revenues to fund the benefits of tax simplification and meeting the needs of children in poverty".
He added: "While tax simplification is a laudable aim, it seems strange that the abolition of the 10p starting rate of income tax disadvantages mainly low-income households." WINNERS AND LOSERS Winners: Most people/ with incomes of £18,000+Under £18,000 but aged 65+ and therefore eligible for higher personal allowancesUnder £18,000 but with young children and therefore eligible for child tax credits Losers: Under £18,000 and ineligible for working tax credits because under 25Retired early and therefore ineligible for higher personal allowancesPart-timer working insufficient hours to qualify for tax credits Different personal circumstances may affect final amountsSource: PWC
This is a group we should be saluting Frank Field MP class="" href="/1/hi/business/7333357.stm">Treasury faces 'challenge' Within the last two months, 73 Labour MPs have signed at least one of three Commons motions expresssing unease at the abolition of the 10p rate.
Mr McFall said "appropriate help" must be given to ensure they get the right benefits and called the report a "sober analysis" which had "reminded the government of its responsibilities". Conservative leader David Cameron said it was "the wrong time to ask the lower paid to pay higher taxes" and promised to campaign against the change in the run-up to next month's local elections in England and Wales.
But Mr Miliband, a close ally of Mr Brown, told BBC Radio 4's World at One: "When you look at the overall effect of the last Budget there are 16 million households, who gain, and the biggest gains go to the poorest 30% of people in our society. He added: "Our approach must be to do what we can to stop this tax-grab on some of Britain's poorest people."
"Now, of course we could reverse all the changes made in that Budget but I think it would be the wrong thing to do, because I think it would make the tax system less fair than it is at the moment. Meanwhile, former Labour minister Frank Field is proposing an amendment to the Finance Bill - which confirms the tax system changes - asking for the low-paid workers affected to be compensated.
"And I think all the changes taken together make the tax system fairer and benefit the bottom third of our society, which is what a Labour Budget should do."
Last week, former Labour whip Greg Pope tabled a Commons motion calling for action, signed by 30 Labour MPs.
Amendment
This was withdrawn after he received "assurances" from ministers that they would examine its impact.
However, former Labour minister Frank Field is proposing an amendment to the Finance Bill - which confirms the tax system changes - asking for the low-paid workers affected to be compensated.
He said: "This is a group we should be saluting, who do some of the best jobs in our society for the least money."He said: "This is a group we should be saluting, who do some of the best jobs in our society for the least money."
Conservative leader David Cameron said the tax changes were coming "at the wrong time to ask the lower paid to pay higher taxes". 'Saluting'
He added: "People are seeing it when they are shopping, running a car or paying a mortgage...
"Our approach must be to do what we can to stop this tax-grab on some of Britain's poorest people."
HAVE YOUR SAYNew Labour's vicious tax policies have increased the burden on the poorest among usSteve, SunderlandSend us your comments
Lib Dem leader Nick Clegg said the abolition of the 10p rate had been a "cheap political stunt" to allow Mr Brown to take 2p off the basic rate of income tax "for the following day's headlines".Lib Dem leader Nick Clegg said the abolition of the 10p rate had been a "cheap political stunt" to allow Mr Brown to take 2p off the basic rate of income tax "for the following day's headlines".
But the prime minister's spokesman said: "The reform we made to the 10p rate was an integral part of last year's Budget. But Cabinet Office minister Ed Miliband, a close ally of Mr Brown, said: "When you look at the overall effect of the last Budget there are 16 million households, who gain, and the biggest gains go to the poorest 30% of people in our society.
HAVE YOUR SAYNew Labour's vicious tax policies have increased the burden on the poorest among usSteve, SunderlandSend us your comments
"Now, of course we could reverse all the changes made in that Budget but I think it would be the wrong thing to do, because I think it would make the tax system less fair than it is at the moment.
"And I think all the changes taken together make the tax system fairer and benefit the bottom third of our society, which is what a Labour Budget should do."
The prime minister's spokesman said: "The reform we made to the 10p rate was an integral part of last year's Budget.
"That Budget included a reduction by 2% in the basic rate of income tax from 22% to 20% which will benefit millions of people."That Budget included a reduction by 2% in the basic rate of income tax from 22% to 20% which will benefit millions of people.
"It will lead to a significant increase in pensioner tax allowance, a widening of the working tax credit and increases in child benefit and child tax credit.""It will lead to a significant increase in pensioner tax allowance, a widening of the working tax credit and increases in child benefit and child tax credit."
Asked if changes could be made, he said: "This was a coherent package of reforms."Asked if changes could be made, he said: "This was a coherent package of reforms."
The prime minister was in touch with Labour MPs "all the time", he added.The prime minister was in touch with Labour MPs "all the time", he added.