Abolition of 10 Pence Tax Rate

Dear Mr Gill,

Thank you for your Freedom of Information request. I write to confirm
receipt of your request and to let you know that it is receiving
attention. If you have any enquiries regarding your request do not
hesitate to contact us.

Correspondence and Enquiry Unit

HM Treasury

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Dear George,

Thank you for your email of 23 April on the abolition of the 10p rate of income tax. We have not treated your correspondence as a Freedom of Information request, but hope that the information in the following paragraphs will be useful. If not, please contact us again. The Information Commissioner reminds requesters that they should "ask for the information you need, rather than a general question you want a public authority to answer".

The 10p starting rate of tax was introduced in 1999 as part of long-term reforms to deliver the Government's commitment to help support low income households. However, with the measures that have been introduced since 1999, particularly the introduction of the national minimum wage and the subsequent introduction of tax credits, we now have more effective ways of targeting resources on low and middle-income households. Since Budget 2007, we have introduced measures that mean around half a million fewer children will be living below the poverty line and 600,000 more pensioners will pay no income tax.

Some 16 million households gained from the changes. However, I acknowledge that some low-income households have less income as a result of the changes that were announced last year.

That is why the Chancellor announced an increase in the personal allowance by £600 to £6035, benefiting all basic rate taxpayers under 65, backdated to this April.

This will mean that around 22 million people on low and middle incomes will gain an additional £120 this year, equal to the average loss that households would have incurred. This will include many individuals who have caring responsibilities to which you refer.

It will also mean that 4.2 million households will receive as much - or more than - they originally lost. And 600,000 people on low incomes will be taken out of tax altogether.

From September, most basic rate taxpayers will see a one-off increase in their monthly take-home pay of around £60, then an increase of £10 a month for the rest of the financial year. There is no need for taxpayers to take any action: the changes will be put into effect in the same way as Budget changes.

To focus this support on basic rate taxpayers, the threshold at which people start to pay higher rate tax has also been reduced by £600. As a result, the tax liability of everyone that pays tax at 40 per cent will not be affected by the increase in the personal allowance.

People aged between 60 and 64 will also gain as a result of the increased personal allowance worth up to £120. They will also receive the additional £50 Winter Fuel Payment for this year, announced in the Budget 2008.

Those over 65 already benefited from an increase to their personal allowance announced in Budget 2007, meaning 600,000 more pensioners pay no more tax. So the recent changes are focused on taxpayers under 65.

The Government has also asked the Low Pay Commission to report on what changes could be made to the minimum wage regime to support younger workers.

As set out above, we have already announced measures for this year to compensate people for the average loss that households would have incurred. For future years we are working to identify ways to continue to help those on low incomes.

Yours sincerely

Darren Creamer
Correspondence & Enquiry Unit
HM Treasury

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