Ensuring that the poorest in our society are fairly taxed, i.e. that their tax is minimalised as far as is feasible, is fundamental to Labour principles, which is why the plight of those worsted by the abolition of the 10p rate is such a sensitive issue. But the long-drawn-out struggle to compensate these 5 million households has been a complex and contorted one. In his last Budget in April 2007 Gordon Brown paid for the 2p reduction in the standard rate of income tax, which cost £9.7bn, by doubling the starting rate of income tax to 20p in the £, which increased Exchequer revenues by £8.6bn. A year later Frank Field MP proposed that the poorest thus disadvantaged should be compensated by an across-the-board increase in personal tax allowances, clawed back in the case of standard and higher rate taxpayers by an increase in national insurance contributions. The poorest families would thus be fully protected while all others on the standard or higher rate would find that their tax position was neutral, i.e. they wsere neither better off nor worse off. But that is not what the Government did, which has led to the crisis vote today.

Come the 2008 Budget, the Government unexpectedly increased allowances by £600 for all taxpayers, but then failed to claw back this uncovenanted benefit from standard and higher rate taxpayers, at a consequential cost of an enormous £2.7bn. This had the effect of recompensing some 90% of the 10p rate losers, but without the clawback it left the poorest taxpayers in a relatively unchanged position compared with the rest of taxpayers and at a cost some five times greater than would otherwise have been necessary.
This time round, following the 2009 Budget, Frank Field put down an amendment to the Finance Bill demanding that before the tax-raising powers in the Budget could be implemented, The Chancellor should produce a statement to Parliament setting out how he proposed that all the remaining losers would be compensated. The Government recognised that there were about 500,000 households still in this category, and the IFS calculated that this comprised some 1.3 million individuals who were still losing up to £2-£3 a week – a significant sum at this very low income level.
At this point positions hardened. The Government said that if the Field amendment was passed, its capacity to raise income tax would collapse and Armageddon would ensue. The Field camp said this was blackmail, and the Government must have a plan B. What did not happen was any serious discussion about a way forward, with the Government saying that Field & Co had not produced any specific proposal to solve the problem, and Field saying, as he had all along, that personal tax allowances could be raised again with a clawback from those at standard and higher rates. Gordon Brown also insisted in a telephone call to me that most, if not nearly all, of the remaining 10% losers would have been compensated by the increases this year above inflation in pensions, child credit and the minimum wage.
This was the background based on policy rationale, but the final vote showed there was a good deal of opportunism and score-settling. But what really emerges from this episode is that the Government has still not done nearly enough about combatting poverty, especially child poverty where the number of children victimised is still over 2 million.

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