Why does the UK’s allegedly Labour government penalise people with modest incomes to hand tax cuts to those with much higher earnings? I could not work out the logic for Gordon Brown’s coup de grace as Chancellor, in March 2007: the abolition of the 10p in the £ income tax band to (partly) pay for the reduction of the 22p band to 20p. It made all the headlines as a ‘tax cut’ although the reality, in this upside down world, is a tax rise for millions of people. Did the Chancellor, who became Prime Minister three months later, not study the income statistics published by Her Majesty’s Revenue and Customs (HMRC)? Or did he believe that the ‘losers’ all claim tax credits, so would not experience a loss of income?

HMRC’s data for the take-up of ‘working tax credit’ and ‘child tax credit’ for 2005-06, the latest available, show that between 87% and 93% of eligible families with children claimed these benefits, but among the families without children who could claim ‘working tax credit’ only 21% to 24% did so. Claiming tax credits requires a great deal of form-filling and submission to rigorous means testing. Tax credits make ordinary people doing responsible jobs into welfare claimants. On the other hand, government can disclaim responsibility for individuals who could claim but who choose not to.

For someone earning £10,000 a year and not receiving tax credits, the disappearance of the 10p rate means that in 2008-09 they will pay £130 more income tax than in 2007-08, assuming that the sole allowance they receive is the personal allowance, £5,225 in 2007-08 and £5,435 in 2008-09. A worker earning £12,000 a year would pay £90 more tax, and one on £15,000, £30 more. At £18,000, the result of the change is a gain of £30 a year, and from here up the income scale, the benefits multiply. At £30,000 a year, for example, the income tax bill in 2008-09 is £270 lower than in 2007-08.

Half of income-tax payers in the UK had total incomes, before tax, of less than £17,101 in 2005-06. After tax, half of taxpayers received under £14,901. In addition, almost half the UK population have incomes too low to be taxable. They include most children and many pensioners, and more women than men in virtually every age group.

The point of including all these figures in a blog on future food supplies is to show that even in prosperous Britain, current taxation policy means that the majority of the inhabitants could not cope easily with higher food prices, and some would be forced into deficient diets. The government’s obsession with protecting the affluent from higher income tax bills means that people on ordinary incomes have to start paying 20% tax, in 2008-09, once their annual earnings exceed £5,435, or £104.52 a week. Not much scope for a celeb lifestyle there. While those who qualify can apply for tax credits, the system is bureaucratic, complicated and expensive to run. It seems that no one in government is prepared to contemplate the option of substantially raising the income threshold for tax and paying for it by levying a bigger contribution from the highest earners, who pay only the top rate of 40% income tax however astronomical their earnings. Another option would be to cut public spending…. perhaps less on two wars that are impossible to win.

The typical British household cannot absorb higher food costs without damaging knock-on effects elsewhere in the economy, or damage to their own nutrition.

Sources: ‘Child Tax Credit and Working Tax Credit Take-up Rates 2005-06′ from HM Revenue and Customs 2008; and Tables 2.5, 2.6, and 3.1, HMRC Statistics, accessed May 5th 2008.