Tax Changes: The Aftermath

The tax u-turn made by the Chancellor yesterday caused the expected reaction of both pleasure from those out to receive £120 back from the tax man and outrage from the 150,000 people now expected to slip into the higher rate of tax.

Despite the feel good announcements made by the Prime Minister today, focusing on schools, hospitals and law & order, as well as first-time buyers (a diversionary tactic to take some heat off following the tax chaos?), the tax problems are likely to rumble on.

An interesting point was made by Jonathan Rawle on his blog:

Ominously, the BBC report that people will gain £120 this year. We should be under no illusions that this will be a permanent tax cut. Next year, the personal allowance won’t increase nearly as much as it would have done, and over time, further reduced increases in the allowance will mean that the £2.7 billion is eventually clawed back. But as no-one can know what the increases would have been without today’s announcement, they won’t be able to complain about losing out. The amount of tax collected will be the same in the end, but I suppose at least low earners won’t be hit with a big increase in tax all at once.

So that helps to explain where the money will be coming from. It just shows how easy it is for these huge figures to be manipulated, massaged and moved around to make it look good for the majority of the population who probably won’t question it – they’ll just see the extra money in their pay packets and think it’s great.

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