The 2007 Budget abolished the 10% starting rate for those earning below £19,355 per annum and reduced the standard rate of tax from 22% to 20%.
The unintentional consequence of this was that 5.3 million households were worse off - typically families without children not claiming tax credits and couples claiming tax credits where the increase in tax was greater than the tax credit. The greatest loss was £232 per year (for those earning £7,755), in the £5,435-£19,355 tax bracket.
Under pressure from a number of MPs led by Frank Field (and including me) the Government made changes in the 2008 and 2009 Budgets, increasing the personal allowances, to offset these losses but even so half a million households and 3.8 million individual taxpayers are still worse off.
The Government keep promising to compensate "all losses" but are failing to do so. As a result Frank Fields and I are taking an amendment to this year's Finance Bill (which puts the Budget into law), to be debated next Tuesday. We are supported by a dozen Labour MPs and need a further 20 to make the Government provide full compensation. As Frank Field wrote in a recent article, "The time for warm words is over; I shan't fall for those tricks again."
I will report back after Tuesday's debate.