Why Gordon axed the 10p tax rate

The current fuss and hot air generated by Gordon Brown’s axing of the 10p tax rate is truly amazing.

The New-Labour rebellion over it for one. These are the same planks that were making like performing seals with much clapping and ‘hear hear’s when their master and then leader in waiting, Gordon Brown, actually did the dirty deed in his last budget as chancellor.

What is also amazing is that most of the pundits and commentators only get half the picture. Gordon Brown may lack bottle to do stuff in the light of day, but he has considerable animal cunning and likes complex double and triple bluffs concealing much of what he does in the hope no one will ever notice, let alone call him on it.

A number of them have noted that the changes coincidentally leave those on low incomes with no children much worse off. They have all the pieces but seem to fail to fit all the pieces of the jigsaw together.

It also shows how few pundits read this blog ;-) as I pointed what follows out at the time.

So - let's set the picture and go over it again. Cue wobbly fade…

Before Gordo’s last budget there was much rending of clothes and gnashing of teeth over ‘Child Poverty’. New Labour had foolishly promised (though why breaking some promises should bother them more than others is not clear) to halve child poverty in Britain by 2010 - and there was no way they were going to meet that target.

Now New-labour were presumably too stupid to realise this is effectively impossible when they set this target. But because of the way the formula is calculated ‘Child Poverty’ is defined by a moving set of goalposts. If you were to somehow magically increase the household incomes of all families, every single one, who fall within the definition at midnight on Sunday - and then re run the figures the poverty line would have increased and you would still have children living in ‘poverty’. You can do the sums for yourself if you care to.

So what has this to do with the abolition of the 10p tax band? Well there is one way of getting a temporary boost to the child poverty figures. It is a matter of percentages. If you take from the really poor who it would take a lot of cash to lift out of actual poverty and give that to those who are not so badly off just below the ‘poverty’ line and only need a little to lift them out, then you can keep the goal posts more-or-less where they are and improve the figures no end. It works especially well if you mostly just take from those poor who have no children.

One suspects it is far from a coincidence that Gordon Brown, knowing he would be judged on New Labour's rash promises on ‘Child Poverty’ decided to do the one thing that could easily improve his figures and might be made to look like a tax cut. Rather like a magician drawing your attention to his right hand whist his left does the real trick.

So it looks suspiciously like just another, albeit particularly dodgy, case of New Labour manipulating figures to pretend to be accomplishing something.

If it is true then it shows the his truly cynical nature, the true depths to which he is willing to sink and puts the lie to any claims he may make to actually care about the poor.

None so blind as those who think they already know...

Today the BBC trumpets “Wealth gap in learning by three”

Baaad selfish rich people! Taking all the education for themselves.

This is in relation to a report based on various studies by The Institute of Education research in the UK.

Children were given 'school readiness' tests and they apparently showed that by the age of three, children from ‘disadvantaged’ homes are up to a year behind in their learning than those from more privileged backgrounds.

Graduates' children were seen to be 12 months ahead of those of the least well educated in tests on their grasp of letters, numbers, colours and shapes.

One of the studies found large differences between children living in families above and below the poverty line.

Professor Heather Joshi stated the poorest children were 10 months behind their wealthier peers in tests of their grasp of shapes, numbers, letters and colours known as "school readiness" tests. She also stated in another study, girls were educationally three months ahead of boys on average.

So are girls on average more ‘advantaged’ than boys? Unlikely.

Take graduates. They are a group pre selected for their ability to – well – graduate.

If intelligence were in any respect even partly inherited then children of graduates would on average start of with a genetically loaded deck of cards.

Then add to that the likelihood of graduates being highly likely to try to ensure their children got a good start and that they would be likely to be exposing them to a more varied and comprehensive vocabulary. It is hardly surprising that their children would on average perform better that average.

Consider people living below the so-called poverty line. Whilst there are many reasons for someone to be in such circumstances it is not unreasonable to suppose, that people living below the poverty line, are on average, less likely to be highly educated. To some extent the reverse of what applied to graduates applies to them.

Now Consider children living below the poverty line. A significant number of those children live in single parent families. This means that there is only one parent who is quite probably likely to have less time to devote to preparing the child ‘educationally’.

So in fact being disadvantaged is by no means the whole story. Native intelligence and a stimulating environment provided by motivated engaged parents are probably responsible for the differences observed.

Advantage, or wealth, is more a by-product than a cause, more an indication of the previous generation’s drive, commitment, intelligence and educational attainment.

The poverty line

The children's Charity Barnardo’s is complaining that the UK Government will fail to halve child poverty in Britain by 2010, as promised - unless it spends an extra £3.8bn of taxpayers money over the £1bn already set aside for tax credits in the 2007 budget.

Apparently the charity's research indicates there are one million children who should have been lifted out of deprivation by the end of the decade who will still be in poverty. They warn that while the number of children living in poor families fell slowly but steadily in the late 1990s, progress has now stalled.

Terrible, you may think – Poverty, in Britain, in this day and age. Why is the State failing in this?

Basically because they have set themselves a much more difficult task that it seems.

A household is considered to be officially below the poverty line if they are living on less than 60% of the UK’s median (average) level of household income. These figures look at incomes in Great Britain, after housing costs have been paid. Curiously the EU apparently use the same measure...

So the Poverty line is actually a moving target then. For a start, every time interest rates go up a few more people slip below this poverty line.

Let's conduct a thought experiment - Imagine you were to take every single household, that is officially poor by this definition and were to supplement their income, so it that was £1 above the ‘poverty line’.

At the end of the exercise, when you re-did your sums, you would almost certainly find that you had only actually reduced poverty by a tiny amount and that the official poverty line had become slightly higher.

You would probably have to repeat the process quite a number of times before you had evened out household incomes enough for this measure to show a significant drop off.

Another problem with this measure of poverty is that by redistributing benefits, or services away from the very poorest (who are so far below the poverty line they are likely to stay poor anyway) to those just below the poverty line (who have the greatest chance of being moved over the line), politicians can reduce the poverty rate - Hurrah! - even while deepening the deprivation of the worst off - Oh!

So now you may have an inkling as to at least one possible reason why Chancellor Gordon Brown decided to reduce the basic rate of income tax from 22% to 20% but extended the new basic rate to cover the old 10% Starter rate, more than doubling taxation on the first £2000 of taxable income in the last budget - Busted!