10p Tax Rate

The starting rate of income tax, often known as the 10p rate, was the lowest rate of personal income taxation imposed in the United Kingdom from 1999 to 2008. It was introduced by the Chancellor of the Exchequer, Gordon Brown, in his 1999 budget and abolished by him in his last budget in 2007.

UK Tax Bands 2007/2008/2009

The following table indicates the change to the income tax system between the fiscal years 2007/8 and 2008/9.

Tax is charged in bands, so in 2007/8, the first £2,230 would be charged at 10% (i.e. £223), and so on. Everybody also receives a tax-free allownace (not shown), known as the personal allowace, of around £5-6000. Tax is only charged on income above this allowance, known as 'taxable income'. (See HMRC Tax Rates).

The 10p Tax Rate

The original purpose of the 10p rate was to reduce the amount of tax paid by the lowest earners in society, in order to make the tax system more equitable. Its efficiency at achieving this was disputed at the time.

The abolishing of the starting rate received substantial criticism and opposition. Contrary to the political arguments, most households are better off as a result of the tax reforms. Notably, targeted tax credits and increased allowances for pensioners mean that many of the poorest members of society will benefit proportionately more. For example, families with children in the poorest fifth of the population will be £400 a year better off, compared to the average household being £150 better off.

There are however, certain classes of low-income earner who will lose out, and this has been the source of the opposition. In particular those who work part-time or are under 25 and don't have children will not qualify for the working tax-credit. This strain is additional to that imposed by inflation and the credit crunch. The government has admitted that there is an issue and is working to improve matters.

Tax reforms are complex by nature and affect millions of people in as many ways. The overall balance of recent tax strategy has been a shift towards redistribution of wealth from the richest to the poorest members of society. In the long-term, this stategy has been successful, and it is likely that future governments will maintain a similar strategy.