Brown delivers election pledge with 10p rate

The Chancellor yesterday finally delivered on his election pledge to introduce a new 10p tax rate which will put money in the pockets of all taxpayers. And, in the closing moments of his speech, Gordon Brown pulled a new rabbit out of his tax hat by announcing that the basic rate of tax will fall by one pence to 22p from April 2000.

The new 10p rate will replace the current lower rate of 20 pence from April 6. But, unlike the current 20p band - which applies to the first ?4,300 of taxable income - the new 10p band will only apply to the first ?1,500 of taxable income. This means that taxpayers who currently only pay 20 per cent tax on the first ?4,300 of their income will in future pay 23 per cent tax on the next ?26,500. As a result, many taxpayers will gain rather less than they had first hoped when the Chancellor announced the new 10p lower rate as taxpayers will now pay 23 per cent on taxable income between ?1,500 and the higher rate tax threshold which will rise in line with inflation to ?28,000 from April 6.

All taxpayers will gain from the increase in personal allowances and tax thresholds in line with inflation, taking the personal allowance to ?4,335 from April this year. This will be good news for the well-heeled who feared that the Chancellor might restrict personal allowances for higher rate taxpayers to the basic rate to help pay for the new 10p band.

But all married couples under 65 will be hit by the further restriction in the married couples allowance (MCA) to 10 per cent from April this year which will reduce its value to ?197 for each married couple. And they will take a bigger bashing in the year 2000 when the MCA will be abolished altogether for all married couples who are not pensioners - a year before the new Childrens Tax credit is introduced.

For all basic rate taxpayers this will more than offset the withdrawal of the MCA as the new credit will be worth ?416. But higher rate taxpayers will lose ?1 of this tax credit for every ?16 of income taxable at the higher rate.

The death knell for the married couples allowance and related allowances was signalled by Norman Lamont in 1993 when he restricted the relief to 20 per cent. Since then it has been hacked away, most recently by the Labour Government which announced in last year's Budget that it would be restricted to 10 per cent. When first introduced in 1990 - to replace the married man's allowance when independent taxation was first introduced to give women more independence - the MCA was worth ?430 to basic rate taxpayers and ?688 to higher rate taxpayers.

Mr Brown claims the tax burden on the typical family with children will now fall below 20 per cent for the first time in 20 years. For example, a married couple with two children and combined earnings of ?30,000 will be ?390 better off each year.

But as part of the Chancellor's package for families with children, he also announced increases in the Working Families Tax Credit. For instance, a single-parent household with one child and annual earnings of ?10,000 will be ?225 better off per annum, but the October introduction of the Working Families Tax Credit (WFTC) - which replaces benefits such as Family Credit - will add an extra ?38.56 to this household's net weekly income.

Pensioners received a much needed boost with increases in their personal allowances above inflation, a retention of their Married Couples Allowances, the linking of rises in their minimum income guarantee to earnings and a hefty increase in winter fuel payments.

The well- heeled will be hit in the year 2001 when the Upper Earnings Limit for National Insurance Contributions will be increased to ?29,900.