"Brown's mistake" has already been reversed

The personal allowance has grown to undo any losses the abolition of the 10p rate inflicted.

Ed Miliband has committed to introducing a mansion tax, and using the money to fund a re-introduction of the 10p tax band, saying:

We would tax houses worth over £2 million. And we would use the money to cut taxes for working people. We would put right a mistake made by Gordon Brown and the last Labour government. We would use the money raised by a mansion tax to reintroduce a lower 10 pence starting rate of tax, with the size of the band depending on the amount raised. This would benefit 25 million basic rate taxpayers.

The original 10 pence tax band was applied on incomes between £0 and £2,230, once the personal allowance was taken into account. Its abolition was used to fund the reduction in the basic rate of tax from 22p to 20p. But while Miliband says he will "put right [the] mistake made by Gordon Brown", he's not going to be reversing the basic rate cut. Instead, the money will come from the mansion tax.

But the Social Market Foundation's Ian Mulheirn points out that that mansion tax is not expected to raise anywhere near as much as two per cent on the basic rate of tax would. He tells me that their expectation for a mansion tax on houses over £2m is in the low billions — probably around £2bn or £3bn.

But every billion pounds raised would only pay for a 10p tax band of between two and three hundred pounds, he says:

We've got about 30 million income taxpayers in the UK, once you take the personal allowance into account. Assuming that they all would benefit by the full amount, then if you've got £1bn to play with, you could have a tax band of about £330.

A tax band of £330 would return £33 to each taxpayer. If the mansion tax raises the high end of estimates, then the band could be around £1000, returning £100 to each taxpayer. That's not to be sniffed at, but it's less than half of the size of the abolished band. It's not putting right Brown's mistake, but it ameliorates it slightly.

But actually, Brown's mistake has already been largely put right.

In 2007, the last year of the 10p tax rate, the personal allowance stood at £5,035. With the 10p band on top, basic rate tax started at £7,265. Uprated for inflation, that will be worth slightly under £9000 in the tax year starting in 2013.

In that same year, the personal allowance will stand at £9,440. Someone who would in 2007 have been paying only the 10p tax rate is today paying no tax at all. Miliband's actions, if introduced in 2015, will likely introduce a reduced tax rate for people earning between £10,000 and £11,000 to complement a zero tax rate for people earning less than that. That's likely a good thing; but it's a new thing, not a reversal of Brown's actions. They have already been undone.

Of course, if you have to delve into uprating tax bands by inflation to prove a point, it's not going to fly very well in political debates. That's why, as George writes, politically, the move is a masterstroke.

Brown walks through Rugby. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.