How Labour would ensure the rich don't benefit from a 10p tax rate
The party plans to adjust thresholds elsewhere in the tax system, so that higher-earners don't gain from a lower starting rate of income tax.
One important detail in Ed Miliband's speech largely overlooked by the media is that only basic rate taxpayers would gain from the return of the 10p tax rate. Without this proviso, the policy would be more expensive, since higher-rate taxpayers would also benefit, as well as regressive, since the largest gains would flow to the richest households (as in the case of increasing the personal allowance). Miliband has no intention of handing a tax cut to millionaires by allowing them to pay a marginal rate of just 10p on their first £1,000 of earnings above the personal allowance.
In order to ensure that only basic rate taxpayers benefit from the policy, I'm told by a Labour source that the party would look at adjusting thresholds elsewhere in the income tax system or at tapering away the gains for higher-earners. This could, for instance, mean a lower starting rate for the 40p rate (a policy pursued by George Osborne, who reduced it from £42,475 to £41,450 in last year's Budget) and the 45p rate. Another potential model is the measure introduced by Alistair Darling in the 2009 Budget. The-then Chancellor announced that the personal allowance would be tapered away at a rate of £1 for every £2 of income above £100,000 (meaning it is now withdrawn completely at around £116,000). George Osborne has wisely chosen not to reverse this brilliant act of stealth redistribution.