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FactCheck: 10p tax losers in Crewe

By Channel 4 News

Updated on 21 May 2008

The 10p tax farrago looms heavily in this week's by-election battle. But how many in the constituency have actually lost out?

The claims

"Official figures show that in Crewe alone more than 9,000 people will still lose out from Labour's tax hike."
Elisabeth Shenton, Liberal Democrat parliamentary candidate, Crewe and Nantwich

"There are 10,000 families in Crewe and Nantwich who have been stung by the abolition of the 10p tax rate."
Edward Timpson, Conservative parliamentary candidate, Crewe and Nantwich

The background

The opposition are fighting hard to claim a Labour scalp in Thursday's Crewe and Nantwich by-election. Scissors have been sharpened over the scrapping of the 10p tax rate, which originally left 5.3 million of the poorest families worse off when it came into effect in April.

Last week's emergency £2.7bn tax giveaway (or by-election bribe, depending on whom you listen to) compensated 80 per cent of the losers. But that still left 20 per cent, or around 1.1 million, worse off across the country.

So just how many people in Crewe and Nantwich are affected by the 10p tax scrap?

At the start of their by-election campaign, before the compensation package was announced, the Conservatives claimed that 10,000 families "have been stung" by the abolition of the 10p rate.

Looked at in the context of the 7,078 majority with which Labour won the seat, it's a pretty significant number.

Not to be outdone, the Lib Dem candidate Elizabeth Shenton got in with her own figure after the tax package was announced last week: she reckons around 9,250 will be left worse off despite the compensation.

Something doesn't quite add up here. Is she over-estimating, are the Tories under-estimating, or is Crewe some kind of black hole where both figures are right and hardly anyone benefits from the compensation package?

The analysis

Firstly, a quick recap of part one of the move - the dropping of the 10p rate, which the Tories reckon stung 10,000 families in Crewe and Nantwich.

Around 5.3 million families around the country - one in five - lost out. Those on incomes between £5,435 and £19,355 worse off as they don't earn enough to benefit from the cut in the base rate.

In theory, the hardest-hit person would be earning £7,755, and would lose out to the tune of £232 a year.

This isn't always the case, however - at the same time then-chancellor Brown announced he'd ditch the 10p tax rate, he also increased the child tax credits and raised tax thresholds for those aged 65 and over. So it was mostly low-earning young people without children and a number of those who retired early, who lost out.

What about area by area?

Unfortunately, precise numbers to assess the impact of the tax change in one area aren't available, as a number of MPs who tabled questions in parliament were told.

The Conservatives looked at the number of employees in Crewe and Nantwich: 37,000 according to figures which are published by the ONS as part of its Annual Survey of Hours and Earnings (although it does caution they aren't necessarily an accurate count of the number of jobs).

This 37,000 is 0.19 per cent of the 19.9m jobs in the UK. And, assuming the effects of the 10p tax abolition were felt equally around the country, 0.19 per cent of the 5.3 million losers would mean 9,874 in Crewe.

This was, the Tories pointed out to FactCheck, likely to be an under-estimate. Crewe, is based in a relatively low-earning area of the country, so if anything you'd expect there to be more losers.

The Tories' numbers don't take into account the self-employed or pensioners, although given the amount of other factors to consider, this gives us a reasonable estimate.

Within Crewe's low earners, there will be some who are entitled to the increased tax credits, and so won't feel the 10p tax pinch.

Another crude way to cross-check it is to compare population figures. As of 1 December 2007, 45,082,854 people were registered to vote in the UK.

At that time, there were 75,229 registered voters in the Crewe and Nantwich constituency (there are now slightly fewer, but we'll stick with the older figure for the sake of consistency).

So if the constituency reflects the country as a whole, do the maths with the 5.3 million, and you'd expect there to be around 8,844 losers. Lower than the Tories' figure, but not drastically.

Now let's look at the effects after the compensation package. Around 20 per cent of the losers - those earning around £6,500 to £13,500, who don't get tax credits or have children - are still worse off. They get £120 back, but lost up to £232.

So, using the same kind of not entirely scientific calculation, you'd expect around 2,000 families to be left worse off.

And although the Conservatives' 10,000 claim is still on the homepage of the local party's website, their candidate is indeed now quoting the lower 2,000 figure.

A different approach

So where does Shenton's 9,250 figure come from? The Lib Dems start from the same base as the Tories - the Annual Survey of Hours and Earnings - but approach it in a different way.

The survey shows that a quarter, or 9,250, of Crewe's 37,000 workers earn less than £12,764, so Shenton reckons they will be left worse off.

This doesn't work, however. Firstly, this quarter doesn't discount those lowest earners, who don't earn enough to come into the tax threshold, and so wouldn't notice any difference in their pay packet whether the basic rate was set at 10 per cent, 20 per cent or 99 per cent.

But secondly, and perhaps more importantly, not all low earners are equal losers. So within Crewe's low earners, there will be some who are entitled to the increased tax credits, and so won't feel the 10p tax pinch.

The verdict

Data isn't available to stand the Tories' claim up conclusively or to disprove it.

A bunch of complications, like the precise interaction of the tax and tax credit system, means that, short of surveying every family in Crewe and Nantwich, a reasonable estimate is about as good as we can get.

The Lib Dems' newer claim that 9,250 families are still worse off scrubs up much less well, not least because their methodology ignores the complexities of the budget package.

FactCheck rating: Tories - 1.5, Lib Dems - 4

How ratings work

Every time a FactCheck article is published we'll give it a rating from zero to five.

The lower end of the scale indicates that the claim in question largely checks out, while the upper end of the scale suggests misrepresentation, exaggeration, a massaging of statistics and/or language.

In the unlikely event that we award a 5 out of 5, our factcheckers have concluded that the claim under examination has absolutely no basis in fact.

The sources

Elizabeth Shenton claim
Edward Timpson claim
2007 Annual Survey of Hours and Earnings: table 10.7a: annual pay: gross
Table 3.15: income and tax by parliamentary constituency (05-06)
Statement by the Chancellor of the Exchequer on income tax, 13 May 2008Institute for Fiscal Studies
Electoral Commission data

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