A mini-me Budget – the end of the 10p tax rate

In the face of a Labour backbench rebellion over the abolition of the 10p tax rate in the most recent Budget, the Chancellor, Alistair Darling, introduced what has been described as a mini-budget this month. In this mini-budget he significantly increased tax allowances to try to alleviate the impact of the removal of the 10p tax rate on some of the poorest families.

Darling’s solution could prove costly, say economists Guardian (14/5/08)
FAQ: Formula that bought off the Labour rebels Guardian (14/5/08)
Brown risks £2.7bn tax cut to end revolt Guardian (14/5/08)
Mini-budget will put money in pockets of 22 million voters Guardian (13/5/08)
Darling’s statement in full Guardian (13/5/08)
Institute for Fiscal Studies highlights Chancellor’s dilemma after emergency tax cut Times Online (21/5/08)
Q&A on the Government’s ‘Golden Rule’ Times Online (15/5/08)
Basic rate taxpayers to get £120 BBC News Online (13/5/08)
Q&A: Tax changes BBC News Online (13/5/08)
Full statement: Tax changes BBC News Online (13/5/08)

Questions

1.	What was the effect of the abolition of the10p tax rate on income distribution (before the min-budget measures)?
2.	Assess the extent to which these changes will alleviate the impact of removing the 10p tax rate on the poorest families.
3.	Discuss the likely impact of this change in the government’s fiscal stance on the main UK macroeconomic targets.