When Gordon Brown gave his 10th Budget speech on Wednesday, his closing announcement about a reduction in income tax seemed like a miracle. However, when the dust settled, the truth began to suface.

According to Larry Elliott, economics editor at the The Guardian

· Single adult low earners likely to be worse off
· Extra £1.7bn goes to minimise impact on poor

People on low incomes will have to rely on in-work top-ups to their pay packets to avoid being worse off as a result of this week’s budget changes to income tax and national insurance, the Institute for Fiscal Studies said yesterday.

As the political row over the chancellor’s 11th budget rumbled on, the UK’s leading independent experts on tax and spending said that while it was not one of Gordon Brown’s typical “Robin Hood” packages, the measures overall would help low-income families.

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The IFS’s detailed analysis of the budget showed that the abolition of the 10p starting rate of income tax from next spring would, on its own, hit those earning between £5,200 a year and £18,500 a year, with the biggest losers being those on the most modest incomes. However, many of those on lower incomes would be able to claim additional tax credits to top up their pay.

A smaller segment of the population, earning between £39,000 and £40,500, would also be adversely aff ected by the decision to align the upper threshold for national insurance with the point at which the 40p tax band kicks in.

The IFS said that those earning between £18,500 and £39,000 would be the beneficiaries of the tax and NI changes, with the biggest gainers those earning around £35,000 a year. For this group, the advantage of the 2p cut in the basic rate of income tax would outweigh the loss of the 10p tax band. Anybody earning more than £40,500 would be left unaffected by the changes, the IFS said.

Against this background, the IFS added that Mr Brown had needed to find extra money for tax credits to mitigate the impact of the changes. By carefully targeting the extra £1.7bn spent on the working and child tax credits and by raising tax allowances for the over-65s, the IFS said the chancellor had minimised the number of low-income losers.

Even so, it said there would still be some households that would be worse off . These included single adults earning less than £18,500 a year who had no children and were not claiming tax benefi ts. The IFS said the take-up rate for tax credits for those without children was low, at around 25%.

Vince Cable, Treasury spokesman for the Liberal Democrats, said: “This shows the real impact of Brown’s budget. He is clobbering those on low pay who are often just starting out in working life.

“It is totally unjustifiable to hit this group of people, who are already having difficulty coping with rising council tax and student loan repayments and who can’t get on the housing ladder because property prices are so high.”

In addition, two-earner families where the tax credit increase was not sufficient to compensate for income tax losses would also lose out, as would tax-paying women aged between 60 and 64.

Rejecting claims from the Conservatives that he had introduced a “stealth budget”, Mr Brown said: “I’ve tried my best by everyone - on average, it’s £100 per household better off , for families with children about £250 per household and what I’ve tried to do is look at the needs of particular groups as we make this major change in the tax system.”

The IFS said that in his 10 years as chancellor, Mr Brown’s tax and benefi t changes had been heavily skewed in favour of those on the lowest incomes. “With regard to distribution, it is somewhat unfair to criticise the chancellor for having given with one hand and taken with another in this budget,” said Robert Chote, the director of the thinktank.

“He said clearly and with good reason that the public fi nances required him to deliver a neutral budget and we often complain that chancellors fight shy of revenue-neutral tax reforms because of the fear of creating losers.

“It is not one of Mr Brown’s Robin Hood budgets, deliberately taking from the rich to give to the poor. Most losers are in the middle of the income distribution, but lose only small amounts. This is a genuinely simplifying budget, with the losers necessarily determined by where the complexities are that have to be removed. To reform the system in a useful way within tight financial constraints and with only modest gains and losses should be a cause for congratulation rather than criticism.”

The IFS assessed the impact of the budget by dividing the population into 10 segments, ranked from poorest to richest. Once tax credits were taken into account, it found that the bottom fi fth of the population did best from Mr Brown’s changes .

Since 1997, the 20% of people on the lowest incomes have seen their net incomes increase by more than 10% as a result of tax and benefit decisions. The top 40% have lost out, with the richest 10% the biggest losers.

The IVA News Team couldn’t hel but raise an eyebroaw as HSBC announced record profits.

According to the Evening Standard’s Jonathan Prynn:

HSBC - Europe’s biggest bank - said it was £11.9bn in the black last year. Critics accused it and major rivals of profiteering through high charges and irresponsible lending.

It is estimated that in total, the banks made an average £112.20 profit per customer last year through charges, fees and the clearing system - up 12% on 2005.

Vince Cable, the Liberal Democrats’ Treasury spokesman who appeared as a panel member at IVA.co.uk’s Great Debt Debate, said:

‘Banks are still enjoying excessive profits, based all too often on the exploitation of vulnerable customers through unfair, and in some cases illegal, bank charges.’

Shame similar comments aren’t coming from governement.

According The Standard:

[Vince] called on Chancellor Gordon Brown to order a full review of the banking sector. But HSBC’s chairman Stephen Green said the figures were ‘a testament to HSBC’s strength and diversity’.

Of course, the story really hit the headlines because it jars so sharply with two other stories that have run and run in recent weeks, unfair penalty charges and banks rejectig IVAs. It looks like there’s a column inch or two still to come - especially as interest rates might go up in the coming months…