Poor lose most from imbalance between tax cuts and tax and benefit freezes

A new study by the Institute for Fiscal Studies finds that poorer households will lose most from ‘stealth’ cuts through benefits and tax threshold freezes.

Child hold woman's hand at a table. She has her head in her hands and there is an open purse on the table with just a few pence spilling out of it.


The poorest households will only gain an average of £13 per year from the Government’s tax and National Insurance cuts while their income overall will fall by 2.8% by 2025 due to other changes and benefits freezes, according to a study by the Institute for Fiscal Studies.

It says that on average for every £1 households gain from high-profile cuts to rates of income tax and National Insurance, they lose £2 from the freezes and policy roll-outs.

It estimates that by 2025-26 the poorest will see income falls of 2.8% of income, compared to a 1.1% fall for the richest as a result of headline tax changes, policy roll-outs and frozen taxes and benefits, with the freeze on tax thresholds and benefits meaning the regressive impact on household budgets will grow over time.  If the policies remain changed, by 2030–31 the highest-income tenth of the population would see a 1.3% fall in income while the lowest-income tenth would see a 4.7% fall.

For instance, the report says the frozen benefit cap means the number of families with capped benefits could hit around quarter of a million in 2025–26 – double the current figure, and three-and-a-half times as many as when the cap was last actively reformed in 2016.

Middle income earners will also suffer. The report highlights, for instance, the impact of the four-year freeze to the personal allowance and higher-rate threshold (scheduled to run to March 2026), which is expected to increase the share of adults paying income tax to 66% (35 million) and the share paying the higher rate to 14% (7.7 million), compared with 63% (34 million) and 11% (6.1 million) today. The point at which the personal allowance begins to be tapered away (£100,000) and the additional-rate threshold (£150,000) have both been frozen since their introduction in 2010. By 2025–26, 3% of adults (1.6 million) will have some of their personal allowance withdrawn and 1.4% (760,000) will pay additional-rate tax – in both cases around triple the equivalent number in 2010 when the thresholds were created.

Moreover, the freezing of the £50,000 threshold at which child benefit begins to be withdrawn has led to 26% of families with children (two million) now losing some or all of their child benefit – double the proportion when the policy was introduced a decade ago, according to the IFS.


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