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Four-fifths of the gains from tax and benefit changes coming into effect on Thursday will go to the richest half of households, with the poorest third of households set to be £70 worse off on average, according to a new briefing note published by the Resolution Foundation.
The analysis looks at both £2bn of tax cuts, including raising the personal tax allowance from £11,100 to £11,5000 and raising the Higher Rate Threshold from £43,400 to £45,000 as well as £1bn of welfare cuts. These include:
The Foundation says the better-off half of households will receive 80 per cent of the tax cut windfall while the poorest third of households will shoulder two-thirds of the benefit losses. It says the reforms “add up to a significant transfer from low and middle income households to richer ones”.
The Foundation adds that other changes coming in, including the 30p rise in the National Living Wage from 1 April, tax free childcare from the end of April and an extra 15 hours of free childcare from September, will also benefit some households.
However, it states that the majority of this additional support will benefit richer households and “is not sufficient to offset losses for the poorest households”. And it says the additional £35m support through the Autumn Statement’s reduction in the Universal Credit taper to 63 per cent will have little impact given few households currently receive UC.
The Foundation outlines various case studies to show how the changes will affect some families. It says:
The briefing says that while the package of the reforms is a £1bn giveaway next year, over time the policies will turn into a net takeaway as more families are affected by benefit changes that affect only families with new children.
Torsten Bell, Director of the Resolution Foundation, said: “Following the Budget the rights and wrongs of a relatively small National Insurance change for the self-employed have dominated the headlines. But the real tax and benefit debate is about much bigger policy changes being rolled out this week and in the coming years.
“These amount to unwise giveaways to richer households and unjustifiable takeaways from less well-off families. The result is higher inequality and a decision to squeeze living standards for low and middle income families at a time when rising prices are already outstripping wage growth.
“As the Prime Minister rightly looks to bring the country back together and ensure 21st Century Britain works for everyone, thinking again about these policy choices would be a good place to start.”