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13 June 2012updated 21 Jul 2021 12:13pm

This year’s tax and benefit changes reward the rich and punish the poor – again

By Anoosh Chakelian

The new tax year began on Saturday, and with it another year of inequality. From the tax and benefit cuts due this year, the highest earners will benefit while the poorest households lose out. Again.

The final year of the four-year benefits freeze announced by George Osborne will bring further hardship to low-income families. This is essentially a welfare cut in real terms, because the freeze stops payments rising in line with inflation, and has done since April 2016.

This is while tax thresholds are again increased, benefiting middle and higher-income earners. Building on a coalition era trend since 2011, the personal tax allowance will rise again, to £12,500 (the earnings at which you have to start paying income tax). The higher tax rate threshold will also go up, to £50,000.

Here are the most shocking figures:

  • According to calculations by the Resolution Foundation, a think tank that analyses living standards, if you earn £30,000, you’ll be £73 better-off this year, and if you earn £60,000, you’ll benefit over four times as much, at £327. Low-income workers don’t benefit, as nearly half (four in ten) working-age adults don’t earn enough to go above the tax-free threshold, and 85 per cent of these tax cuts will go to the highest-earning half of families, with 35 per cent going to the top 10 per cent of households by income alone. The lowest 40 per cent of earners will gain nothing from these tax changes.
  • By contrast, the benefits freeze will cost poorer families with children an average of £400 in this tax year alone, which is part of the £900 they are set to lose on average from the full four-year freeze, according to the Resolution Foundation.
  • Taking account of all the tax and benefit changes, the think tank finds the top fifth of households by income will have an extra £280 coming in, over double what the bottom fifth of households are set to lose on average, at £100.
  • Resulting from the coalition’s 1 per cent benefit cap, as well as the four-year benefits freeze that followed, House of Commons Library analysis as part of a Work & Pensions Select Committee inquiry calculates that households affected will be £888-£1,845 worse off in real-terms than they would have been without the various caps and freezes since 2010.

Nevertheless, the government has been signalling an end to the age of austerity.

Indeed, government figures will point out that the benefits freeze ends by the close of this tax year, and the upcoming three-year spending review this autumn will loosen up budgets for public services.

The £20bn announced for the NHS last year is often championed as the starting gun of a government beginning to spend again.

Also, the prospect of tax rises were on the agenda at the 2017 election, and will likely re-emerge (though not in the form of Theresa May’s doomed “dementia tax”) next time.

Too little, too late. The damage to local government services and other public institutions, like prisons and schools, has been done. Unless the government starts spending to reverse the real-terms cuts it and its predecessors have inflicted on households and the public realm since 2010, the UK will be, at best, treading water – which, for many services, will bring them closer to drowning.

Social care, for example, is still due a new funding structure, the plan for which has now been delayed for over two years. This is the area facing the gravest budgetary crisis, placing pressure on schools and hospitals, while sapping resources from other public services that councils are expected to pay for. It’s telling that the NHS’s £20bn birthday present wasn’t shared with its less glamorous counterpart.

The agenda of a government that rewards the rich and punishes the poor will impact lower earners well beyond the austerity era. It’ll need more than lip service and a bit of extra spending to change that. The poorest fifth of families don’t have time to wait.

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