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29 March 2022

Revealed: tax-free allowances to surpass Universal Credit incomes

Tax-free allowances for middle and higher earners will have more cash-value than payments made to those out of work receiving Universal Credit, the New Statesman reveals.

By Harry Clarke-Ezzidio

Once the threshold of National Insurance is raised later this year, the cash value of tax-free allowances awarded to medium and high earners will be more than the amount given to those on Universal Credit for the first time ever, the New Statesman can reveal.

From July, when the threshold is raised in line with the income tax personal allowance threshold, the tax-free allowances of a single working adult, equivalent to £80 per week, will be higher than the basic Universal Credit payment of an adult aged 25 and older who is out of work, who will only receive £77 per week.

Though Rishi Sunak announced an additional £500m for the Household Support Fund in his Spring Statement, a report from the Fabian Society shows how higher earners have been prioritised over those on Universal Credit, after the Chancellor returned to his ideological comfort zone.

“The Chancellor didn’t do anything for people on the lowest incomes, who are really facing the most challenges when it comes to the rising cost of living,” Andrew Harrop, the general secretary of the Fabian Society, told the New Statesman

“It’s been a drip of support over a very long time: benefits have been getting less and less generous compared to inflation, let alone people’s earnings,” he added. “But this year feels like a crisis point.”

Since the Conservatives came to power in 2010, inflation has increased by 30 per cent, while basic out-of-work benefits only rose 17 per cent, the report shows. 

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The cash value of tax-free allowances – what the Fabian Society calls “shadow welfare”, because it acts as a universal basic income for those earning above the thresholds – grew 117 per cent in the same period.

A 3.1 per cent increase to Universal Credit, announced last November, is due to come into effect next month – but it’s far beneath predicted estimates of inflation, which is expected to hit 7.4 per cent this year.

“It was an obvious thing to do to increase benefits and the state pension in line with inflation as it is now rather than it was last September,” said Harrop, referring to the period that was used as a reference point for April's Universal Credit rise. “He [Sunak] could have done a lot more and he chose not to for political reasons.”

Some Conservative ministers, including the Foreign Secretary Liz Truss, the Defence Secretary Ben Wallace and the Business Secretary Kwasi Kwarteng, are in disagreement with the Spring Statement.

Harrop said the Chancellor “feels he made a mistake” by raising Universal Credit during the pandemic, mostly because of the furore that the ending of the uplift caused. “He’s acted very cynically for wholly political reasons, when actually, this is about livelihoods – the cost-of-living crisis is causing huge hardship and destitution. 

“We’re approaching a boiling point moment where, regardless of their political ideology, the government will have to act,” Harrop added. “There are just too many people suffering too hard from the breakdown of our social security system.”

[See also: After the Spring Statement backlash, Sunak wrangles with fellow ministers]

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