The Chancellor’s announcement on Universal Credit Work Allowances in Monday’s Budget was positive, but more is needed for a social security system that genuinely gives people a springboard to improve their lives.
We welcome the Chancellor’s announcement in Monday’s budget that the Government intends to spend an extra £1.7 billion on supporting in-work Universal Credit claimants by increasing the Work Allowances; this is something JRF has been calling for. The additional £12 per week will make a difference to many low-income working families who struggle to make ends meet. We estimate around 200,000 people will move out of poverty, thanks to this measure.
However, the Government also announced that a further £2.7 billion will be spent in 2019-20 on increasing the Income Tax Personal Allowance (the amount above which we start paying income tax) and the Higher Rate Threshold (the amount above which taxpayers start paying the higher 40% rate of tax).
As the Resolution Foundation showed this week, the gains from these income tax changes will go largely to the better off. A higher rate tax payer will gain by £327 a year compared to the £73 a year that basic rate taxpayers will see. It is particularly striking that the largest gains will go to those earning more than £50,000 a year. Given that average earnings are around £27,000 per annum, there is no sense in which this is a measure aimed at middle earners.
The result of this focus on the better-off is that the changes to income tax, totalling £2.7 billion of expenditure, will not reduce poverty at all.
When Theresa May stood on the steps of Downing Street on the day she became Prime Minister, she spoke powerfully about how she wanted her Government to be one that works for ordinary working-class families, and not one driven by the privileged few.
If she wanted to spend that £2.7 billion on measures that would have enabled people to escape poverty, there are lots of candidates. She could have increased Child Benefit by £5 per week per child, increased the Universal Credit Work Allowances by a further £1,500 (above the policy announced on Monday), or increased the Universal Credit payments for children.
Each of these would cost about the same as the income tax changes. Yet each of them would enable hundreds of thousands of children and adults to escape poverty.
If we want a welfare system that genuinely gives people a springboard to improve their lives, these ideas might be a good start:
|Policy change||Cost (in £ millions)||Change in number of people in poverty||Change in number of children in poverty||Cost per person moved out of poverty||Cost per child moved out of poverty|
Increase Child Benefit by £5 per child per week
|Increase Universal Credit Work Allowances by a further £1,500||2,800||-500,000||-300,000||5,000||10,000|
|Increase Universal Credit Child Elements by 15 %||2,800||-600,000||-400,000||5,000||8,000|
(All figures are for the costs and effects of the policy in 2019-20, but assume full rollout of Universal Credit, are estimated using the IPPR tax-benefit model, and take into account partial take-up of benefits).