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Chancellor will leave low-income families out in the cold with tax-cutting agenda

Chancellor will leave low-income families out in the cold with tax-cutting agenda says Joseph Rowntree Foundation

Date published:
  • Benefits for low earners and out-of-work people must be increased in line with current inflation immediately to cushion cost of living blow
  • Low income families on means-tested benefits face a gap of at least £450 between cost increases and income
  • With food and energy costs still rising, JRF says hard-pressed families can’t afford to wait to see if the benefits of tax cuts trickle down, they need help now.

The Joseph Rowntree Foundation (JRF) is urging the Chancellor to go beyond tax cuts in Friday’s fiscal statement with more targeted support for households that will desperately need it.

New analysis from JRF looked at the cost rises facing low-income working-age households on means-tested benefits this tax year compared to last tax year and found they face a gap of £450 between now and April just to keep up with predicted price rises.

JRF’s Chief Economist Rebecca McDonald will give evidence to the Treasury Committee this afternoon about how hard-pressed families can’t afford to wait for the benefits of tax cuts to trickle down.

A survey for the JRF in May found almost two thirds of low-income working age households on means-tested benefits have less than £500 in savings - with almost 3 in 10 having no savings at all.

It’s difficult to see how these families could cover the gap JRF has uncovered themselves considering many will have drawn on any resources they have to meet high costs.

With food prices 13% higher than last year, and energy prices double what they were last year, asking people to cut back on their spending is out of the question when millions already don’t have enough to afford basic essentials.

Tax-cutting proposals pass over lower-income families because their earnings are so low or they are unable to work so they benefit less than higher earners.

For example, people earning under £12,570 a year don’t gain anything from a cut in national insurance. People gain £93 a year from such a policy if they earn £20,000 annually but higher earners save much more. A person earning £100,000 would benefit by more than ten times as much, saving £1,093 a year.

JRF says the Chancellor will leave millions of struggling people out in the cold if he only cuts taxes at the despatch box this Friday.

The best way to get support to families according to their need is to bring forward the annual uprating of benefits in April as soon as possible so families can benefit from the increased support over the winter. Where benefits can't be uprated quickly enough, further lump sum payments will be needed to help fill the gap.

In order for this policy to work, the Government must also increase the benefit cap so families feel the full effects of the increase.

Rebecca McDonald, JRF Chief Economist, said:

“Households are already buckling under the weight of rising costs. The tax cuts being proposed will put little money into the pockets of those earning the least. If the Chancellor thinks these tax cuts are the solution he is wilfully leaving millions of people out in the cold when they need to feel warmth.

“The Government's action on energy bills will give some certainty, but the typical energy bill will still have doubled in the space of a year. Food costs continue to rise by over 13 per cent since last year.

“The current support package doesn't yet give families the security of knowing they can afford the essentials, and the tax cuts mooted do little to help them either.

“Hard-pressed families can’t afford to wait to see if the benefits of tax cuts trickle down. They need help now.

"Low income families not having enough money in their pockets to spend on their local high streets will hold back the economic growth the Government wants to see. Additional support to them will be ploughed back into the economy as they are able to buy the essentials they need. It will support businesses but most importantly, allow people to keep healthy this winter by having enough to live on.”