Personal tax and benefit measures Tom Waters
in the Budget Taxes: Income tax giveaway to meet manifesto pledge one year early Confirmation of fuel duty freeze (again) Beer, cider, spirit duties frozen Benefits: Protections for those transferring to Universal Credit Rollout pushed back (again) Increase in generosity of system
Income tax changes Personal allowance (PA) and higher rate threshold (HRT) PA raised to 12,5, HRT to 5, in 219-2, then frozen for a year Default inflation uprating: 12,39 and 48,59 in 22-21 PA increase benefits around 3 million taxpayers, HRT 4 million Gains in 22-21 (in 218-19 prices): Typical basic rate taxpayer 21 per year Typical higher rate taxpayer 156 per year Cost to Exchequer 1.4 billion p.a.
199-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2-1 21-2 22-3 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 214-15 215-16 216-17 217-18 218-19 219-2 22-21 Number of income taxpayers (millions) Number of higher or additional rate taxpayers (millions) Number of income taxpayers 4 8 35 3 All income taxpayers (LHS) 7 6 25 5 2 15 1 Higher/ additional rate taxpayers (RHS) 4 3 2 5 1 Source: HMRC, Table 2.1 Note: Data points for 28-9 are linear interpolations
199-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2-1 21-2 22-3 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 214-15 215-16 216-17 217-18 218-19 219-2 22-21 Number of income taxpayers (millions) Number of higher or additional rate taxpayers (millions) Number of income taxpayers 4 8 35 3 All income taxpayers (LHS) 7 6 25 5 2 4 15 1 Higher/ additional rate taxpayers (RHS) With announced thresholds 3 2 5 1 Source: HMRC, Table 2.1 Note: Data points for 28-9 are linear interpolations
199-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2-1 21-2 22-3 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 214-15 215-16 216-17 217-18 218-19 219-2 22-21 Number of income taxpayers (millions) Number of higher or additional rate taxpayers (millions) Number of income taxpayers 4 35 3 All income taxpayers (LHS) 6 million fewer taxpayers as a result of changes since 21 8 7 6 25 5 2 4 15 1 Higher/ additional rate taxpayers (RHS) With announced thresholds 3 2 5 With (real terms) 21 thresholds 1 Source: HMRC, Table 2.1 Note: Data points for 28-9 are linear interpolations
199-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2-1 21-2 22-3 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 214-15 215-16 216-17 217-18 218-19 219-2 22-21 Number of income taxpayers (millions) Number of higher or additional rate taxpayers (millions) Number of income taxpayers 4 8 35 3 All income taxpayers (LHS) 7 6 25 Taking 3k out of higher rate tax 5 2 4 15 1 Higher/ additional rate taxpayers (RHS) With announced thresholds 3 2 5 With (real terms) 21 thresholds 1 Source: HMRC, Table 2.1 Note: Data points for 28-9 are linear interpolations
199-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2-1 21-2 22-3 23-4 24-5 25-6 26-7 27-8 28-9 29-1 21-11 211-12 212-13 213-14 214-15 215-16 216-17 217-18 218-19 219-2 22-21 Number of income taxpayers (millions) Number of higher or additional rate taxpayers (millions) Number of income taxpayers 4 8 35 3 25 2 All income taxpayers (LHS) Still 9k more in higher rate than if HRT unchanged since 21 7 6 5 4 15 1 Higher/ additional rate taxpayers (RHS) With announced thresholds 3 2 5 With (real terms) 21 thresholds 1 Source: HMRC, Table 2.1 Note: Data points for 28-9 are linear interpolations
Universal Credit: a recap Universal credit (UC) replacing six major means-tested benefits Large potential benefits from simplification and getting rid of very weakest work incentives Currently 1m claimants, eventually planned to rise to c. 7m 1 in 3 working age families getting a total of 6bn p.a. Lots of losers, lots of winners, but overall a cut to entitlements though OBR expect increased take-up Recipients protected in cash terms when moved to UC Yesterday: Number of changes to ease transition, esp. for self-employed, disabled, out of work claimants Rollout pushed back again more than pays for policies to ease transition Increase to some work allowances
Universal Credit rollout By the end of the year, almost all new working-age benefit claimants will be on UC Date for existing benefit claimants to be moved over has been pushed back again Full rollout now not expected to finish until mid-224
Average caseload (million) UC rollout 8. 7. 6. 5. 4. 3. 2. 1.. 214-15 215-16 216-17 217-18 218-19 219-2 22-21 221-22 222-23 223-24 March 213 forecast Successive forecasts November 217 forecast October 218 forecast
Increase to work allowances Work allowances the amount you can earn before your UC starts to be withdrawn Summer Budget 215 takeaway: cut work allowances for majority of families Cut to zero for non-disabled families without children Autumn Budget 216 giveaway: reduced taper rate Yesterday giveaway: families with children or disabled claimants see work allowance increase of 83 p.m. from 219-2. Benefits 2.4m families by 52 p.m. Still zero for non-disabled families without children For others, leaves work allowances for renters higher than they were before Summer Budget 215, and lower for owner-occupiers
Monthly UC entitlement ( ) Increase to work allowances Couple with two children, owner-occupiers 12 1 Before Summer Budget 215 8 6 4 2 5 1 15 2 25 Monthly earnings, net of tax ( )
Monthly UC entitlement ( ) Increase to work allowances Couple with two children, owner-occupiers 12 1 8 Before Budget 218 Before Summer Budget 215 6 4 2 5 1 15 2 25 Monthly earnings, net of tax ( )
Monthly UC entitlement ( ) Increase to work allowances Couple with two children, owner-occupiers 12 1 8 6 4 After Budget 218 Before Budget 218 Before Summer Budget 215 Net takeaway 215 to 218 (work allowance + taper rate): 3.bn p.a. Giveaway yesterday: 1.7bn p.a. 2 5 1 15 2 25 Monthly earnings, net of tax ( )
Universal Credit: overall winners and losers
Universal Credit: overall winners and losers Change in annual entitlement among those entitled Lose > 1 Lose 1-1 Lose or gain < 1 Gain 1-1 Gain > 1 All % 2% 4% 6% 8% 1% Fraction of households entitled to legacy benefits or UC Note: Four household types do not include multiple family households or pensioner households
Universal Credit: overall winners and losers Change in annual entitlement among those entitled Lose > 1 Lose 1-1 Lose or gain < 1 Gain 1-1 Gain > 1 All % 2% 4% 6% 8% 1% Fraction of households entitled to legacy benefits or UC Note: Four household types do not include multiple family households or pensioner households
Universal Credit: overall winners and losers Change in annual entitlement among those entitled Lose > 1 Lose 1-1 Lose or gain < 1 Gain 1-1 Gain > 1 All % 2% 4% 6% 8% 1% Fraction of households entitled to legacy benefits or UC Note: Four household types do not include multiple family households or pensioner households
Universal Credit: overall winners and losers Change in annual entitlement among those entitled Lose > 1 Lose 1-1 Lose or gain < 1 Gain 1-1 Gain > 1 No kids, working Parents, working No kids, workless Parents, workless All % 2% 4% 6% 8% 1% Fraction of households entitled to legacy benefits or UC Note: Four household types do not include multiple family households or pensioner households
Gain/loss as % of net household income Long run impact of personal tax/benefit reforms since 215 2-2 -4-6 -8-1 -12 Poorest 2 3 4 5 6 7 8 9 Richest All Income decile Note: All bar includes adjustment to Scottish block grant that is not included in decile impacts
Gain/loss as % of net household income Long run impact of personal tax/benefit reforms since 215 2-2 -4 Other tax/benefit reforms 2 Child Limit and Family Premium Universal Credit -6-8 -1-12 Poorest 2 3 4 5 6 7 8 9 Richest All Income decile Note: All bar includes adjustment to Scottish block grant that is not included in decile impacts
Gain/loss as % of net household income Long run impact of personal tax/benefit reforms since 215 2-2 -4-6 Other tax/benefit reforms 2 Child Limit and Family Premium Universal Credit Total after Budget -8-1 -12 Poorest 2 3 4 5 6 7 8 9 Richest All Income decile Note: All bar includes adjustment to Scottish block grant that is not included in decile impacts
Gain/loss as % of net household income Long run impact of personal tax/benefit reforms since 215 2-2 -4-6 -8 Other tax/benefit reforms 2 Child Limit and Family Premium Universal Credit Total after Budget Total before Budget -1-12 Poorest 2 3 4 5 6 7 8 9 Richest All Income decile Note: All bar includes adjustment to Scottish block grant that is not included in decile impacts
Gain/loss as % of net household income Change in annual net income Long run impact of personal tax/benefit reforms announced yesterday 2 25-2 -4 % of net income (left axis) per year (right axis) - 25-5 - 75-6 - 1, -8-1 - 1,25-1,5-1,75-12 Poorest 2 3 4 5 6 7 8 9 Richest All Income decile - 2, Note: All bar includes adjustment to Scottish block grant that is not included in decile impacts
21 11 211 12 212 13 213 14 214 15 215 16 216 17 217 18 218 19 219 2 22 21 221 22 222 23 223 24 billion (218 19 terms) Still more social security cuts to come 45 Forecast saving from social security measures announced since June 21 4 35 3 25 2 15 1 5 Measures announced post 215 Measure announced 21 215 Note: Effect of move to CPI indexation held constant from 215 16 onwards; Excludes triple lock. Source: Office for Budget Responsibility Policy Measures Database, various Economic and Fiscal Outlook; IFS calculations.
Conclusion Modest income tax giveaway, especially benefiting higher rate taxpayers Universal Credit changes Protections introduced may ease transitions... the timings of which are again pushed back Work allowance giveaway partly undoes previous takeaways But still many winners and losers And many other benefit cuts since 215, only partly implemented