Autumn statement hits “strivers” as wage squeeze is prolonged

The majority of cuts to benefit and tax credits announced in today’s Autumn Statement will fall on working households, warns independent think-tank the Resolution Foundation.

Resolution Foundation analysis shows that approximately 60 per cent of the effect of a three-year below-inflation rise in benefits will hit working households while 40 per cent will affect those where no one is employed.

Around 5.8 million families receive tax credits – of whom 4.3 million have someone in work and only 1.5 million are out of work.

Figures published by the Office for Budgetary Responsibility in parallel with the Autumn Statement suggest a longer squeeze on wages than previously forecast. In March, the OBR suggested that average earnings would outpace inflation (RPI) from the second quarter of next year. Now that point is delayed until the second quarter of 2014, when the median full-time wage will be 7.4 per cent below its 2008 level. This means that by 2017 median wages will still be below where they were in 2000. [1]

It is against this background that new benefit cuts have been announced as part of the Government’s plan to prune a further £10 billion from the welfare budget by at least 2016-2017, in addition to £18 billion of savings already scheduled for introduction by 2014-15.

On pension tax relief, the Resolution Foundation said it supported the principle behind reducing relief on lifetime pension contributions to £1.25 million – but that a limit of £1 million, as recommended by the Commission on Living Standards, would have raised more. It said the money raised should have been used to support working families via expanded childcare which would reduce pressures on the cost of living, support second earners, and boost female employment.

Gavin Kelly, chief executive of the Resolution Foundation, said:  “The majority of the cuts made to benefits and tax credits announced today will come from working households – it’s completely wrong to say that today was all about helping so-called strivers. The OBR confirmed they expect to see yet another year of falling wages, stretching into the middle of 2014.

“George Osborne is right to tighten up on highly generous pension tax-relief for the rich but the revenue should have been put to use in ensuring there is affordable childcare for working families.”

ENDS

[1] OBR projections for average earnings have been adjusted by the Resolution Foundation to derive a figure for the median wage.