Resolution Foundation 2012 Budget Reaction

ANALYSIS

The further increase to the personal tax allowance to £9,205 in April 2013 will benefit all basic rate tax payers by on average £220 a year, worth £170 after inflation. Our first priority to target gains more directly on low to middle income households would have been to reverse £1.6bn of cuts to working tax credits about to hit this April. But instead, the personal allowance measure has at least been targeted on basic rate tax payers with gains to higher rate taxpayers restricted to make it less regressive and less expensive than otherwise would have been the case. In cash terms the increase on average benefits those in income deciles 7, 8 & 9 most and of the overall cost 70% of the benefit goes to the top half of the income distribution. So while the impact is still regressive overall, it is more progressive than this year’s increase to the personal allowance which fully benefits basic and higher rate tax payers. 

QUOTES

Gavin Kelly, chief executive of the Resolution Foundation said:

Overall…’Today’s Budget was billed as supporting working families, but people on low and middle incomes were mostly targeted by the Chancellor’s rhetoric. While some measures, like the increase in the personal allowance will provide some respite, this is against a backdrop of £2.5 billion pre-announced cuts to tax credits, a lifeline to many working families in the current economic climate’.

Personal allowance and tax credits…‘This Budget is at least the first in which the Coalition have not announced further reductions in the support for those on low to middle incomes – but reversing impending cuts to working tax credits should have been the priority. Increases in the personal tax allowance will provide some help to most of those in work and next year’s increase has been targeted on basic rate tax payers with the gains to higher rate tax payers restricted which makes it less regressive. But against a backdrop of nearly £2.5bn of impending cuts to tax credits for those on low to middle incomes many households will in fact find they are much worse off. The Coalition are desperate to show these measures support working families but when previous changes they’ve announced are taken into account it’s a claim that doesn’t stand up.’

On child benefit….’we are pleased the Coalition have chosen to reduce the amount of low to middle income families that will have their child benefit taken away, although clearly the change introduced is all about making the best of a bad policy and will be a nightmare to administer ’  

On 50p….‘It is astonishing that the Coalition has chosen to prioritise a cut in income taxes on the rich at a time when low to middle income families are seeing their standard of living fall and are struggling to afford day to day essentials’.

On the £10bn welfare cuts …’the reality of the Chancellor’s ominous marker of another £10bn to come out of the welfare bill won’t become clear until decisions are made on exactly how in the next Spending Review’