The recent budget from Philip Hammond has made headlines for including income tax cuts that will supposedly benefit millions of workers. An analysis, however, shows that these tax cuts will have an overwhelming benefit for households of high-net-worth individuals instead of the average person. The analysis in question found that nearly half of the benefits will go to households in the top 10 percent.
Resolution Foundation Analysis
The analysis came from the Resolution Foundation, a think tank. It was suggested that the welfare cuts would continue having a negative impact on the poorest households. This is despite previous statements by Hammond that austerity would be ending. In fact, there were £12 billion in welfare cuts that were announced following the 2015 election, and three-quarters of these are still the government policy.
The overall package analyzed includes changes to benefits and taxes that have been announced since 2015. The average gain for the richest fifth of British households will be £390 for the years 2023 and 2024. While the high-net-worth individuals will have a slight gain, the poorest fifth will experience an average loss of £400.
Recent Income Tax Cuts
Taking a closer look at the recent income tax cuts that Hammond announced, they will cost £2.7 billion in 2019. The 20 percent tax band currently begins with earnings over £11,850 but will move up to £12,500 in 2019. The 40 percent tax band currently begins at £46,350 but will increase to £50,000 in April. Overall, 84 percent of the cuts to income tax that Hammond recently announced will go directly to the income distribution’s top half. By the end of the current parliament, 89 percent of these tax cuts will go to that same group.
The problem for those with limited budgets is worsened by the planned welfare cuts, including a benefits freeze of £1.5 billion in April. For couples with children who are in the bottom half of the country’s income distribution, this amounts to a £200 loss.
Departments That Will Experience Cuts
The Resolution Foundation conducted a further analysis, including that Hammond announced protected additional spending for defense, international aid, and the NHS. According to the think tank, this protected spending indicates that the cuts will have a more dramatic impact on departments without similar protections. Based on this information, the think tank feels that business, transport, and justice will likely see cuts to spending. Assuming all cuts get equally allocated, those departments would have cuts of 52 percent, 77 percent, and 48 percent, respectively, from 2010 to 2023-2024.
The analysis also considered the positioning of the new budget, with the unprecedented 17-year decrease in pay. The real average of earnings will likely not get back up to the values before the crisis until the end of 2024. The budget did, however, include a nice boost to universal credit. Overall, the budget should deliver a reduction in austerity instead of the end of it that Hammond promised. High-net-worth individuals should have no issues with the new budget, while those on the poorer end of the spectrum may face some additional minor struggles.
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