The poorest in our society will continue to be hit hard if the Conservatives follow through with their pledge to reform tax and benefits.
Recent TUC analysis takes in to account cuts to National Insurance contributions which have been rumoured the Conservative party will announce in their manifesto.
Taken as a whole, the tax and benefit reforms introduced by coalition and Conservative governments will make the bottom fifth of households £517 poorer in 2021 than they were at the start of the decade. By contrast, the top fifth will be £147 a year better off than in 2010.
That’s one of the reasons we’ve seen 800,000 more children in working households in poverty, and debt levels soaring.
Those on median earnings will also still be down compared to 2010. The typical household will be £487 a year worse off in 2021 than when the Conservatives came to power.
The current National Insurance threshold is £8,632. It’s been rumoured that this will be raised to £9,500 next year, then gradually lifted to the target £12,500.
The initial raising of the threshold will cost the Government around £2 billion in 2020-21, and depending on when it is raised to £12,500 (if soon), around £10bn.
Boris Johnson said he wanted ‘to do more to help people on low incomes with the cost of living, to put more money into their pockets’.
However, this is a regressive tax pledge, helping higher-income households more than low-earnings families. The most effective way to target low-income families is to raise in-work benefits instead.
IFS analysis confirms that by raising the National Insurance threshold, most of the benefits go to middle and high-income households. Only 8% of the gains would accrue to the poorest 20% of working households.
And on average, the highest-income 30% of working households would gain around £180 a year from a rise in the National Insurance threshold to £9,500. The poorest 10% would gain only around £40 a year.
Distributional effects of raising employee and self-employed NICs thresholds to £9,500 among working households, by household income
Targeting social security is far more effective for low-income families. IPPR shows that investing in social security would benefit those in lower half of the income distribution. (They base this on their £8.4 billion emergency fund package for social security).
Impact of full IPPR welfare package vs increase in the NICs threshold to £12,500 on average weekly income by household income decile, after housing costs
The cost of the proposed National Insurance cut of around £10 billion would be better spent on reversing the £12 billion of cuts to welfare announced in the 2015 budget. Those cuts have left thousands more children in working poverty.
The incoming government needs to:
The new government faces immense social and economic challenges, a widening wealth gap and high levels of social inequality.
These are some of the measures that could help those most in need, instead of boosting the incomes of those already at the top.
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