A new briefing note released by the Institute for Fiscal Studies (IFS) has analysed the impact of tax and benefit changes since May 2015 on the incomes of different kinds of households. One of the key findings in the reports suggests that the one million families with children and nobody in paid work would be £3,000 a year worse off on average.
Other key findings include:
- Increases to the income tax personal allowance and higher rate threshold, costing the government around £5 billion per year, have been the biggest change to taxes or benefits so far this parliament. These have benefited most basic-rate taxpayers to the tune of £160 a year, while most higher-rate taxpayers have gained £380 a year. However, for the latter group all this giveaway is doing is reversing most of the effect of the cuts in the higher-rate threshold in the last parliament. And cuts in pension tax relief, on top of a large number of tax increases in the last parliament, have hit those with the very highest incomes.
- While cuts to benefits have been small as of yet, government plans for future cuts would significantly reduce the incomes of low-income working-age households, particularly those with children. The most important changes are the cash freeze in most benefit rates, cuts to child tax credit and the continued rollout of the less generous universal credit.
- If these planned cuts were fully in place now, nearly 3 million working households with children on tax credits would be an average of £2,500 a year worse off, with larger families losing more. The 1 million families with children and nobody in paid work would be £3,000 per year worse off on average. But it is important to stress that many of the changes will not create immediate losses of benefit income, because of protections for existing claimants.
- Planned cuts will have a bigger effect on the entitlements of the poorest families than the cuts made by the coalition. More broadly the period since 2010 has seen lower-income households lose as a result of benefit cuts and the richest households lose from increases in income tax. But those on average and moderately high incomes, as well as most pensioners, have seen their incomes almost completely protected on average.
Tom Waters, Research Economist at IFS, said “As suggested by the 2015 Conservative manifesto, the government have announced income tax cuts that mostly benefit middle and higher-income households and working-age benefit cuts that mostly hit lower-income households. But while the tax cuts have largely already been delivered, most of the benefit cuts are yet to take effect”.
This analysis does not tell you what has actually happened to the incomes of different types of households. That depends on changes in earnings, employment and inflation as well as changes to taxes and benefits.