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Budget Commentary: Jam tomorrow for the poor

Jonquil Lowe, Senior Lecturer in Economics and Personal Finance, shares her views on the autumn budget.

“The big ticket item from yesterday’s Budget – apart from extra spending on the NHS – is bringing forward by a year increases to the personal allowance (the first slice of income that most people can have tax-free) to £12,500 and the threshold at which higher-rate tax of 40% starts to be paid to £50,000. Targets originally set for 2020 will now be reached next April instead – jam today as a reward for all that hard work bearing austerity for the last eight years.

Personal allowance rise only benefits tax payers

However, by definition, raising the personal allowance can benefit only those people who have enough income to pay tax. Out of the UK adult population of 51 million, 20 million are non-taxpayers. A substantial proportion will be in low-income households. Many are reliant on means-tested benefits and due to transition to Universal Credit, which is replacing six other benefits for working-age, low-income households.

‘Fails to mesh with the realities of life’

In a scathing attack on the roll-out of Universal Credit, Frank Field, Chair of the Work and Pensions Committee, recently (Financial Times, 20 October) highlighted how the design of this new benefit fails to mesh with the realities of life. Payment in arrears and ‘advance’ payments that are aggressively recovered push claimants into a downward spiral of debt. Meanwhile, failure to anticipate childcare costs and unrealistic expectations about income from business start-ups put barriers in the way of claimants taking jobs or becoming self-employed.

Measures go part way

Yesterday’s Budget includes measures that will go part way to address at least some of these problems. However, unlike the increase to the personal allowance, Universal Credit claimants will have to wait for their jam. For example, some benefits will roll on for two weeks to help with the transition to Universal Credit (as is the case since this year with housing benefit) – but not until July 2020. The self-employed will be given longer to start generating an income, but this will not come fully into effect until September 2020.And the period over which advance payments will be recovered is to be increased from 12 to 16 months – but not until October 2021.

It seems that the people least equipped to stretch their finances are expected to bear the brunt of the Chancellor’s ‘balanced approach’, as they were with austerity. In a more just society, perhaps tax cuts would take second place to getting benefit reform right.”

About Author

Liz works in the Media Relations team within the Communications Unit at The Open University. She has over 15 years' marketing experience working across a range of sectors, from diamonds to shampoo. She has a BSc (Hons) in Management from UMIST. In her spare time, Liz is usually found on roller skates or off travelling, having adventures.

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