Budget income tax cuts ‘to overwhelmingly benefit the rich’

Income tax cuts for millions of workers announced in Philip Hammond’s budget will “overwhelmingly benefit richer households”, analysis has found, with almost half set to go to the top 10% of households.

The analysis by the Resolution Foundation (pdf) thinktank found that welfare cuts would continue to affect the poorest households, despite Hammond’s announcement that austerity was coming to an end.

Three-quarters of the £12bn in welfare cuts announced after the 2015 election remain government policy.

The overall package of tax and benefit changes announced since 2015 will deliver an average gain of £390 for the richest fifth of households in 2023-24, the thinktank found, compared to an average loss of £400 for the poorest fifth.

The income tax cuts announced by Hammond will cost £2.7bn next year. The 20% tax band, which currently starts on earnings above £11,850, will rise to £12,500 next year. The higher rate 40% tax band will begin at £50,000 from April, a jump from £46,350.

In total, 84% of the income tax cuts announced on Monday will go to the top half of the income distribution next year, rising to 89% by the end of the parliament.

Welfare cuts to come include a £1.5bn benefit freeze next April that will mean a £200 loss to a couple with children in the bottom half of the income distribution.

Hammond’s announcement of protected extra spending on the NHS, defence and international aid means cuts will be more keenly felt in unprotected departments. Their per capita real-terms budgets are set to be 3% lower in 2023-24 than 2019-20.

The thinktank picked out the justice, transport and business departments as likely targets for further spending cuts. If the cuts are allocated equally, it said that would mean day-to-day spending cuts of 48% in the Ministry of Justice, 52% in the Department for Business, Energy and Industrial Strategy and 77% in the Department for Transport between 2010 and 2023-24.

Torsten Bell, the thinktank’s director, said the budget came against the backdrop of an unprecedented 17-year pay downturn, with real average earnings not set to return to their pre-crisis peak until the end of 2024.

Bell said there was a welcome boost to universal credit in the budget and there was a “seismic shift” in the government’s approach to the public finances. He said, however, it spelt “an easing rather than an end to austerity.”

“This budget was much easier for Philip Hammond than many expected,” he said. “But there will be tougher choices for chancellors in the years ahead. Brexit must be delivered smoothly, public spending will remain tight, and forecasts may not always be so rosy.

“Living standards growth is set to be sluggish and the tax rises to meet pressures in the 2020s from our ageing society will still be needed – as and when there’s a government with the majority to deliver them. Austerity has been eased, but there are still tough times ahead.”