Personal taxes and benefits
Stuart Adam
© Institute for Fiscal Studies
Broad-based tax cuts (1)
• 2 years of grants for councils that freeze Council Tax in April 2013
– Costs £270m in each of 2013-14 and 2014-15
• Cuts in fuel duty:
1. January 2013 uprating (delayed from April 2011) cancelled
– Costs £1.4bn per year
2. April 2013, 2014 and 2015 upratings delayed to September
– Costs £200m to £300m in each of those three years
© Institute for Fiscal Studies
Real duty on a litre of petrol
Pence, April 2012 prices
70
68
After Autumn Statement
Before Autumn Statement
66
64
Policy under Labour
£3bn
per year
62
60
58
56
54
© Institute for Fiscal Studies
£1.4bn
per year
Fuel duty: to uprate or not to uprate?
Dates uprating
due before
Budget 2011
April 2011
April 2012
© Institute for Fiscal Studies
Budget 2011
Autumn
Statement 2011
June 2012
Autumn
Statement 2012
Fuel duty: to uprate or not to uprate?
Dates uprating
due before
Budget 2011
Budget 2011
April 2011
January 2012
April 2012
August 2012
© Institute for Fiscal Studies
Autumn
Statement 2011
June 2012
Autumn
Statement 2012
Fuel duty: to uprate or not to uprate?
Dates uprating
due before
Budget 2011
Budget 2011
Autumn
Statement 2011
April 2011
January 2012
August 2012
April 2012
August 2012
Cancelled
© Institute for Fiscal Studies
June 2012
Autumn
Statement 2012
Fuel duty: to uprate or not to uprate?
Dates uprating
due before
Budget 2011
Budget 2011
Autumn
Statement 2011
June 2012
April 2011
January 2012
August 2012
January 2013
April 2012
August 2012
Cancelled
Cancelled
© Institute for Fiscal Studies
Autumn
Statement 2012
Fuel duty: to uprate or not to uprate?
Dates uprating
due before
Budget 2011
Budget 2011
Autumn
Statement 2011
June 2012
Autumn
Statement 2012
April 2011
January 2012
August 2012
January 2013
Cancelled
April 2012
August 2012
Cancelled
Cancelled
Cancelled
© Institute for Fiscal Studies
Fuel duty: to uprate or not to uprate?
Dates uprating
due before
Budget 2011
Budget 2011
Autumn
Statement 2011
June 2012
Autumn
Statement 2012
April 2011
January 2012
August 2012
January 2013
Cancelled
April 2012
August 2012
Cancelled
Cancelled
Cancelled
April 2013
April 2013
April 2013
April 2013
September 2013
April 2014
April 2014
April 2014
April 2014
September 2014
April 2015
April 2015
April 2015
April 2015
September 2015
April 2016
April 2016
April 2016
April 2016
April 2016
© Institute for Fiscal Studies
Broad-based tax cuts (2)
• Further £235 increase in income tax personal allowance in April 2013
– Lifts an extra 250,000 individuals out of income tax
– Due to reach £10,000 by end of Parliament with no new announcements
• Annual cost £1.1bn up to and including 2015-16, £0.6bn thereafter
– Hitting £10k a year earlier brings forward switch from RPI to CPI uprating
• Overall, £9bn spent taking 2.2m people out of tax in 2013-14
© Institute for Fiscal Studies
Tax rises for “the rich”
• Income tax higher-rate threshold and NICs Upper Earnings Limit
increase by 1% (i.e. less than inflation) in April 2014 and April 2015
– Raises £1.1bn per year
© Institute for Fiscal Studies
Number of higher-rate taxpayers (millions)
6
5
4
3
2
1
0
1990-91
© Institute for Fiscal Studies
1995-96
2000-01
2005-06
Note: includes additional-rate taxpayers
2010-11
2015-16
Tax rises for “the rich”
• Income tax higher-rate threshold and NICs Upper Earnings Limit
increase by 1% (i.e. less than inflation) in April 2014 and April 2015
– Raises £1.1bn per year
• Further cuts to tax relief on pension contributions
– Lifetime allowance reduced from £1.5m to £1.25m
– Annual allowance reduced from £50,000 to £40,000
 Example: employee with 30 years membership of a final salary scheme
earning £38k who saw their pay rise to £55k over four years could be
affected
– Raises £1.1bn in 2017-18
© Institute for Fiscal Studies
Benefit cuts
• Most existing working-age benefits and tax credits to be increased by
1% in April 2013, 2014 and 2015
– 4% real-terms cut overall
– Pensioners and more severely disabled protected
– Raises £3.1bn in 2017–18
© Institute for Fiscal Studies
Earnings and out-of-work benefits (Jan 2007=100)
140
Benefit rates: before Autumn Statement
Benefit rates: after Autumn Statement
Average earnings
130
120
110
100
2007 2008
2009
2010
2011
2012
2013
2014
2015
Sources: Past earnings from ONS series DTWM, ROYK, MGRZ, MGRQ, past benefits from DWP, forecasts of inflation and earnings growth from OBR
© Institute for Fiscal Studies
2016
2017
2018
Benefit cuts
• Most existing benefits and tax credits to be increased by 1% in April
2013, 2014 and 2015
– 4% real-terms cut overall
– Pensioners and more severely disabled protected
– Raises £3.1bn in 2017–18
• Universal Credit will be less generous to in-work claimants than
previously planned
– Single people without kids gain
– But couples without kids, and home-owning couples with kids, lose
– Raises £1.2bn in 2017-18
© Institute for Fiscal Studies
Distributional impact of yesterday’s measures
Effect in April 2015, as if Universal Credit fully in place
0.5%
Change in net income
0.0%
-0.5%
£8.05 per week
-1.0%
-1.5%
£5.10 per week
-2.0%
Poorest
2
3
4
5
6
7
Income Decile Group
© Institute for Fiscal Studies
Note: Fuel duty modelled at average 2015-16 level.
8
9
Richest
All
Distributional impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
2%
Change in net income
0%
-2%
-4%
-6%
Yesterday's announcements
-8%
All changes
-10%
-12%
Poorest
2
3
4
5
6
7
8
Income Decile Group
© Institute for Fiscal Studies
Note: excludes reforms to Council Tax Benefit and tax credit disregards.
Fuel duty modelled at average 2015-16 level.
Cash-terms figures will be available on the IFS website.
9
Richest
All
Distributional impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
2%
Change in net income
0%
-2%
-4%
-6%
-8%
Pensioner households
Households with children
Working-age without children
-10%
-12%
Poorest
2
3
4
5
6
7
8
Income Decile Group
© Institute for Fiscal Studies
Note: excludes reforms to Council Tax Benefit and tax credit disregards.
Fuel duty modelled at average 2015-16 level.
Cash-terms figures will be available on the IFS website.
9
Richest
All
Conclusions
• Yesterday’s announcements mainly hurt the rich and the poor
– Benefit cuts hit mainly low-income households
– Cuts to pension tax relief and the higher-rate threshold hit mainly highincome households
– Tax reductions help income tax payers, council tax payers and motorists
• Broadly consistent with the pattern of fiscal consolidation to date
• A clear strategy on tax and welfare is still lacking
© Institute for Fiscal Studies
Distributional impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
£10
-£2.25
-£20.40
Change in weekly net income
-£20
-£50
-£80
-£110
-£140
Yesterday's announcements
-£170
All changes
-£200
-£230
-£260
Poorest
2
3
4
5
6
7
Income Decile Group
© Institute for Fiscal Studies
8
9
Richest
All
Distributional impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
Change in weekly net income
£10
-£20
-£5.93
-£20.08
-£50
-£44.12
-£80
-£110
-£140
Pensioner households
Households with children
Working-age without children
-£170
-£200
-£230
-£260
Poorest
2
3
4
5
6
7
Income Decile Group
© Institute for Fiscal Studies
8
9
Richest
All
Distributional impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
Single, no work
Single, in-work
Lone parent, no work
Lone parent, in-work
Couple no children, no work
Couple with children, no work
Couple no children, 1 earner
Couple with children, 1 earner
Couple no children, 2 earners
Couple with children, 2 earners
Single pensioner
Couple pensioner
Multi-family household, no children
Multi-family household with children
-12%
-10%
-8%
-6%
-4%
-2%
Change in net income
Yesterday's announcements
© Institute for Fiscal Studies
All changes
Note: excludes reforms to Council Tax Benefit and tax credit disregards.
Fuel duty modelled at average 2015-16 level.
0%
2%
Distributional impact of tax and benefit reforms
January 2010 - April 2015 inclusive, as if Universal Credit fully in place
Single, no work
Single, in-work
Lone parent, no work
Lone parent, in-work
Couple no children, no work
Couple with children, no work
Couple no children, 1 earner
Couple with children, 1 earner
Couple no children, 2 earners
Couple with children, 2 earners
Single pensioner
Couple pensioner
Multi-family household, no children
Multi-family household with children
-£70
-£60
-£50
-£40
-£30
-£20
-£10
Change in weekly net income
Yesterday's announcements
© Institute for Fiscal Studies
All changes
Note: excludes reforms to Council Tax Benefit and tax credit disregards.
Fuel duty modelled at average 2015-16 level.
£0
£10