Personal tax and welfare measures
David Phillips
© Institute for Fiscal Studies
Personal allowance to reach £10,500 in 2015-16
• £320 above-indexation increase in main allowance in April 2015
– Takes 230,000 people out of income tax
– Taxpayers aged under 67 on £10,500 - £120,360 will gain £64
– Costs £1.8bn (in 2016-17)
• Allowance in 2015-16 to be £2,855 higher than plans govt inherited
– Costs over £12 billion per year
– Basic rate taxpayers gain £571 per year and 2.4 million taken out of income tax
• Higher-rate threshold will be £5,560 lower  1.4m more higher-rate
taxpayers than under plans inherited
– But unaffected by yesterday’s announcements
© Institute for Fiscal Studies
Number of higher-rate taxpayers (millions)
6
5
1.4m more higher rate
payers than under
inherited plans
4
3
2
1
0
1990-91
1995-96
2000-01
Number above higher rate threshold
© Institute for Fiscal Studies
Note: includes additional-rate taxpayers
2005-06
Inherited policy
2010-11
2015-16
Number of higher-rate taxpayers (millions)
6
5
4
3
2
1
0
1990-91
1995-96
2000-01
Number above higher rate threshold
© Institute for Fiscal Studies
Note: includes additional-rate taxpayers
2005-06
Inherited policy
2010-11
2015-16
Number of higher-rate taxpayers (millions)
6
5
Number of higher rate
taxpayers up 2 million
since 2010-11
4
3
2
1
0
1990-91
1995-96
2000-01
Number above higher rate threshold
© Institute for Fiscal Studies
Note: includes additional-rate taxpayers
2005-06
Inherited policy
2010-11
2015-16
Personal allowance to reach £10,500 in 2015-16
• £320 above-indexation increase in main allowance in April 2015
– Takes 230,000 people out of income tax
– Taxpayers aged under 67 on £10,500 - £120,360 will gain £64
– Costs £1.8bn (in 2016-17)
• Allowance in 2015-16 to be £2,855 higher than plans govt inherited
– Costs over £12 billion per year
– Basic rate taxpayers gain £571 per year and 2.4 million taken out of income tax
• Higher-rate threshold will be £5,560 lower  1.4m more higher-rate
taxpayers
• Why income tax but not NICs?
– 1.6 million people will pay employee NICs but not income tax in 2015-16
© Institute for Fiscal Studies
60%
£600
Personal
allowance:
£7,645
50%
£500
40%
£400
Higher rate
threshold
and UEL:
£47,845
30%
NICs
threshold:
£8,112
20%
10%
£200
£100
0%
£0
-10%
£0
£10,000
Inherited System
© Institute for Fiscal Studies
£300
£20,000
£30,000
£40,000
Gross income
Actual 2015-16 system
£50,000
Gains/Losses
-£100
£60,000
Gains/losses (£s per year)
Combined income tax and employee NI rate
Income tax and employee NICs schedule: 2015-16
60%
£600
50%
£500
Higher rate threshold
Gain for basic
rate taxpayers
and UEL:
£42,285
is £546 per year
40%
£400
30%
£300
Personal allowance
increased to £10,500
20%
10%
£200
£100
Employee NICs
threshold a little lower
0%
£0
-10%
£0
£10,000
Inherited System
© Institute for Fiscal Studies
£20,000
£30,000
£40,000
Gross income
Actual 2015-16 system
£50,000
Gains/Losses
-£100
£60,000
Gains/losses (£s per year)
Combined income tax and employee NI rate
Income tax and employee NICs schedule: 2015-16
Excise duties
• Changes to gambling duties
– Increase duty on gaming machines with stakes above £5 to 25% from March 2015
– Cut duty on bingo from 20% to 10% from June 2014
• Alcohol duties
– Reduce duty on beer by 2% in cash terms (4.5% below indexation)
– Freeze cider and spirits duty (4.5% below previous ‘escalator’)
– And wine duty up in line with inflation (2% below ‘escalator’)
– Costs £290 million in 2014-15 (£370 million without behavioural response)
• Tobacco duty escalator extended to end of next parliament
– Raise £135 million a year by 2018-19 (£795 million without behavioural response)
• Unusually, no announcements on fuel duties
– Already spent £6bn on cancelling increases
© Institute for Fiscal Studies
Impact of tax and benefit reforms
Announced yesterday and in place by April 2015
Change in net income
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
Poorest
2
3
4
5
6
7
Income Decile Group
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
Implemented January 2010 - April 2015 inclusive, no Universal Credit
Change in net income
2%
0%
-2%
-4%
-6%
Announced yesterday
All changes
-8%
Poorest
2
3
4
5
6
7
Income Decile Group
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Childcare measures: Announcements (1)
• New Tax-Free Childcare scheme announced in Budget 2013
– Due to be introduced in Autumn 2015
– For families with all adults in work, govt would top up spending on formal
childcare at a rate of 20p for every 80p spent
– Scheme would initially cover children up to age 5 and gradually be extended to
cover children up to age 12
– Maximum contribution of £1,200 per child per year
• Several changes to the scheme were announced this week:
– Maximum contribution has been increased to £2,000 per child per year
– Scheme will cover children up to age 12 within its first year
© Institute for Fiscal Studies
Childcare measures: Announcements (2)
• Changes also made to childcare support via Universal Credit
– Budget 2013 announced an 85% subsidy on childcare spending for families
where both parents paying income tax versus 70% for other families
– The 85% subsidy has now been extended to all families
• The Pupil Premium will be extended to cover disadvantaged 3 and 4
year olds taking up their free nursery entitlement
© Institute for Fiscal Studies
Childcare measures: Remarks
• Generosity of childcare support for working families increased:
– For working non-income tax payers claiming support via UC
– For working families paying for formal childcare for 5-12 year olds
– For those spending more than £6,000 per child under 5 per year
• Some welcome simplifications:
– Removal of ‘cliff-edge’ in subsidy offered via Universal Credit
– Parents only report changes in circumstances quarterly
• But announcements come with very little new money
– Tax-free childcare more generous per child, but only 1.9m families now
estimated to benefit (was 2.5m) – unclear why this changed
– Increase in UC subsidy will cost £200m but funded by unspecified UC cuts
© Institute for Fiscal Studies
Summary
• Continuation of policy of above-inflation increases in income tax
personal allowance
– Overall, costs almost as much as the VAT increase raised
– Becoming even less well targeted at those with low incomes/earnings
– Increased NICs thresholds would be better targeted at these groups
• Childcare plans made more generous and to be rolled out quicker
– But costs for tax-free childcare estimated to be broadly the same as before
– What parts of Universal Credit will be cut to pay for increased generosity?
– Unclear whether spending on childcare is money well spent
© Institute for Fiscal Studies
Impact of tax and benefit reforms
Implemented January 2010 - April 2015 inclusive, no Universal Credit
Change in net income
2%
0%
-2%
-4%
-6%
Already implemented
All changes
-8%
Poorest
2
3
4
5
6
7
Income Decile Group
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive, no Universal Credit
Change in weekly net income
£50
£0
-£50
-£100
Announced yesterday
All changes
-£150
Poorest
2
3
4
5
6
7
Income Decile Group
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive
4%
2%
Change in net income
0%
-2%
-4%
-6%
Households with children
-8%
Pensioner households
-10%
Working-age without children
-12%
-14%
Poorest
2
3
4
5
6
7
Income Decile Group
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive
£50
Change in weekly net income
£0
-£50
-£100
-£150
-£200
Households with children
-£250
Pensioner households
Working-age without children
-£300
-£350
Poorest
2
3
4
5
6
7
Income Decile Group
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
8
9
Richest
All
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive
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, one earner
Couple with children, one earner
Couple, no children, two earners
Couple with children, two earners
Single pensioner
Couple pensioner
Multi-family household, no children
Multi-family household with children
All
-14%
-12%
-10%
Announced yesterday
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
-8%
-6%
-4%
Change in net income
All changes
-2%
0%
2%
Impact of tax and benefit reforms
January 2010 - April 2015 inclusive
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, one earner
Couple with children, one earner
Couple, no children, two earners
Couple with children, two earners
Single pensioner
Couple pensioner
Multi-family household, no children
Multi-family household with children
All
-£80
-£70
-£60
-£50
-£40
-£30
-£20
-£10
Change in weekly net income
Announced yesterday
All changes
Fuel duties modelled at average 2015-16 level.
Assumes full take-up of means-tested benefits and tax credits.
© Institute for Fiscal Studies
£0
£10
£20
60%
£500
50%
£400
40%
£300
30%
£200
20%
£100
10%
£0
0%
£0
£10,000
Inherited System
© Institute for Fiscal Studies
£20,000
£30,000
£40,000
Gross income
Actual 2014-15 system
£50,000
Gains/Losses
-£100
£60,000
Gains/losses (£s per year)
Combined income tax and employee NI rate
Income tax and employee NICs schedule: 2014-15