Proposed tax and benefit reforms:
winners and losers
Stuart Adam
Mike Brewer
Measuring the changes
•
•
Taxes and benefits only – not public services
Compare possible tax and benefit systems at the time of
a possible next general election (2009-10):
1. No change from current (default uprating)
2. Only changes already announced by the government
(and accepted by the opposition parties)
3. Additional changes proposed by the Conservatives
4. Additional changes proposed by the Liberal
Democrats
•
Effects in 2009-10, expressed in 2005-06 prices
• Not effects during the period
• Different from the parties’ published costings
Allocating the changes
•
•
•
•
Model effect on individual households where
possible
• Incorporate non-take-up of pension credit and
council tax benefit
Data limitations mean we cannot model all the preannounced reforms
• Allocate the remainder proportionately to income
Exclude parties’ proposals on paid maternity leave
Assume no change in households’ behaviour
• Important for costing some policies
• Ignores indirect effects of reforms via the wider
economy
Winter payments for pensioners
2005:
£200 Winter Fuel Allowance for 60-79, £300 for 80+
Plus “one-off” £200 if 65+ and don’t receive pension credit guarantee
Plus “one-off” £50 if 70+ and receive pension credit guarantee
Planned 2006:
£150 Winter Fuel Allowance for 60+
Changes already announced
Measures directly affecting households
Revenue
Winter payments return to 1999 levels
£1.7 bn
Delayed fuel duty revalorisation
£0.2 bn
Earnings-index pension credit guarantee until 2007-08
- £0.4 bn
Earnings-index child element of CTC until 2007-08
- £0.5 bn
Childcare tax credit increased from 70% to 80%
- £0.1 bn
Paid maternity leave extended to 9 months
- £0.3 bn
Above-inflation increases in inheritance tax threshold
- £0.1 bn
Total (including other small measures)
£0.1 bn
Total including measures affecting businesses
£0.5 bn
Changes already announced
1.2
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
R
ic
h
es
t
9
8
7
6
5
4
3
2
st
-0.6
Po
or
e
% change in net income
1.4
Changes already announced
Average change in net weekly income
£1.00
£0.50
£0.00
-£0.50
-£1.00
-£1.50
-£2.00
Non-pensioners
without children
Non-pensioners with
children
Pensioners
Conservatives’ proposals
Change in 2009-10 relative to Labour, 2005-06 prices
Measure
Revenue
Discount on net council bills of some pensioners
- £1.2 bn
Increase stamp duty threshold to £250,000
- £0.8 bn
Support for employee pension contributions
- £0.9 bn
Earnings-index basic state pension every year
- £1.4 bn
Introduce Flexible Childcare credit
- £0.5 bn
Total
- £4.7 bn
Cancelling revaluation
• Cancellation would redistribute from people with belowaverage property price rises to people with above-average
property price rises
• From North to South
• Also redistribution within areas
• Should have no net revenue effect (apart from possible
administrative savings)
• But would councils use the confusion to raise rates?
• Not sensible to base a 2007-08 property value tax on
1991 property values
• Frequent pre-announced revaluations would be desirable
Conservatives’ proposals
Change in 2009-10 relative to Labour, 2005-06 prices
1.6
1.2
1.0
0.8
0.6
0.4
0.2
ic
he
st
R
9
8
7
6
5
4
3
2
0.0
Po
or
es
t
% change in net income
1.4
Conservatives’ proposals
Average change in net weekly income
Change in 2009-10 relative to Labour, 2005-06 prices
£8
£7
£6
£5
£4
£3
£2
£1
£0
Non-pensioners
without children
Non-pensioners
with children
Pensioners
Liberal Democrats’ proposals Change
in 2009-10 relative to Labour, 2005-06 prices
Measure
Replace council tax with local income tax
49% income tax rate on incomes above £100,000
Revenue
- £2.3 bn
£5.6 bn
Citizen’s Pension for those aged 75 or over
- £3.2 bn
Increase stamp duty threshold to £150,000
- £0.1 bn
Total
£0.0 bn
Liberal Democrats’ proposals
ic
h
es
t
9
R
8
7
6
5
4
3
2
st
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
Po
or
e
% change in net income
Change in 2009-10 relative to Labour, 2005-06 prices
Liberal Democrats’ proposals
Average change in net weekly income
Change in 2009-10 relative to Labour, 2005-06 prices
£20
£15
£10
£5
£0
-£5
-£10
Non-pensioners
without children
Non-pensioners
with children
Pensioners
Liberal Democrats’ proposals
Average change in net weekly income
Change in 2009-10 relative to Labour, 2005-06 prices
£20
£15
Including 49% rate
Excluding 49% rate
£10
£5
£0
-£5
-£10
Non-pensioners
without children
Non-pensioners
with children
Pensioners
Comparing the parties
he
st
R
ic
9
8
7
6
5
4
3
Labour
Conservatives
Liberal Democrats
2
or
es
t
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
Po
% change in net income
Change in 2009-10 relative to default uprating only
Comparing the parties
Change in 2009-10 relative to default uprating only
£20
£0
-£10
-£20
-£30
Labour
Conservatives
Liberal Democrats
-£40
-£50
-£60
he
st
R
ic
9
8
7
6
5
4
3
2
re
st
-£70
Po
o
Average change in net weekly income
£10
Comparing the parties
Change in 2009-10 relative to default uprating only
Average change in net weekly income
£20
£15
£10
Labour
Conservatives
Liberal Democrats
Lib Dems excluding 49% rate
£5
£0
-£5
-£10
Non-pensioners
without children
Non-pensioners with
children
Pensioners
Some interesting comparisons
• With Labour’s reforms since 1997
• Labour to date has engaged in substantial
redistribution
• Its stated third term policies are much less ambitious
• The effects of the Liberal Democrats’ policies look most
similar to those of Labour to date
• With the parties’ 2001 manifestos
• Labour is planning to do much less than in 2001
• Both the Conservatives and the Liberal Democrats are
offering more progressive packages than in 2001
• This is despite the progressiveness of Labour’s
reforms since 2001
Conclusions
• Labour is proposing little reform in its third term
• This contrasts with the extensive reforms of its first two
terms
• What if tax revenues undershoot Treasury expectations?
• The Conservatives are offering giveaways to all household
types, funded by cuts in public spending
• What if cutting public spending proves more difficult than
they expect?
• The Liberal Democrats are offering a strongly redistributive
package, funded by 49% tax rate
• What if the 49% rate fails to raise as much as they expect?
• What if tax revenues undershoot Treasury expectations?
• Both opposition parties are proposing more progressive
packages than in 2001
• Both opposition parties are concentrating the gains heavily
on pensioners
Proposed tax and benefit reforms:
winners and losers
Stuart Adam
Mike Brewer