The lowest-paid working families will miss out on the tax cuts that will be promised by the main political parties at next year’s general election, a report today warned.
It argued that better-off households would benefit the most from plans being floated by the Conservatives, Liberal Democrats and Labour to reduce income tax bills.
Calls for a rise in the national insurance threshold – an initiative which is being backed by some senior Tories – could prove equally ineffective, according to the Joseph Rowntree Foundation.
It said boosting support through the new Universal Credit scheme, being rolled out by the Government and supported in principle by Labour, could be the most successful way of getting money to the people who need it most.
Both the Tories and the Lib Dems have backed further rises in basic rate tax allowances. But the foundation calculated the tax threshold would have to be increased to £12,500 to bring the lowest-paid families to a level which would guarantee them an “adequate” income.
That would cost the Treasury at least £11.5bn a year, it claimed, and most of the beneficiaries would still be basic rate taxpayers rather than the worst-off.
Meanwhile, Labour has proposed introducing a 10 per cent starting rate of tax. It would need to be fixed at £5,200 to bring families up to an “adequate” income, leaving the Treasury with a bill of about £11bn, the foundation said.
An alternative approach of raising national insurance thresholds for employees would cost the country more than £9bn and not help pensioners.
Chris Goulden, the head of poverty research at the foundation said: “As the living standards election approaches, the main parties have set out their tax pledges.
“While they will have some benefit, they will cost the public purse at least three times as much as more targeted policies and fail to help families in greatest need.”
He added: “Wage levels and tax cuts are part of the mix for improving the living standard of low income working families, but how the state supports low earning families is also pivotal. This underlines the importance of Universal Credit in making work pay, as part of a comprehensive anti-poverty strategy.”
The foundation called for political parties to consider raising the amount families can earn before their Universal Credit entitlements are clawed back, as well as continuing increases in support for childcare costs through Universal Credit.