Sunak’s cost-of-living plan would hand tax break to top earners

Levelling up? Tory plan to cut council tax payments would benefit a quarter of the UK’s highest-paid people while not helping millions on low incomes

Ben Chapman
Friday 28 January 2022 08:58
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Rishi Sunak say he is 'listening' to concerns about energy bills

A plan being considered by Rishi Sunak to offset soaring energy bills would leave behind five million of the UK's poorest people while handing a tax break to a quarter of top earners, analysis has shown.

The chancellor is said to be looking at giving council tax relief to people whose properties are in band A to C, as part of a package of measures to tackle the cost-of-living crisis.

Critics of the plan have pointed out that it would benefit high-income households, including people living in expensive homes in areas like London and the South East.

Analysis by progressive think tank IPPR found that 40 per cent of people who are in line to benefit have above-average incomes.

A quarter of the country's highest earnersthose in the top 10 per cent of incomeswould see their council tax reduced, according to calculations by Henry Parkes, senior economist at the IPPR.

Meanwhile a quarter of the UK's poorestsome five million people in the bottom 30 per cent of incomes would not receive any tax relief.

“Financial support on the basis of Council Tax is poorly targeted towards low income households,” Mr Parkes said.

"This is a crisis for those on the lowest income and support should be distributed on that basis."

“The Chancellor should grasp the nettle and reverse the £20 cut to Universal Credit, which was already a mistake but looking increasingly catastrophic given the rising costs millions of families will face this year."

The IPPR is also calling on government to extend and increasing the Warm Homes Discount and scrapping a planned rise in National Insurance Contributions.

Money could be raised instead through reforming capital gains tax which would shift the burden to wealthier households, the IPPR argues.

The chancellor is under pressure to set out comprehensive measures to tackle rising bills, with regulator Ofgem expected to announce a 50 per cent jump in its price cap next week.

Households using the average amount of gas and electricity face annual bills of around £2,000 and energy prices are pushing up the costs of a range of other goods. Supply chain disruption and worker shortages are also causing inflation to rise.

Average real wages are now falling as pay increases fail to keep up with the increasing cost of living. The price cap hike is expected to hit low-income families hardest as they spend a greater proportion of their budgets on energy.

According to a report in the Times, the Treasury has rejected proposals to offer cash grants to help cover bills.

The Social Market Foundation put forward a plan for one-off payments of £300 to households where no-one is a higher-rate taxpayer. People on universal credit or legacy benefits would receive an extra £200.

A government spokesperson said: “We’re providing support worth around £12 billion this financial year and next to help families with the cost of living and further work is ongoing to look the appropriate response to cost of living pressures facing people.

“We’re cutting the Universal Credit taper to make sure work pays, freezing alcohol and fuel duties to keep costs down, and providing targeted support to help households with their energy bills.”

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