Budget 2018: Philip Hammond's income tax cuts will 'overwhelmingly benefit richer households'

Resolution Foundation claims almost half of the tax cuts are set to go to top 10 per cent of households

Ashley Cowburn
Political Correspondent
Tuesday 30 October 2018 10:34
Budget 2018: Philip Hammond increases tax-free personal allowance

Philip Hammond‘s income tax cuts will “overwhelmingly benefit richer households” as the squeeze continues for lower-income families, according to one of the first independent analyses of the Budget.

The verdict from the Resolution Foundation comes after the chancellor declared “austerity is coming to an end” as he unveiled his Budget, providing billions in extra cash for universal credit and the NHS while he setting out a cut in income tax.

But the think-tank said that while Mr Hammond’s measures represented a “seismic shift” in the direction of public spending, it spelt an easing – rather than an end – to austerity.

One measure of the claim, the organisation added, is that over three quarters of the £12bn of welfare cuts – announced by the former chancellor George Osborne in 2015 – remain government policy.

The think-tank said half of the welfare cuts due to hit family budgets are yet to be rolled out, including a £1.5bn benefit freeze next April “that will see a couple with children in the bottom half of the income distribution loosing £200”.

Despite the chancellor setting out £55bn in spending on Monday, the Resolution Foundation concluded that 84 per cent of the income tax cuts will go to the top half of the income distribution.

“The richest tenth of households are set to gain 14 times as much in cash terms next year from the income tax and benefit giveaways in the Budget as the poorest tenth of households,” its post-Budget report stated.

Addressing MPs in the Commons on Monday, the chancellor said he bring forward his party’s manifesto pledge by a year and increase the basic personal tax allowance to £12,500 in April 2019 while also raising the 40 per cent band tax rate to £50,000.

Torsten Bell, director of the Resolution Foundation, said: “The Chancellor was able to navigate the near impossible task in his Budget of easing austerity, seeing debt fall and avoiding big tax rises, thanks to a £74 billion fiscal windfall. He chose to spend the vast majority of this on the NHS, income tax cuts and a welcome boost to Universal Credit.

“But while yesterday’s Budget represented a seismic shift in the government’s approach to the public finances, it spelt an easing rather than an end to austerity – particularly for low and middle-income families.

“The chancellor made a very welcome £1.7bn commitment to universal credit, but has left intact three-quarters of the benefit cuts announced following the 2015 general election.

“Meanwhile, income tax cuts announced yesterday will overwhelmingly benefit richer households, with almost half of the long-term gains going to the top 10 per cent of households.”

Mr Bell added that there will be “tougher choices” for chancellors in the years ahead, and that Brexit “must be delivered smoothly”.

He added: “Looking further ahead, living standards growth is set to be sluggish and the tax rises to meet pressures in the 2020s from our ageing society will still be needed – as and when there’s a government with the majority to deliver them. Austerity has been eased, but there are still tough times ahead.”

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