Chancellor Rishi Sunak is coming under intense pressure to abandon his plan to remove the increase to the benefit that was introduced at the outset of the coronavirus pandemic last year, although there has been speculation that he may soften the impact of the cut by reducing the “taper” rate at which the benefit is withdrawn as workers earn more.
Transport secretary Grant Shapps today defended the chancellor’s refusal simply to maintain the uplift – worth £1,040 a year to around 6 million claimants, many of them in low-paid jobs, at a cost to the government of around £6bn a year – arguing that it would mean an unacceptable hike in income tax paid by workers.
Mr Shapps told BBC1’s Andrew Marr Show: “I think most people recognise that if it’s brought in for the pandemic, it’s going to end as we move back to people going back to work and more normal times.
“We can’t keep all these things in place, otherwise you’d have to put several pennies on income tax to pay for the policy to run.”
However, official figures released by HM Revenue and Customs in June this year showed that increasing the basic rate of income tax by 1p in the pound would raise £4.7bn in 2022/23 and £5.75bn in subsequent years. Hiking the higher rate by 1p would bring in an additional £1bn next year and £1.4bn in following years.
Mr Shapps did not specify what he meant by “several pennies”, but the HMRC figures indicate that the cost of keeping the uplift would be little more than one percentage point in income tax, should the chancellor choose to fund it that way.
Charities, unions and think tanks have warned that the removal of the uplift on 6 October will hit some of the UK’s poorest families hard at a time when energy bills are soaring and the end of the furlough scheme is expected to increase unemployment. The loss of disposable income for spending on essentials could undermine the UK’s economic recovery from coronavirus, they said.
On Thursday, former prime minister Gordon Brown described the cut as “more economically illogical, socially divisive and morally indefensible than anything I have witnessed in this country’s politics”.
But Mr Shapps said that it was important to take into account that salaries are increasing faster than the cost of living.
“What we’re going to do is look at how the whole package of measures, everything that we do, reacts,” he said.
“You mentioned some costs will be going up – that’s undoubtedly true – but fortunately I can also report that salaries are going up faster than that.
“I think we’ve seen a 4.2 per cent increase in salaries this year.
“We’ve got more people in work than even before the pandemic. A lot of people on universal credit are working, so it’s not unconnected.”
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