New report examines gains and losses from Budget 2019
The tax and benefit changes announced in Budget 2019 will, on average, reduce households’ disposable income by 0.7% compared to a neutral benchmark where tax credits, thresholds and maximum benefit payments rise in line with forecast wage growth. This is the main finding from a new report released today by the Economic and Social Research Institute (ESRI).
Lower income households will on average see slightly larger proportional losses (0.8%) because of the decision to freeze personal and employee income tax credits in cash terms (a real tax rise), and to increase maximum benefit payments by less than wage growth.
Higher income households, by contrast, will on average see smaller proportional losses (0.5%) because of cuts to the Universal Social Charge and a rise in the income tax higher-rate threshold, which partially offset overall tax increases.
The report also warned that the government faces a number of risks to the public finances in the coming years, including from over-reliance on relatively volatile corporation tax receipts; almost 40% of which are paid by just 10 companies.
Barra Roantree, a Research Officer at the ESRI and an author of the report, said:
“Freezing personal and employee tax credits when prices and wages are rising amounts to a real terms tax rise, which take proportionally most from lower-to-middle income households. Tax cuts in this budget were focused on the 25% of households that contain a higher-rate income taxpayer.”
“Although the budget increased taxes overall to finance greater expenditure on public services and investment, the exchequer is becoming increasingly reliant on receipts from corporation tax. These are highly volatile and concentrated among a small number of firms, which suggests the government may need to look for more stable sources of revenue in future budgets.”