Tax U-Turn: burden still falls on lowest incomes

The government has announced that the removal of the additional rate of tax will not now go ahead. The 1p cut in basic rate income tax, National Insurance cut and stamp cuty cut will still stand.

Tax cuts in the full Mini-Budget cost the government £45bn. This will add back around £2bn. It means benefit cuts are still likely to do much of the heavy lifting when the government makes an effort to demonstrate it is in control of spending.

The HL Savings & Resilience Barometer shows it will be devastating for those on the lowest incomes.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “The Truss tax U-Turn was more about politics than personal finances. It doesn’t save enough cash to make a material difference to the government finances. It means those on the lowest incomes will still be paying a huge price for tax cuts.

“These are the people who are facing the brunt of price rises and are least able to manage any drop in their income at all. The HL Savings & Resilience Barometer forecast that even with the expected inflationary uplift, a year into the cost-of-living crisis, less than half a percent of the lowest two fifths of earners would have enough cash left over at the end of the month to be considered resilient.

“Real terms cuts will have a devastating impact on families on the lowest incomes, and will mean shocking levels of hardship among those who are already facing a horrible struggle to get by.”

While throwing itself firmly behind the triple lock, the government has refused to confirm that other benefits will be uprated by September’s inflation rate when they are reviewed in April. The idea is that it will mean having to borrow less in order to fund tax cuts and keep international bond investors on side.

If it chooses to raise benefits by wage inflation rather than CPI, those who rely on benefits to make ends meet could see half the rise they were expecting at around 5 per cent instead of around 10 per cent. It’s a huge real-terms cut. The Resolution Foundation has calculated the cost at £1,000 for low income family with two children.

By Mark Adair – Correspondent, Bdaily

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