From the TUC

#Budget2016 is much better for the better off

16 Mar 2016, by in Economics

Earlier today I discussed the costs and benefits of the Chancellor’s plans to increase the personal tax allowance (PTA) to £12,500 and the higher rate threshold (HRT) to £50,000 by 2020 (Spoiler alert: the costs are high and the benefits are scant). Today the Chancellor took a sizable step towards those not-so-laudable goals.

As of next year, the PTA will rise to £11,500 and he restated his commitment to increase the allowance to £12,500 by the end of the parliament. In addition the HRT will increase from £43,385 to £45,000. While the chancellor has not repeated his intention to increase the allowance to £50,000 neither did he rule it out.  Mr Osborne implied that people earning over £42,000 constitute hard-pressed middle earners:

“(raising the threshold) is going to lift over half a million people who should never have been paying the higher rate out of that higher tax band altogether”.

The OBR have now produced their costings for the budget. Their figures are based on the assumption that the HRT will stay at £45,000, an assumption I suspect will not hold for long. Nonetheless they still indicate that these reforms combined will cost the tax-payer £2.5 billion by 2019/2020.

A quick look at how these changes benefit workers at various levels gives a good indication of how little bang the public get for their re-distributive buck. The chart below lays out the impact of the changes for people earning the highest rate at each threshold.

Someone earning less than £10,600 doesn’t benefit from this at all, while any benefit for those earning under £11,500 must be weighed against potential cuts to their universal credit payments (see my last blog for details).

income benefits