The respected Institute for Fiscal Studies (IFS) has warned in a new report that George Osborne’s plan to achieve a budget surplus will result in 500,000 families losing child benefit, and tens of thousands having to pay a higher tax rate.
More than half a million families will be stripped of child benefit over the next five years, under a series of “stealth” tax raids by the Chancellor to help “balance the books.”
Fuel duty will also need to be significantly raised over the next five years or Osborne will face a £3billion black hole in his surplus plans.
Currently those earning £50,000 will lose some benefit and those earning £60,000 or more lose it all. Eventually, the report concluded, even those earning modest wages and paying the basic rate of tax will start to lose their child benefit entitlement.
The authors of the report concluded that Mr Osborne’s tax plans “lack any coherent principle” and called for more transparency, adding: “If the desire is for these tax rates to apply to a greater fraction of individuals than is currently the case, it would be better for politicians to state this clearly, rather than achieving the outcome through stealth using fiscal drag.”
Osborne’s promise to deliver a budget surplus from 2019-20 is “risky”, and could have a long-term impact on the UK because the Government refuse to borrow money to fund large-scale infrastructure projects, despite low inflation.
Total public spending, excluding health, will be at its lowest level since 1948 as a proportion of national income.
The authors said: “If continued indefinitely, child benefit would be received by fewer and fewer families over time.
“But if this is the government’s intention, it would again be better to state this clearly rather than achieving it by stealth.”
Tim Loughton, a former Conservative education minister, branded the IFS findings a “double whammy” for families who are already paying the 40p higher rate of income tax.
He said: “This was inevitable. It inevitably means more and more families suffer a double whammy of having to pay higher rate tax because of the freezing of the threshold and losing out on all or most of their child benefit at the same time.
“This is hardly helpful for hardworking families trying to do the right thing for their children – if you don’t index up the rates and if you have very complicated formula that doesn’t accurately reflect household income … it’s a double unfairness.”
The Treasury has declined to comment on the IFS criticism of the Office of Responsible Budget (OBR) charter, which Osborne has committed to. But a spokesperson has said: “There may be bumpy times ahead – so here in the UK we must stick to the plan that’s cutting the deficit.”
That will invariably mean further austerity cuts. Up until recently austerity targeted those claiming out of work benefits, particularly those who are unemployed because they are sick and disabled. But increasingly, austerity is being aimed at those in low paid or part-time work, and the middle classes are set to lose further income, under the Conservative plans, too.
Despite being a party that claims to support “hard-working families,” the Conservatives have nonetheless made several attempts to undermine the income security of a significant proportion of that group of citizens recently. Their proposed tax credit cuts, designed to creep through parliament in the form of secondary legislation, which tends to exempt it from meaningful debate and amendment in the Commons, was halted only because the House of Lords have been paying attention to the game.
The use of secondary legislation has risen at an unprecedented rate, reaching an extraordinary level since 2010, and it’s increased use is to ensure that the Government meet with little scrutiny and challenge in the House of Commons when they attempt to push through controversial and unpopular, ideologically-driven legislation.
The Shadow secretary for Work and Pensions, Owen Smith, has pointed out that cuts to in-work benefit entitlements, being introduced through Universal Credit, mean controversial tax credit reductions have been simply been “rebranded” by the government rather than reversed.
In the Spending Review last November, George Osborne announced that tax credit reforms, which were set to almost halve the income level at which support is withdrawn from £6,420 to £3,850, would not be enacted. An analysis of the changes published by the Office for Budget Responsibility (OBR) highlighted that cuts to work allowances in Universal Credit, which set the level at which benefits will begin to be withdrawn under the new system, have not been reversed.
Furthermore, people claiming Universal Credit needing in-work benefit because of low pay and part-time hours will be expected to increase their wages and working hours, or controversially, face losing their benefit.
The Chancellor has cut in half the amount people can earn before their working tax credit starts to “taper” (reduce) – down from £6,420 to £3,850 from April 2016. Restrictions to eligibility for child tax credit means that families with more than two children are set to lose a significant amount of weekly income from April 2017. Whilst the flat £545 “family element” paid before the amount for each child will also be removed completely. This will affect people in-work. The think-tank Resolution Foundation said that working mothers would be worst hit – accounting for 70% of money saved by the Treasury, but overall the cuts will hit those out-of-work the hardest.
Many of us recognised the Tory “making work pay” mantra for what it was in 2012, when the first welfare “reforms” were pushed through parliament against widespread resistance, on the back of “financial privilege.” It was and always has been a diversion to allow the Conservatives to dismantle our welfare state, and reduce the value of labour, in much the same way as the 1834 Poor Law principle of less eligibility, which fulfilled the same purpose.
The Poor Law Committee also wanted to “make work pay.” Since 2012, steadily rising in-work poverty has shown that having a job no longer provides a route out of poverty.
The IFS report conclusions simply confirms what many of us have suspected since 2012, that the government have a secret long-term aim to completely dismantle the social gains of our post-war settlement: the welfare state, affordable social housing provision, the National Health Service and access to justice through legal aid.