More generous tax relief means the government is providing more in-work cash support to Britain’s richest households than poor families are receiving, according to a left-leaning thinktank.
A study by the Fabian Society said nearly half the savings made in welfare payments in recent years had gone on increases in the tax-free personal allowance, rather than being used for deficit reduction.
The thinktank accused the government of increasing inequality by stealth and called for a five-year freeze on tax-free allowances to “rescue social security”.
The Fabian Society added that the first priority for any money saved from freezing tax allowances should probably be using it to make universal credit more generous, but said consideration should also be given to a basic income – a payment given unconditionally to all citizens.
Both the chancellor, Philip Hammond, and his predecessor, George Osborne, raised tax allowances while keeping a tight rein on benefits.
The result of this approach, according to the thinktank, is that on average, households in the fourth and fifth income quintiles (the top 40%) receive more in tax relief than households in the poorest fifth get in means-tested benefits.
The Fabian Society study showed the cost of tax allowances had increased by 43% from £95bn to £136bn from 2012-13 to 2017-18. Over the same period, social security payments to working-age adults and children fell from £95bn to £94bn. As a share of national income, tax allowances rose from 5.6% to 6.4%, while payments to working-age adults and children fell from 5.5% to 4.4%.
The report was issued to coincide with the start of the new tax year, in which the personal allowance will rise from £11,850 to £12,500. It said that in the coming year, the government would provide £7,000 to couples who both work through tax allowances, while the minimum social security payment to couples aged between 25 and pension age was £6,000 a year.
Andrew Harrop, the general secretary of the Fabian Society, said: “The start of the new tax year sees the completion of an extraordinary nine-year transition in UK tax and benefits policy, where the income tax personal allowance has soared while working-age benefits have been slashed.
“The Fabian Society’s analysis looks at the value of tax allowances and benefits on a like-for-like basis and reveals that the government now provides similar levels of financial support to rich and poor alike. The tax-benefit system is therefore creating inequality by stealth.
“Higher-income households receive more each year in tax relief than the poorest households do in means-tested benefits, yet only those receiving benefits are stigmatised for relying on the state.”
Britain’s budget deficit peaked at £156bn in the aftermath of the financial crisis of 2007-09, and has since been reduced to just over £20bn in the 2018-19 financial year.
Harrop said: “The government says that cuts to social security are a regrettable consequence of austerity, but almost half the savings since 2012 have been used to raise tax allowances, not reduce the deficit. Politicians should promise to freeze tax-free allowances for at least five years and plough the money back into rescuing social security.”
