Jeremy Hunt’s tax cuts are a ‘wasted opportunity to support those who need it most’

Wednesday’s budget saw chancellor Jeremy Hunt cut taxes, including national insurance contributions to the tune of £9bn – quite the splurge at a time when public services are under such extraordinary pressure.

For a high earning couple this is a nice little give away, just over £1,500 per year. However, our analysis shows that just 3% of the gains will go to the poorest, while the richest fifth of households will hoover up around 46%. This was by-and-large a move which bolsters the finances of the better off.  

But what was on the table for lower income households?  

Thankfully, and after some apparent wavering, the government saw sense and took action both to uprate social security by an appropriate level of inflation and to increase housing support for private renters after a three-year freeze. We welcome those measures, though on both counts there is more than meets the eye.  

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Firstly, in the past couple of years the government introduced emergency cost of living payments worth £900 per household for low-income households – the withdrawal of these payments mean that even with uprating, many households will see their annual income fall overall, despite facing ever higher prices. Just because inflation is slowing doesn’t mean prices have fallen – nor are they expected to in future.  This really hasn’t been talked about enough, but for many there is a cliff edge in support.  

Secondly, the “thawing” out of housing support, making 30 per cent of private rents in a local area affordable under housing allowances, is a temporary fix – with levels of housing support expected to drift once again from reality from 2025. Even when housing support was last increased in April 2020, 560,000 households continued to face shortfalls in support, which invariably eats into household budgets intended for other essentials and creates a risk of homelessness.  

So despite this (welcome) tinkering our system fails to deliver affordable housing for many, and this goes beyond any one government department. To begin to fix it, we should cap rent rises and widen the scope of homes affordable under our housing support scheme in the short-term, while in the longer-term we need robust plans to expand the amount of social housing to insulate people on low incomes from the insecurity of the private rental market altogether.  

Behind Wednesday’s tax-cutting announcement (beyond an electoral bribe for Middle England) is an anxiety to improve work incentives, making sure people are meaningfully better off in work to try and increase employment rates. If the government was serious about this, it could do much worse than to look how benefits are withdrawn as people increase their earnings, so-called “taper rates”. These see 55p taken away for every pound a household earns beyond certain small allowances. It works very much like an additional tax on the lowest earners, and yet minsters would be mortified if the average worker were subject to these sorts of rates. Cutting these taper rates and increasing work allowances so that people keep some of their support as they move into work would offer much better targeted support.   

And of course not everyone can work, including due to long-term sickness and disability. Announcements around personalised support for disabled people could be genuinely transformative, recognising the need for specialist support which people with health conditions can engage with if and when they want to. 

However alongside this the government is planning to toughen up conditions for claiming. This week’s plans to reform the fit for work test will mean that from 2025, people with health conditions applying for universal credit will not be protected from requirements and sanctions if their assessor considers that they could work from home. They’ll also lose out on thousands of pounds of support   compared to what they’d have previously received. The reforms are predicated on the idea that everyone can work from home – but home-working and other forms of flexibility is still relatively uncommon in lower-paid work.   

Overall, the government needed to go further for those on low incomes and this tax cut was far from the best use of £9bn – a wasted opportunity to support those who need it the most as we get into the depths of winter.  

Henry Parkes is the principal economist and head of quantitative research at the Institute for Public Policy Research.