IFS: impact of tax and benefit reforms on household incomes

By staff writers
April 27, 2017

The Institute for Fiscal Studies has today (27 April 2017) published a Briefing Note, analysing the impact of tax and benefit changes on household incomes. They look at changes implemented since 2015, and those planned by the current government.

Some key findings are:

The biggest changes to taxes or benefits so far this parliament have been the increases to the income tax personal allowance and the higher rate threshold. They will cost £5 billion per year.

Benefit cuts planned by the current government would significantly reduce the incomes of low-income working-age households, particularly those with children. If implemented, these planned cuts will have a bigger effect on the entitlements of the poorest families than the cuts made by the coalition.  If the cuts were fully in place now, the IFS says nearly 3 million working households with children on tax credits would be an average of £2,500 a year worse off. Larger families would lose more.

The IFS says these large losses for low-income households are largely due to three planned benefit cuts:

Cuts to the generosity of tax credits for families with children – limiting entitlement to two children and removing the ‘family element’. These cuts are expected to reduce government spending by around £5 billion a year in the long run.

The continuing roll-out of Universal Credit, also expected to reduce government spending by around £5 billion a year in the long run.

Maintaining the freeze on most working-age benefit rates until March 2020. Under current inflation forecasts the freeze will reduce the real value of these benefits by five per cent between now and 2020, and reduce government spending by over £3 billion a year.

The IFS stresses that many of the planned changes will not create immediate losses of benefit income, because of protections for existing claimants, but will significantly reduce the generosity of the system in the future.

The IFS will produce further analysis when party manifestos are published.

You can read the full Briefing Note here


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