27 Dec 2011
The benefits of tax reforms aimed at helping Britain’s poorest will be wiped out by other changes in the system, it has been reported.
Research by the independent think-tank Resolution Foundation suggests that £1 billion worth of tax cuts coming in from April will be undermined by more than £2.5 billion of reductions to tax credits, which top-up the earnings of low income families.
The study, which was commissioned by The Independent, found the impact of increasing the personal tax allowance, which will go up from £7,475 to £8,105, would be “dwarfed” by reforms elsewhere.
Matthew Whittaker, senior economist at the Resolution Foundation, told The Independent: “April’s personal allowance increase will undoubtedly benefit low-to-middle income workers, but millions of families will find that any gains will be dwarfed by cuts in their tax credits.
“With higher-rate taxpayers also set to gain from the personal allowance increase, the shift from spending on tax credits to reducing income-tax revenues appears an oddly inefficient way for the Government to support the incomes of hard-pressed families.”
James Plunkett, secretary to the foundation’s Commission on Living Standards, told the newspaper: “When it comes to tax credits, 2012 is the year (cuts) bite deepest.
“That means not just a tough year for low-to-middle income families, but also for the UK economy. With these households currently spending every penny they earn, this money will come straight out of tills on the high street.”
Increasing the personal tax allowance is a key Liberal Democrat policy and the party aims to raise the trigger to £10,000 by 2015.