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Cautious welcomes for the
package of measures designed to help low earners
THE Low Incomes Tax Reform Group (LITRG)
has given a cautious welcome to measures in the Autumn Statement aimed at those
on low incomes.
LITRG Technical Director Robin Williamson commented:- "Headline increases
in the personal allowance do not generally benefit the lower paid as much as the
higher paid. However, the higher benefit awards, reductions in marginal
deduction rates and increases in the living wage also announced today make the
package of changes as a whole more attractive to the lowest earners.
When the personal allowance is increased, those on middle and higher incomes
generally gain more than those on lower incomes. Recipients of means tested
benefits such as Universal Credit benefit still less, because their benefit is
withdrawn as their net income increases. Thus, if (let us assume) the personal
allowance is increased by ?1,000, a basic rate taxpayer who did not claim
means tested benefits gains by ?200, while a Universal Credit claimant would
gain by only ?70 because 65% of their Universal Credit would be clawed back.
(The same does not apply to Tax Credit claimants whose credit is assessed on the
basis of their gross, rather than net of Tax, income.)
Obviously, people whose incomes are so low that they are not subject to Tax at
all see no benefit from increases in the Tax threshold, so other ways must be
found of helping them financially. The increase in the national living wage from
?7.20 to ?7.50 an hour from next April is of course welcome, although smaller
employers must be given plenty of warning about changes to the whole suite of
rates for the national minimum wage and that those new rates also apply from
next April, as they will normally expect rises to happen in October and will
therefore have to prepare more speedily than they would otherwise.
The reduction of the Universal Credit taper rate on earned income from 65% to
63% is a small step in the right direction, in that it not only increases the
Universal Credit received by the claimant, it also reduces the disincentive
faced by those on high marginal deduction rates to make financial progress
through work. If the Government finds itself with more to invest in encouraging
work and in work progression among the low paid, they would do well to consider
reversing earlier cuts to the work allowance, the main work incentive element in
Universal Credit.
Another way of assisting those on incomes below the Tax threshold would be by
raising the personal threshold for NIC to a sum closer to the personal
allowance, while maintaining the lower earnings limit; the point on the income
scale at which workers become entitled to a national insurance record; at the
same level." |
