New tax year – Fabian Society report reveals how higher tax allowances entrench inequality

New Fabian Society analysis published to mark the start of the 2019/20 tax year shows how Conservative policies on tax allowances and social security have created a tax and benefit system that provides as much help to rich as poor households. Inequality by Stealth identifies how changes to tax and benefit policies since 2010 have contributed to Britain’s crisis of inequality.

The report finds that working couples now receive much more financial support from the government in tax allowances than the minimum social security available to non-working couples. In the 2019/20 tax year (starting on Saturday 6^th April) a couple who both work full time will benefit from tax-free allowances worth more than £7,000, while the minimum level of universal credit for a couple without work will be less than £6,000.

The report also finds, when looking broadly at all benefits and tax reliefs, that the government now provides more support to the richest fifth of households than to the poorest fifth. The latest ONS data reveals the poorest fifth of households received on average £7,890 per year in benefits and tax reliefs. For the richest fifth of households the value of benefits and tax reliefs is estimated at £8,650 per year (using a cautious methodology).

The UK-wide cost of tax-free allowances for the exchequer was £136bn in the 2018/19 fiscal year, a rise of 43 per cent since 2012/13 in cash terms. By comparison the government spent £94bn on social security for working-age adults and children in Great Britain, a figure that has fallen 0.3 per cent since 2012/13.

The report recommends:

1. Freeze tax-free allowances for 5 years to rescue social security
2. Create a permanent fiscal ‘envelope’ for tax-free allowances and social security combined
3. Consider a basic income instead of tax-free allowances but only alongside other options

Quote:

Andrew Harrop, general secretary, 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 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.”

–ENDS–

NOTES

1. Contact: Rabyah Khan, media and communications manager at the Fabian Society
   0207 227 4906 | 07888861096 | rabyah.khan@fabians.org.uk
2. Inequality by Stealth is available here.
3. This report represents not the collective views of the Fabian Society but only the view of the individual author.
4. Andrew Harrop, general secretary, Fabian Society is available for interview.
5. The Fabian Society is Britain’s oldest political think tank. Founded in 1884, the Society is at the forefront of developing political ideas and public policy on the left. The society is alone among think tanks in being a democratically-constituted membership organisation, with over 7,000 members. It is constitutionally affiliated to the Labour party.