Paul Morrison, Policy Advisor for the Joint Public Issues Team, responds to the budget.
A Budget that will reduce child poverty
The Chancellor has announced that from April next year the two-child limit on benefits will be abolished. This is cause for enormous celebration.
The limit denies means-tested benefits for the third and later children in a family. From the moment it was first proposed, over a decade ago, it has united faith groups, charities, academics and many others to campaign against it.
The rule offends the principle that all children are equally valuable and deserve a decent start in life as well as breaking the vital link between what the benefit system offers a family and its needs. The practical effect, seen by churches up and down the country, has been to increase poverty, hunger and destitution amongst larger families.
The decade long campaign to restore support to third and later children brought together people with lived experience of poverty, community groups, churches, charities and even a former Prime Minister. It is a much-needed example of how people across society can come together to create just and positive change.
4.5 million children are held back by poverty in the UK. Abolishing the rule will provide additional support to approximately 1 million of those children, directly lifting 450,000 children out of poverty by the end of the decade. This means that next year is likely to see the first fall in the number of children experiencing poverty for over ten years.
This represents an investment of around £3Bn a year in the UK’s least well-off children. Families struggling less and seeing more opportunities would be enough of a return on this investment. However, the Methodist charity Action for Children estimates that by reducing child poverty and improving health, education and eventually employment outcomes, the abolition of the two-child rule will more than pay for itself over the long run.
While there is much to celebrate, there remains more to do. In the coming weeks the Government will publish its child poverty strategy. It needs to be bold and ambitious and take seriously the voices of people who experience poverty. The church has long advocated that the benefit system should offer sufficient support that no family need go without essentials – the Budget marks a big step in the right direction, but there is further to go.
A Budget that will increase taxes
The other big story from the Budget was £26Bn of tax rises. £3Bn will go to ending the two-child rule and there are other spending commitments, notably £2Bn to reduce energy bills, which again relatively benefits lower-earning families the most. However, the majority is used to offset the downgrade in productivity forecasts and to increase the Chancellor’s “fiscal headroom”.
The largest tax rise of £13Bn is achieved by freezing the level of earnings at which Income Tax and National Insurance is paid. While the headline rates of tax will stay the same, the tax take will rise as these personal allowances are eaten away by inflation. The effect is to spread the tax rise relatively broadly.
There are a range of other tax-raising measures, some focused on those higher up the income spectrum, such as changing tax relief on a form of pension contribution disproportionately used by high earners, and a Council Tax surcharge on properties valued over £2m. Less noticed have been tax rises focused on less well-off families, such as increasing VAT on some vehicles sold to disabled people, or the freezing of thresholds for repayment of student loans.
The increase in gambling duties is welcome and is predicted to raise around £1.5Bn – half the amount needed to cut the two-child limit – as well as reducing gambling activity in the more harmful online sectors. From the churches’ perspective, a win-win.
A Budget that acknowledges – but doesn’t fix – local government’s financial problems
In the depths of the Budget paperwork there is an acknowledgement of the financial risks carried by local government. While spending pressures in adult social care and special educational needs increased, capped council tax rises and reduced grants from central government reduced revenues. Councils have temporarily been allowed to keep debts related to SEND education off their balance sheets – preventing insolvency for many. The Budget acknowledges these pressures and gives a timeline for addressing them – but crucially we do not yet have a plan of how to do it. It is a start, but for the many families relying on SEND provision or adult social care, it will offer little comfort.
A Budget that will tax wealth (a bit)
Overall, the rises are spread relatively evenly across the income spectrum with tax rises of around 1% of income for most, rising to 1.5% for the highest tenth of earners. The increased spending, especially the abolition of the two-child rule, is focused on the least well-off families in both relative and cash terms.
There have been growing concerns about rising wealth inequality. The Methodist Church signed a pre-Budget letter co-ordinated by the JustMoney Movement calling for the issue to be addressed by fairer taxation of wealth. Some progress was made to equalize the tax rates on dividends and property with taxes on work, but Council Tax, the biggest tax on wealth, remains extraordinarily regressive even after the surcharges are applied.
Overall, it is hard to describe this as a Budget that addresses the growing problem of wealth inequality.
A Budget that brings back faith that our politics can deliver change?
When the public are asked about the state of the nation, their trust in politicians or their faith that our democratic system can offer solutions to today’s problems, the answer is resoundingly negative. The reasons for this negativity are complicated and go well beyond economics. However, when asked, people highlight falling living standards, underfunded public services, unaffordable housing, and the belief that things are not improving.
In terms of tax and spend, £26Bn is a significant amount. However, this was not a big reforming Budget that will alter the structural inequalities of wealth, power and income in the UK, nor are there big advances in housing around the corner. The forecasts show that families are unlikely to see significant improvements in their living standards over the next 5 years – although the change to the two-child rule will make a huge difference for many of the least well-off families.
There are people at the extremes of politics who are promoting quicker and seemingly easier solutions to the economic problems we have, often by offering immigrants or asylum seekers as scapegoats, or abandoning the UK’s international responsibilities. It remains to be seen whether this Budget, and the story told around it, can convince people that our current politics can deliver the changes that people long to see. But we can and should celebrate the changes it will mean for hundreds of thousands of children currently living in poverty.
Image: HM Treasury/Flickr/CC BY-NC-ND 4.0.