The new Conservative government has grabbed headlines with an array of tax cuts, including the reversal of the National Insurance rise introduced by Boris Johnson and a reduction in the basic rate of income tax from 20p to 19p.
Yet these policies have masked the fact the Truss government’s new economic policies are set to make the average household significantly worse off, according to new analysis from the Institute for Fiscal Studies (IFS).
Freezes in personal tax brackets and in benefits, as well as other policies, are set to reduce average household income by £1,450 by 2025/26. This will cost UK households around £41bn in total, or more than double the £20bn gain in household income from tax cuts. In other words, for every £1 saved by tax cuts, an extra £2 is set to be lost.
The freezing of benefits and tax thresholds is having such a high impact at present due to high inflation (which stands at 9.9 per cent). The freezing of the £50,000 threshold at which child benefit begins to be withdrawn, for example, has led to the number of families now losing child benefit doubling compared to when the threshold was first introduced a decade ago.
The net impact of the Truss government’s economic measures is also “broadly regressive”, says the IFS, with the incomes of the poorest falling by 2.8 per cent, and those of the richest by only 1.1 per cent.
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