Thousands of families will be plunged into poverty if the chancellor cuts national insurance in his spring budget, think tanks have warned.
On Wednesday Jeremy Hunt will deliver his final Budget before the next general election, where he is widely expected to cut taxes as a last resort to win back voters.
Mr Hunt hinted that further national insurance tax relief may be possible. Weather He said in his fall statement in November that his latest contribution was a “milestone” and that he “hoped to make some progress on that journey” on Wednesday.
But now two think tanks have warned the Chancellor against further cuts. They say poor households will benefit little from the tax cut but will experience a sharp decline in the services they rely on.
The Public Policy Institute said an additional 2 per cent cut in the pound sterling would cost the government £10.4bn, with almost half of that going into the pockets of the richest 20 per cent of households and a tiny fraction of 3 per cent going into the pockets of the richest 20 per cent of households. The funding will benefit the poorest 20 percent of families.
The progressive think tank’s analysis also shows disproportionate regional inequality; This means households in London will receive an average of £608, while households in the north-east will earn an average of as little as £342.
The New Economics Foundation (NEF) has warned that even a 1p tax cut, which the treasury is said to be actively considering, would cost the government £4.8bn, with almost half going to the richest households, while the poorest would receive just £160m. .
This means the richest will receive 12 times more than the poorest, with those on the highest incomes receiving an additional income of £424 per year, while those on the lowest incomes will receive £34 per year.
Further analysis by NEF shows that this cut would push a further 55,000 people into relative poverty. If this amount was put into universal credit it could lift 384,000 people out of poverty with an additional income of £720 per year instead.
NEF senior economist Sam Tims said the Chancellor was “pressing for tax cuts that the country doesn’t want and that will benefit those who already have the most”.
“This will not only reduce government revenue in the near future, but will also worsen inequality, making us all poorer and damaging the future of the country.”
He added: “The way to manage our economy responsibly is to borrow money to make smart investments that will strengthen our economy and improve people’s lives. We must raise money by increasing taxes on the richest. “Investing in our schools, hospitals, housing and income safety net provides economic benefits and helps everyone live happier, healthier lives.”
The Chancellor said he hoped to use the budget to “show a path” towards tax cuts, but stressed that tax cuts should be “prudent”.
But the government’s tax cut plans have faced warning from economists who warn of the impact it could have on public services.
The International Monetary Fund (IMF) said tax cuts would be “very difficult to achieve” given the UK’s aging population and growing debt pile, while the Institute for Fiscal Studies (IFS) said the chancellor should not announce tax cuts unless he could provide more details about his spending plans. provide”.
Latest forecasts from the Office for Budget Responsibility (OBR) have given the chancellor less fiscal headroom than previously thought, prompting him to consider unexpected tax increases such as the removal of non-dom tax status.
Deputy director of economic policy and director of the IPPR Center for Economic Justice, Dr. George Dibb said tax cuts were “not in the public interest or in the interest of the economy”.
talk with IndependentDr Dibb said the public did not want tax cuts “because they know they come at the expense of day-to-day public services spending and capital investment for the future”.
“Prioritising taxation above all else is a sign that the government understands that people feel the country is not working.
“But the first manifestation of this is not taxes; It’s the fact that they can’t get a GP appointment or an NHS dentist, or that when you call an ambulance it can take 12 hours to arrive. These are far more pressing things for the average voter than tax bills.
He added: “I think we need to recognize that public services are a fundamental part of the economy and how people feel about the economy and the priority for the country is to invest in them.”
Despite warnings that public services were being squeezed, Mr Hunt argued the government would control public spending to prioritize tax cuts.
The Chancellor told the BBC that he did not believe in “expanding the welfare state indefinitely” because “I don’t think that is compatible with reducing the tax burden in a society where work pays off.”
Last month the left-wing think tank the Resolution Foundation warned that the chancellor’s current spending forecasts meant a 1 per cent increase in daily spending on public services was a “fiscal fiction”.
Given that health, education and defense budgets are all protected, unprotected ministries such as the Ministry of Internal Affairs, the Ministry of Justice and local government will see cuts of 17 per cent per capita by 2028-29, he explained.
Speaking to Times Radio, Mr Hunt said: “It’s wrong to say the only way to improve public services is to put in more money.”
“Whatever the chancellor does in the budget this week, working people will be worse off because of 14 years of Tory failure,” said Darren Jones MP, Labour’s shadow chief secretary to the treasury.
The Liberal Democrats called on Mr Hunt to promise more funding for the NHS and “put health at the heart of the budget”.
Liberal Democrat treasury spokeswoman Sarah Olney MP said: “This chronic neglect of our health services by successive Conservative ministers is creating a sick economy and preventing our great country from reaching its full potential.”
He added: “Jeremy Hunt needs to put health at the heart of the budget and cancel his disastrously short-sighted cuts to NHS spending. “We can’t get the economy firing on all cylinders again without solving the health crisis, tackling the NHS backlog and helping people get back to work. “
A Treasury spokesman said: “This year’s cut to national insurance has saved the average earner £450 a year and we have saved 3 million people from paying tax altogether since 2010. “We will not speculate on whether further tax cuts will be affordable in the next Budget.”