Commenting on the budget, Fabian Society Research Director Tim Horton noted that what sounds a relatively technical change in how benefits were uprated - using Consumer Price Inflation rather than Retail Price Index - would be a major "stealth cut", saving £6 billion on benefits but significantly increasing income inequality, as those on benefits fall further behind average earnings. It has the potential to be the the most significant welfare change in the budget in the long-term.
On the changes to benefit uprating
“Over the long term, perhaps the most significant welfare change in the budget is the announcement that in future benefits and tax credits will be uprated annually only in line with Consumer Price Inflation rather than Retail Price Inflation.
“The impact from one year to the next won’t be huge, but played out over many years this will have a dramatic effect in increasing inequality in society – just as it did in the 1980s, when Margaret Thatcher broke the earnings link for many benefits.
“Many low-income households are reliant on benefits and tax credits for a significant proportion of their income. Reducing the rate at which these benefits increase means the income of the poorest households will fall further and further behind everyone else.”
On the tax changes
“The increase in the income tax threshold will do nothing for the millions who don’t earn enough to pay income tax. Three million households in the poorest quarter of the population will see no gain at all from this tax cut – including pensioners, the sick, the unemployed and parents in low-paid part-time work. Yet all these groups will be hammered by the VAT increase.
“To cut income tax, a progressive tax, while increasing VAT, a regressive tax, is unjustifiable. It runs completely counter to the Lib Dems’ stated ambition of a fairer tax system.”
On asset-based welfare
“In two months, the coalition government have dealt a killer blow to the agenda of spreading assets to more people in society, scrapping the Child Trust Fund and now scrapping the extension of the Savings Gateway – a scheme that incentivises low-income households to build up more savings.
“The government say they want people on low incomes to take responsibility and build up savings, but at the same time are scrapping the measures to encourage them to do this.”
Comments from Tim Horton, research director of the Fabian Society.