Because more equal societies work better for everyone

Autumn Statement Response

Wednesday, 25 November, 2015

Today’s joint Autumn Statement and Spending Review was touted as one of the most important in years. Planned cuts to tax credits announced in the Budget had led to a series of dire predictions for those on low incomes, and numerous negative headlines. But what was actually announced, and how will it likely affect the UK’s extreme levels of inequality?

Unfortunately, understanding the full effects of Government policies has become harder as, disappointingly, the Treasury has once again failed to provide a distributional analysis. A more rounded account of spending decisions will be provided tomorrow by the IFS, which we will use to update this blog.

In the meantime, we can look at some of the better spending decisions, and some of those that are likely to be more damaging.

The real rabbit from the hat, and the most positive announcement, came from the Chancellor’s decision to reverse plans to cut tax credits. In the short term, some major cuts to tax credits have been shelved with changes to their thresholds and taper rates scrapped. This is unambiguously good news, with many poorer households protected from dramatic cuts to their income. However, cuts to Child Tax Credits removing the basic amount and limiting support to two children have still gone ahead and in the long term, cuts made to Universal Credit in the Summer Budget will reduce the incomes of poorer working families.  There were also additional cuts made to Universal Credit today, which will decrease the amount going to self-employed people.

On tax, the good news is that taxes are to be raised on big business and people buying second homes. The Government has introduced a £3bn apprenticeship levy on big businesses which will help pay for much needed training. They’ve also introduced an extra 3% on stamp duty for people buying second homes or buy to let property. On top of this, the Government has detailed the penalties that it will impose on those who are caught abusing the tax system. People caught by the General Anti-Abuse Rule will have to pay an additional penalty of 60% of tax due.

But it’s not all good news. The government has suggested councils raise Council Tax by 2% to go toward paying for social care rather than providing adequate funds itself. As we have outlined before this is a regressive tax.

Other measures in the Autumn Statement also have implications for inequality. Proposals to limit Housing Benefit to the same level as Local Housing Allowances will mean a reduction of vital support for some of the most vulnerable households who live in social housing. On the other hand the news that part-time students will be able to receive maintenance loans is especially welcome, as they tend to come from lower-income households and it is right that they should receive parity of support with their wealthier peers.

None of the measures in this statement will prove decisive in reducing the extreme inequality that exists in this country, and while overall it seems to represent a step in the right direction from a Summer Budget with dreadful implications for inequality, the devil will be in the detail. We await the IFS’ findings for a full account of its effect on inequality. 

Tim Stacey, Senior Policy and Research Advisor

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