Cost of living: ‘Stealthy’ tax and benefit freezes will outweigh tax cuts, say economists | Politics News

The “stealth” freeze to the tax and welfare thresholds would outweigh any benefit people would get from the government’s tax cut plan, economists say.

Prime Minister Kwasi Kwarteng announced a series of measures in his small budget last month, including cutting the basic income tax rate to 1p and reversing the increase to National Insurance, which was introduced at the beginning of the year. this year to pay for health and social care.

But the Institute for Fiscal Studies says a continuous four-year pause on increasing the amount people earn before they pay taxes, as well as a long-term freeze as people move into higher tax brackets, means the government is “putting hands and taking with others”.

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The group also warned of a nine-year freeze as child-benefit operations start hitting households amid a cost-of-living crisis.

The IFS concluded that by 2025-26, the freeze would take away £2 for every £1 issued to households through individual tax cuts outlined by the government.

Tom Waters, a senior research economist at IFS, said: “Really, every part of the tax and benefits system contains allowances, amounts or thresholds that are frozen, often indefinitely. .

“Some are grotesque – Christmas bonuses, paid to pensioners and disability pensioners, have been frozen at £10 since 1977, during which time prices have more than doubled .”

One of the group’s research economists, Tom Wernham, said the freeze “is set to drag millions more people into the tax system and raise tax rates”.

He added: “Giving in one hand and taking the other in this way is not obvious and stealthy – and when inflation fluctuates, the impact can vary greatly from what the government originally intended. .”

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Alex Beer, head of welfare at the Nuffield Foundation, backed the report’s findings and said there is a real human cost to freezing.

The freezing threshold above the benefit cap, she said, “dramatically increases the number of families subject to the cap and reduces the actual amount of support the benefit system provides”.

She added: “Evidence shows that parents are now struggling to meet their children’s basic needs, and that increases maternal mental health and is at risk. affect children’s emotional and physical development.”

“This government is committed to moving towards a high-growth and low-tax economy and helping people keep more of their hard-earned money as a priority,” said a spokesperson for the Treasury Department. seen by our commitments to cancel the increase in national insurance and reduce the base rate of income tax.

“The income tax system is highly progressive. This year, the top 50% of income taxpayers are expected to pay around 92% of total income tax while the bottom 25% are expected to pay only 2%.”

However, the Labor MP and Shadow Economy Minister for the Treasury, Tulip Siddiq, said: “The Tories’ failed economic downturn is affecting people’s pockets.

“Liz Truss has to reverse her government’s pathetic budget now.”