JRF says parties must revise ways to help low income working families
Published by Brian Church for 24dash.com in Housing and also in Finance
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Well-targeted support through universal credit is the most cost effective way to help low income working families, according to new research backed by the independent Joseph Rowntree Foundation (JRF). This means allowing parents to keep more of what they earn to ensure they fully benefit from future tax cuts.
Currently, a family with two children and both parents working on low wages are £20 a week short of what they need to reach the minimum income standard, a benchmark of minimum living standards set by members of the public. Making up this modest £20 shortfall through tax cuts would cost at least between £8 billion and £11.5bn a year to fund, the report says.
'Wages, taxes and top-ups,' written by Loughborough University’s Donald Hirsch for the JRF, says tax cuts proposed by Labour, Liberal Democrats and the Conservatives at the next election are not a cost effective way of helping low income working families. They will cost the public purse at least three times as much as more targeted policies and fail to help families in greatest need.
Hirsch analysed a range of policy options – including those promoted by the three main parties – to assess their ability to help low income working households.
The paper shows how changes in wages, tax rates and in-work support (such as tax credits) have had a changing influence on family income in recent years. Wage increases have been modest, but in the past 15 years the state has stepped in to give substantial top-ups to working families.
While the parties have introduced and proposed a range of measures to improve the incomes of poorer families - some of which have had impact – the tax proposals would cost far more than they deliver.
For example, the Liberal Democrats and Conservatives have both talked about further rises to the income tax allowance after the election. It would have to be increased to £12,500 to make the family £20 a week better off. This would benefit 24 million basic rate taxpayers, most of them not on low incomes, and cost at least £11.5bn.
Labour has talked about introducing a 10% starting rate of tax. To deliver £20 a week to a working couple would require a starting rate tax band of £5,200, taxed at 10% rather than 20%, which would cost an estimated £11 billion.
The report suggests boosting the support available through in-work benefits to top up low wages and allowing people to keep more of what they earn under universal credit. It adds that "such support needs to sit alongside improved wages as a twin-track approach to improving the incomes of low-earning working families".
The report proposes increasing the amount of earned income that families can keep. At present the amount a family can earn before their entitlement to in-work benefits starts to be withdrawn (the 'work allowance' or 'disregard') is frozen. Allowing the couple to keep an additional £31 a week would deliver the £20 top up for £2bn and benefit four million working families with children. It also calls for governments to make sure low income families do gain fully from future tax cuts.
"The simplest way of doing this would be to increase the amount that can be earned before universal credit entitlement starts to be withdrawn each time the tax allowance increases," it says.