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Kwarteng tax cut likely to give lowest paid just 63p a month, says IFS | Tax and spending

The lowest-paid workers stand to gain just 63p a month while the richest could get back £150 a month from tax cuts likely to be outlined by the chancellor, Kwasi Kwarteng, this week, analysis has found.

The Institute for Fiscal Studies (IFS) has produced data suggesting the full reversal of the rise in national insurance is likely to benefit most those who earn more than £100,000, and will barely help the poorest 3m households.

Those in households with the average UK household income of £31,400 will save about £20 a month, while households with an income of £55,000 will save about £58 a month, according to the IFS analysis.

Tom Waters, a senior research economist at the IFS, told the Times: “Reversing the recent NICs rise would tend to benefit richer households more than poorer ones, even as a share of their income; the richest 10th, for example, would gain about £1,800 per year, or 1.7% of their income, and the poorest tenth about £7 per year, less than 0.1% of their income.

“That’s partly just a natural consequence of the existing tax system: those towards the bottom of the income distribution don’t pay much in direct taxes, and so it’s hard to cut taxes in a way that makes a big difference to them.

“That said, there are more progressive ways to cut tax – raising the income tax personal allowance, for example, which is currently due to be frozen in cash terms until March 2025. Tax cuts along these lines, including a NICs cut, would, of course, strengthen incentives for people to move into work.”

Kwarteng is expected to announce a reversal of the 1.25 percentage point rise in national insurance at the mini-budget on Friday, and could unveil further tax cuts such as a future reduction in income tax by 1p or even 2p.

He is expected to present his plans without any independent analysis of how this will affect the national finances or how it will be paid for.

Kwarteng and Liz Truss, the prime minister, have also been looking at new low-tax “investment zones” as part of their drive to promote growth at all costs.

SOURCE: https://www.theguardian.com/politics/2022/sep/19/kwarteng-tax-cut-likely-to-give-lowest-paid-just-63p-a-month-says-ifs

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