Overnight analysis by the Resolution Foundation think-tank found that poorest families end up around £90 a year better off, but wealthy pensioners were the worst hit by Rachel Reeves’ measures
Poorer working age families were the biggest winners from Rachel Reeves’ Budget – while rich pensioners fared worst, overnight analysis shows.
Economists from the Resolution Foundation found the poorest families gained £90 a year on average, while the richest half will lose around £1,000. But poorer pensioners lost an average of £220, while richer OAPs will be £680 worse off under Ms Reeves’ measures.
Analysists found that by refusing to raise income tax by 1p – as was hinted in the build-up to the Budget – people who earn less than £35,000 will be worse off.
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Ms Reeves came under fire after freezing income tax thresholds instead – meaning people will pay more tax as their wages go up. The Resolution Foundation analysis found all but the top 10% of highest earners are worse off because of the threshold freeze rather than a rate rise.
It did, however, say that three in five families who will benefit from the two-child benefit limit include at least one person in work. Overall, 560,000 families will gain an average of £5,310 in 2029-30, the think-tank found.
Ruth Curtice, Chief Executive of the Resolution Foundation, said: “The Chancellor needed to clear three crucial hurdles in her Budget – to ease cost of living pressures, tax smartly and repair the public finances.
“The Chancellor was front-footed – and front-loaded – on cost of living support. Over half a million larger families will get a major income boost next spring, while typical energy bills will be cut by around £130 annually for the next three years, though support then fades away.
“Sensible tax reforms will also help to level up the tax treatment of income. But, ironically, sticking to her manifesto tax pledge has cost millions of low-to-middle earners, who would have been better off with their tax rates rising than their thresholds being frozen.”
The analysis also found pre-election austerity has been pencilled in – with Whitehall departments like the Home Office and Ministry of Justice, as well as local government likely to be hardest hit. The Foundation said: “The departmental spending cuts announced in 2029-30, coupled with the Government’s commitment to raise health and defence spending and protect per pupil school funding, imply £6.4 billion of cuts to other departments like the Home Office, Justice and local government.”
Cuts of this size would be equivalent to 88% of the average annual cuts made during the austerity years, it found. Meanwhile nearly three-quarters of the £77billion of extra tax over the next five years is coming after April 2029, with £26 billion in 2029-30 alone.
It also found that debt is rising in the period by 2031. Mr Curtice said: “By more than doubling the headroom against her fiscal rules, the Chancellor has taken steps to repair the public finances, too. But appearances can be deceiving. Debt is up and most of the fiscal repair job has been put on hold for three years.
“One hurdle that remains to be cleared is boosting growth – which has been downgraded by the OBR, along with the outlook for living standards. Until that challenge is taken on, we can expect plenty more bracing Budgets.”