The Budget contains little to excite those on middle incomes

Despite the talk of letting people keep more of what they earn and what they save, today’s budget contained little to excite those on low to middle incomes. The government’s policy of increasing the income tax personal allowance above inflation has consistently been sold as a low-earner tax cut. But in reality, today’s announcement of a further increase to £10,500 next year will provide a straight cash gain of £62 for all but the very highest earning taxpayers, with the five million or so lowest paid seeing no benefit because they don’t earn enough to pay income tax. In total, around three-quarters of the cash giveaway goes to households in the top half of the income distribution and just 1% of the cost of the policy is actually spent on lifting people out of income tax.

At a cost of £1.4bn and with the deficit still topping £100bn, the decision to again prioritise raising the tax allowance appears odd. If a tax cut was deemed necessary, then working towards realigning the national insurance threshold with the income tax allowance would have been less regressive and a more sensible reform. Better still, spending an equivalent amount on increasing work allowances – the amount that someone can earn before the support they receive from universal credit is withdrawn – would be much more targeted at those on low to middle incomes, helping to boost work incentives.

Scrapping the 10p rate on savings income will help some, though many working-age families will find that they either earn too much or have too little in savings to be affected. The most welcome bit of budget news for those on low to middle incomes was the decision to change the government’s childcare support plans to offer more generous help to families eligible for universal credit in which both parents work. This change should mean that up to 900,000 low-income working families who would have missed out under previous plans will now be eligible for 85% rather than 70% childcare support. Unlike the much heralded tax-free childcare scheme, this could mean a gain of £1,000 in childcare support for some poorer working families. Unfortunately it doesn’t start until 2017.

This article originally appeared in the Guardian’s Comment is Free section.