Unfreezing working age benefits next year and rebooting Universal Credit would provide a much needed living standards boost to young families as the majority of gains would go to millennials, according to a new report published today (Friday) by the Resolution Foundation.
With the Chancellor under pressure to deliver an Autumn Budget that addresses the poor economic prospects facing young people, the report analyses some of the tax and benefit options suggested or available to the Chancellor.
One idea put forward in recent weeks, including by Conservative MP Nadim Zahawi, has been a new lower basic rate of income tax for the young. The report considers reducing the basic rate to 15 per cent for the under-30s and finds that it would cost £3.2bn by 2021-22.
The Foundation says that such a tax cut is a bad idea because it is expensive, highly regressive and adds complexity to the tax code. The richest ten per cent of twenty-somethings would benefit over twice as much as the poorest 50 per cent of this age group combined.
Rather than add new age-related inequalities into the tax system, the Foundation says the Chancellor should instead tackle existing ones by making workers of all ages pay the same National Insurance Contributions (NICs). Removing the exemption from employee and self-employed NICs for workers at or above the State Pension Age would raise around £1bn a year by 2021-22.
The report notes that the Chancellor is unlikely to want to return to controversial NICs reforms, having u-turned on a change for the self-employed in the March Budget. However, equalising the tax treatment of workers of different ages is progressive as four-fifths of the revenues would come from the richest fifth of pensioners, with most unaffected.
The Foundation says that any available spending should help fund a major living standards boost for younger families. That could include unfreezing working age benefits and reversing cuts to Universal Credit.
The report finds that 56 per cent of the gains from unfreezing working age benefits next April would go to millennials, with a low-income family with two children gaining £315a year. The policy would cost £1.9bn in 2018-19.
The Chancellor could also support young families by restoring work allowances in Universal Credit back to pre-2016 levels for those with children, at a cost of £2.1bn. Around half (49 per cent) of the gains would go to millennials.
The report also considers further reducing the taper in Universal Credit, building on the reduction from 65 per cent to 63 per cent in the in 2016 Autumn Statement. Lowering it further still to 60 per cent would cost around £1.2bn, with 62 per cent of the gains going to millennials.
Some combination of such changes would avoid a big political challenge for the government, as the current welfare cuts are set to hit millennial households just at the point that many of them enter the expensive early phase of parenthood.
Further funds for these policies could be found by freezing income tax thresholds once manifesto commitments have been reached. The Foundation says that the Chancellor should also make a bold new housing offer as the centrepiece of his Budget. This will be explored in a wider RF pre-Budget briefing on Monday.
Laura Gardiner, Senior Policy Analyst at the Resolution Foundation, said:
“In recent weeks the Budget run-in has focused on a looming economic downgrade and preparations for Brexit. But the Chancellor should remember the bigger picture and deliver a Budget that tackles one of the biggest challenges Britain faces – our failure to deliver living standards progress for young people today.
“Action to address Britain’s housing crisis should form the centrepiece of the Budget. On the bread-and-butter issue of tax and benefit changes, the Chancellor should reverse a trend of recent years by making young low-income families the main beneficiaries.
“The Chancellor should avoid ill-advised tax cuts for the young. Instead he should remove existing age-related tax inequalities to help fund the unfreezing of working age benefits next year and reboot Universal Credit.
“This would deliver a direct living standards boost and show where the government’s priorities are in terms of supporting millennials just as many of them enter the particularly expensive early stages of parenthood.”
Notes to Editors
- The call to cut taxes for the under-30s has been put forward by Conservative MP Nadhim Zahawi.
- Embargoed copies of A Budget for intergenerational fairness are available from the press office.