Jabs, jobs and tax dodges

Afternoon all,

Looks like we’re running short of rainfall and jobs – our estimate suggests payrolled jobs have fallen by nearly 110,000 in the first four months of the year.

At RF towers, we’ll be taking a step back next Tuesday to consider where the Government’s welfare reforms might be heading. Join us in person or online to consider their impact on employment and poverty.

In the meantime, have a great (sunny!) weekend,

Ruth

Chief Executive
Resolution Foundation

Tax takes. Were taxes more progressive in the 1970s? This blog says no, despite top rates of up to 98 per cent and pop ballads to the contrary. They conclude that the high headline tax rates were an illusion, with high earners treading a plethora of paths to avoid them. One method was ‘benefits in kind’ (remuneration in the form of cars, housing and travel) which were undertaxed or not taxed at all. These approaches mean that despite today’s top rate (45 per cent) being less than half of what it was in the 1970s, income tax now raises about the same (as a percentage of GDP) as it did back then AND the richest pay a higher proportion of it. So, when looking for the best way to tax wealth and redistribute income equitably, the answer is not simply higher rates – it’s expanding the tax base and closing the loopholes (if you thought car-related tax dodges were a 70s relic, think again).

Mothers on the move. Women might now represent a greater share of the labour market than ever before, but we still face structural barriers that limit opportunities and lower wages. This study starts from the widely accepted premise that women commute shorter distances and earn lower wages. The authors linked UK administrative and household survey data to test the relationship between commuting costs, job opportunities, and wages for women, finding that commuting costs are a key piece of this puzzle. Commuting “costs” here aren’t about money, but a constructed wellbeing penalty. The loss of wellbeing experienced by women for a 20km commute is four times higher than it is for men, while mothers experience twice the wellbeing penalty of other women. These costs create a structural disadvantage, pushing women into more concentrated jobs markets. Policy interventions to reduce commuting costs or weaken the relationship between commuting and job opportunities would benefit everyone (including men with lower levels of education) – but especially mothers.

The needle nudge. Remember nudge theory? This paper (non-paywalled version here) is a fascinating reminder of its importance, demonstrating how tweaking the wording of peoples’ vaccine text messages increased their participation. It breaks down the findings from two population-wide studies. Turns out that including the phrase “you’ve reached the top of the queue and are a priority” increased uptake by a whopping… 0.38 percentage points. Ok, it doesn’t sound like an enormous feat, but it works out as 42,000 people protecting themselves from Covid who might not have otherwise. When it comes to managing public health, small cost-neutral tweaks can make a tangible difference at population scale. Also worth noting that the second most effective wording formulation was one emphasising convenience – texts that highlighted the collective social benefits of vaccination (protecting the people close to you) were not especially effective. I guess we all like being told we’re special!

Household incomes in flux. We know that more and more adult children have been living at home with their parents, but it could now be creating a disconnect between *individual income* inequality and *household income* inequality. We know the differences between individual earnings and household income have been important in the UK (not least thanks to this chapter of the Deaton review from our own Mike Brewer). This report investigates trends in inequality in the US since 1980. Individual income and household income inequality were both increasing until 2010, when they started to diverge. While income inequality declined between 2010 and 2022 (the first consistent decrease in decades) household income inequality continued to rise. Nearly half of the disconnect between income inequality and household income inequality is down to young low-paid workers increasingly sharing a roof with their higher-paid parents. In 2019, more than four-in-ten secondary earners in the bottom quarter of the pay distribution were living in households in the top half of the income distribution – and the bulk of earnings from secondary earners now belong to children, having overtaken spousal income. We have found that poorer households in the UK are getting smaller, but increasingly complex, containing multiple generations and family units, so similar trends may be afoot.

Chart of the week

The Government has a welfare trilemma – voter anger over the scaling back of Winter Fuel Payments (WFP), how to stop child poverty from reaching a record high by the end of Parliament, and how to stem the rise in health and disability-related benefit spending. If the aim is to reduce poverty then ambition on the second of these issues is the most critical. The solution is obvious too – scrap the two-child limit on support, lifting around 470,000 children out of poverty at a cost of £3.5 billion a year. But with money tight, the Government is reportedly considering cheaper options. Chart of the Week, taken from new RF research, examines their cost and efficacy. The challenge is that many of the possible solutions create new problems – such as huge negative income shocks if a parent in a large family loses their job, or if a child turns five. In terms of ‘value for money’ fully scrapping the two-child limit is the best option, costing £7,480 per child lifted out of poverty, compared £10,520 if you exempted families with disabled children from the policy. There’s no two ways about it – fully scrapping the two-child limit is the litmus test of whether the Government’s forthcoming child poverty strategy is credible.