This week saw the chancellor, Rachel Reeves, deliver her budget, setting out the government’s financial choices for the coming months and years. It’s an opportunity to make investments, change taxes, and set a direction for the country.
UNISON had three big asks for this budget:
- End the two-child benefit cap and lift thousands of children out of poverty;
- Introduce wealth taxes so that those with the broadest shoulders contribute their fair share;
- Invest in public services.
So how did the budget measure up?
Child poverty – 10/10
The chancellor announced the end of the two-child limit, meaning low-income families can receive the child element of Universal Credit for all children regardless of family size.
This is worthy of huge celebration. The two-child limit was a cruel policy brought in by the Conservative government and was responsible for pushing hundreds of thousands of kids into poverty. In just one policy change, 450,000 children will be lifted out of poverty.
As Rachel Reeves said in her budget speech, this will be the “biggest reduction in child poverty over a parliament since records began” and a record that this Labour government – and our union’s role in it – can and should be proud of.
Wealth taxes – 4/10
This was a tax-raising budget, increasing the revenues from taxation by £26 billion.
Some of this does come from new wealth taxes. For example, the so-called ‘mansion tax’ will see a higher band of council tax on homes worth over £2 million. The tax rates on income from dividends and property, impacting landlords and investors, will also be going up by two percentage points.
However, this only contributes a very small proportion of the £26 billion being raised. The mansion tax will raise just £0.4 billion and the tax on landlords and investors will raise £2.1 billion.
Compare this to the amount being raised from the announcement that personal tax thresholds will be frozen for an extra three years – something she promised not to do when she ended the freeze at the last budget. This measure is expected to raise a whopping £8.3 billion – and mostly from the pay packets of ordinary working people.
Freezing tax thresholds sounds very technical, but the simple explanation is that while inflation means wages increase (albeit at a slower pace than prices), the different rates of tax stay the same. It means the personal allowance, the first £12,570 of earnings that you don’t pay any income tax on, is worth less and less each year, and that more people will be pulled up into paying tax for the first time or paying a higher rate than they did before.
According to the Office for Budget Responsibility (OBR), the freeze in tax thresholds will result in 780,000 people being dragged into paying income tax for the first time. This will also see public service workers like nurses, paramedics and social workers paying the higher rate of tax – the same tax bracket where you might find CEOs and corporate lawyers.
UNISON would have done things differently. We have long called for the end of the threshold freeze, and advocated for wealth taxes instead which would levy 1% annually on wealth over £5 million – raising over £10 billion. Instead of tinkering at the edges of council tax, UNISON has long called for full reform to what is a broken and regressive system.
Yesterday’s budget was a start, but the government must go further and faster.
Invest in public services – 6/10
It is refreshing, after 14 years of Conservative austerity, to hear a chancellor make the positive case for investment in public services and to publicly denounce austerity and the damage it has done.
Some welcome additional investments were announced: £5 million for libraries in secondary schools, £18 million to upgrade playgrounds, £300 million in NHS technology to improve patient services, 250 new neighbourhood health centres; ‘efficiency savings’ in the NHS will be reinvested, not used to plug other gaps in the finances.
There was also additional funding announced for Wales, Scotland and Northern Ireland to invest in their public services, along with £13 billion funding for mayors to invest in their regions.
However, every public service still faces major financial challenges. Local authorities are under particularly severe financial strain. Some have already issued section 114 notices and many more are teetering on the brink. UNISON will keep making the case for urgent, long-term investment at the next spending review.
Will I be better off after this budget?
Whether you are better off after this budget depends on your individual circumstances. If you have more than two children and claim Universal Credit, you will see a big increase in what you’re eligible for next year, which should leave you and your family feeling significantly better off.
There are other measures that might have a positive impact on your household budgets too. The minimum wage has gone up for everyone, with a particular increase for under-21s. Action has been taken to cut your energy bills, saving households an average of £150 per year by shifting the environmental levies to the government rather than the billpayer.
Train fares have also been frozen for the first time in 30 years. These will all help lower inflation, which hopefully leads to the Bank of England reducing its interest rates and making mortgage payments more affordable.
However, tax changes will impact your take-home pay. Analysis shows that the average worker earning £39,000 a year will pay an extra £730 in income tax and national insurance over the next five years. Freezing personal income tax thresholds disproportionately impacts lower and middle-income workers.
How you pay into your pension may also have an impact. Most public sector workers won’t be affected by changes announced in the budget, but if you are in a salary sacrifice scheme you may face higher income tax and national insurance contributions if you save over £2,000 a year. At the top end of the salary scale, this helps close a loophole that was used by higher earners to pay less tax, but it may have consequences for middle and lower earners too.
Overall, the outlook for the cost of living isn’t good news. The OBR downgraded its outlook, meaning it expects people to have less disposable income than they’d previously anticipated. And the outlook for growth has been lowered too, with the economy predicted to grow at a slower rate than previously expected.
At UNISON, we are clear that investment in public services is key to achieving this growth. The funding of strong public services is a platform for the economy’s success. A well-funded public sector can turn its focus from survival to driving productivity, getting people back to work, innovating, and tackling the big issues like climate change and child poverty.
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