Key Highlights
- Rachel Reeves has raised taxes in her latest Budget.
- The chancellor argues that those with “broadest shoulders” will contribute more.
- New measures such as freezing rail fares and removing costs from domestic electricity bills aim to ease the cost of living squeeze for many families.
- Scrapping the two-child limit on benefits is expected to reduce relative child poverty by 450,000 households over the Parliament term.
- Tax changes will predominantly affect higher-income earners, with lower-income households benefiting more from measures like fuel duty freeze and removal of electricity bill costs.
Rachel Reeves Unveils Her Budget Amidst Economic Challenges
Rachel Reeves, the Chancellor of the Exchequer, has once again raised taxes in her latest Budget. This move comes at a time when the economy is grappling with inflation and rising living costs, making it imperative for the government to address the financial burden on ordinary citizens.
The Winners and Losers: A Financial Analysis
According to the Resolution Foundation think tank, the impact of the Budget will depend significantly on individual household characteristics. While lower-income households are more likely to benefit from certain measures, higher-income households could face greater financial burdens due to new tax and surcharge provisions.
Government Measures Aimed at Alleviating Cost of Living Pressure
The government has introduced several measures designed to ease the cost of living squeeze. These include freezing rail fares in England, removing certain costs from domestic electricity bills, and scrapping the two-child limit on benefits. Such steps are intended to provide some relief to families facing financial hardships.
Impact on Different Income Groups
The Resolution Foundation’s analysis reveals that lower-income households are more likely to benefit financially due to these measures. In contrast, higher-income households could see their income reduced by the introduction of new tax and surcharge provisions. The Institute for Fiscal Studies (IFS) has also analyzed the Budget, finding that by 2030-31, the net impact will be a rise in incomes for the lowest 20% of earners by between £220 to £290, while the top 10% could see their incomes fall by around £700.
Expert Analysis and Broader Economic Context
The Treasury’s analysis suggests that tax measures in the Budget will reduce the incomes of the top 10% of earners by approximately £2,000. Middle earners are projected to lose around £300, while those at the bottom 20% might see their income decrease by about £200. This comes as a result of extending the freeze in personal tax thresholds for an additional three years from 2027-28.
These measures are part of a broader strategy to address inflation and rising living costs, but they also come with potential drawbacks.
The OBR’s latest overall UK growth forecast has been downgraded, projecting average real household disposable incomes (RHDI) per person to grow by just 0.5% annually over the Parliament term. This would make this Parliament one of the worst for income growth on record.
Conclusion
A Mixed Bag for Different Household Sectors
The Budget, while aiming to ease financial pressures for many families, also targets those with higher incomes through new tax and surcharge measures. The overall impact will depend heavily on individual household circumstances. As the economy continues to face challenges, the effectiveness of these measures in alleviating the cost of living squeeze remains to be seen.
“I earn £20,000 and live with my son,” shares a taxpayer impacted by the Budget, “The Budget means we will pay more tax.” This reflects the complex balance between raising revenue for the government and ensuring financial stability for citizens across different income levels.
