Poverty and the 2011 Budget

This year’s Budget rightly focused on growth. If we are going to lift people out of poverty we need a strong economy to be able to do it. However, in the meantime it looks like people living in poverty will continue to struggle. The key announcements affecting people in poverty in today’s Budget include:

  • Raising the income tax threshold by £630. This will be worth £126 a year to people paying 20% tax. It will not help all those who are already below the tax threshold. The change also benefits anyone who earns up to £115,000 (with those paying 40% tax gaining £48 a year) rather than being targeted only at those on lower incomes.
    Two other factors will reduce much of the gains from raising personal tax allowances. First, in-work benefits are withdrawn as income rises. Second, the change in the inflation measure to be used in uprating tax thresholds (from the Retail Prices Index to the Consumer Prices Index) is an effective tax increase which will raise £105 million this year, £235 million next year and £630 million the following year. It won’t take too long for this to cancel out the benefits of increasing the personal tax allowance.
  • Youth unemployment. A very welcome £270 million package to help young people into work or training, including 50,000 apprenticeships. This is in addition to £250 million announced in the 2010 Spending Review to pay for 75,000 new adult apprenticeships by 2014–15.
  • A ‘fuel stabiliser’ to help motorists struggling with rising petrol prices. This will help those in poverty who drive cars and will be especially useful in rural areas, where a car is seen as an essential part of a minimum standard of living. However, people in poverty tend to be more reliant on public transport, where prices have continued to rise.
  • The extension of supported mortgage interest is a welcome protection for vulnerable homeowners, but there is a need for a consistent safety net over the longer term. While the new ‘Firstbuy’ scheme will offer a valuable opportunity for 10,000 households, and create new jobs, it won’t help with the serious problems of affordability and volatility in the market. In addition, even low-cost loans to meet the deposit requirements can be problematic with the history of overpricing leading to negative equity in parts of the new build market.
  • It is unclear how the proposed changes to the planning system will work alongside the fundamental system change set out in the Localism Bill. Certainly there is reason to be concerned that new approaches to planning will fail to deliver the supply of new houses that is needed, and risk exacerbating spatial inequality.

However, the big news for poverty was really in last year’s Budget. A whole host of measures will take effect this April, falling heavily on those at the lower end of the income spectrum.

In total, welfare cuts were projected to save the Treasury over £2 billion this year, largely by reducing the incomes of people already in poverty.

This includes:

  • Changing the inflation measure used to uprate benefits, which is likely to erode their value over time compared with earnings (projected to save £1.2 billion this year).
  • Reductions to housing benefit and Local Housing Allowance.
  • Abolishing the ‘health in pregnancy’ grant.
  • Changes to tax credits which together save £1.2 billion. These include increasing the rate at which tax credits are withdrawn, which was calculated last year to wipe out much of the gains of raising the income tax threshold for low-income households.
  • Reducing help with childcare costs, which saves £335 million this year.

On the other hand, the increase in the Child Tax Credit of £150 per year above inflation will also begin this year. This will cost the Treasury £1.2 billion.

The Government states that the combined impact of measures in the 2010 Budget and Spending Review, and the 2011 Budget, is to reduce child poverty by 50,000 in 2011–12 and 2012–13. This is within the margin of error. Earlier forecasts by the IFS predicted that child poverty would fall this year and next year and then increase in 2013–2014, taking it back to 2008–09 levels. As always, the picture for childless adults is much grimmer.

The impact of the big squeeze on local authority budgets is also likely to accelerate this year, both in terms of jobs and services. It seems almost certain that those in poverty will see a reduction in some of the services they rely on. For instance, we already know that some Surestart centres are closing, youth services are being very badly hit and bus routes are under pressure. However, we can also hope that some innovative and more effective ways of meeting people’s needs will emerge.

Today was billed as the Growth Budget. Economists are picking over the detail and debating the macro-economic effects. These are important for poverty. However, the actual impact of higher growth (if it is achieved) on poverty depends on a whole range of micro-level factors. In particular, if jobs are created, what is their quality and what scope is there for those who get work to keep it and to progress? Likewise, how far will those jobs be accessible for parents and other carers?

Alongside efforts to help businesses grow by reducing regulation and improving skills, we would also like to see a big change in the encouragement, support and incentives for businesses to:

  • Create better quality part-time jobs.
  • Create more secure, higher paid and better quality jobs.
  • Develop their staff, create progression routes and use the skills they acquire.
  • Support people to move from the peripheral to the core labour market.

The 21 New Enterprise Zones, revamped Sector Skills Councils, business associations and networks of employers all need to take a lead here. Local, central and devolved governments, alongside Local Enterprise Partnerships, need to facilitate, coordinate and promote this, and look at ways of incentivising the right kind of growth, which generates opportunities for people to escape poverty through decent local jobs.

Article by:
Helen Barnard
Policy and Research Manager
Joseph Rowntree Foundation


~ by jonathanure on March 28, 2011.

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