The Observer view on changes to tax and benefits | Observer editorial

Theresa May has now broken her promise to create a fairer country for all

Theresa May has left no doubt about her domestic priorities for Britain in the wake of Brexit. “We all want a country that is fairer so that everyone has the chance to succeed,” she told MPs on 29 March in her Commons statement announcing the triggering of article 50. She has repeatedly emphasised that hers will be a government that looks out for ordinary working families; that tries to heal some of the divisions and resentments that made themselves so keenly felt in the referendum campaign.

But this week her government will preside over its first changes to the tax and benefit system since she became prime minister. It is a set of changes with huge distributional consequences: tax credit and benefit cuts will mean low-income working families with children will become significantly worse off, while wealthier families stand to gain as a result of increases in the personal allowance and higher rate threshold.

New analysis by the Resolution Foundation shows four fifths of the gains from income tax cuts go to the most affluent half of households, while the poorest third of households will shoulder two-thirds of the government’s benefit cuts. It is an extraordinary indictment on a government that claims to have fairness at its heart. These changes were set in train by former chancellor George Osborne. But his successor, Philip Hammond, has enthusiastically embraced Osbornomics, leaving in place a set of changes that will be the most unfair yet since 2010. From 6 April, all working-age benefits and tax credits will be frozen, their real value eaten away by rising inflation. The tax credit system will overnight become much harsher for new claimants with children, and new benefits claimants with disabilities will find themselves up to £1,500 a year worse off as a result of cuts to employment support allowance.

Analysis from the Institute for Fiscal Studies (IFS) shows that it is low-income families with children who stand to lose by far the most from these changes. The poorest fifth of working-age households with children will be more than £3,000 worse off on average a year by 2020 as a result of tax and benefit changes since 2015; some of the most affluent working-age households with children will find themselves £500 a year on average better off. The government is, in effect, creating a much meaner benefits system for low-income working families, and using the savings to pay for significant tax cuts for businesses and more affluent families.

The government would argue that it is supporting low-income working families through increasing the statutory minimum wage, which on 1 April increased by 30p an hour for workers aged 25 and over. But tax credit and benefit cuts far outweigh any gains from this increase for minimum-wage workers with children.

For those earning just above the minimum, the news is grimmer still: the IFS has estimated that median earnings will be no higher in 2022 than they were in 2007, before the financial crisis, a situation it describes as “completely unprecedented”. Child poverty rates are now at their highest levels since 2010, and two-thirds of children living in poverty are in working families. These figures will only increase as a result of the government’s changes.

This reality makes a ridicule of May’s claim to represent the interests of families just managing to get by. Nothing could be further from the truth: not just in relation to the government’s tax-benefit changes, but across every area of domestic policy. Her government has done little to challenge the escalating costs of living for families: it has shied away from introducing tougher price regulation to curb the profits of the big six energy companies, and defended expensive housing subsidises that have helped people get on the housing ladder who could have afforded it anyway, while failing to introduce longer-term tenancies and rent controls for families renting privately. A lack of funding for social care means a two-tier system is opening up, with considerably fewer older people of modest means qualifying for support with their care; schools in some of the least affluent areas of the country are facing eye-watering cuts in their per-pupil funding; and local government cuts have forced councils in poorer areas to cut spending on local services by vastly more than those in more affluent areas.

The government hides behind the fallacy that these are necessary cuts, forced by the state of public finances. But make no mistake: they are a choice. Conservative chancellors since 2010 will have cut taxes to the tune of £40bn a year by 2020. Hammond has had more than one opportunity to halt further tax cuts and use the proceeds to cushion the blow of tax credit cuts for working families. He has not. That tells us all we need to know about this government’s priorities.


Observer editorial

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