Budget 2017: struggling families will wonder what has changed

22 Nov 17

Philip Hammond’s changes to tax, benefits and housing don’t add up to much for hard-pressed families, argues the JRF’s Katie Schmuecker

In his Budget speech, the chancellor talked about understanding “the frustration of families where real incomes are under pressure”, yet his announcements did little to relieve their frustrations.  There are two main ways he could have done this: through the support offered through the social security system and through the supply of more genuinely affordable homes.

However, looking across the big spending commitments the government made – whether it’s cutting stamp duty for first time buyers, or raising the income tax threshold and the higher rate allowance – they favour higher earning households.

Some small steps were taken that will help. For example there were measures to ease the six week wait that many people face when they move onto universal credit – the new working-age benefits system currently being rolled out. The abolition of seven waiting days before people are eligible to claim the benefit is most certainly welcome. The move to allow larger benefit advances will help people get through the five week wait that remains, but will see people starting their universal credit claim in debt. And while the chancellor heralded it as a £1.5bn package for universal credit, the Budget detail reveals it’s spread over six years.

What is more, he failed to address the major cuts to the benefits system that are eating into incomes and damaging living standards. JRF analysis shows the four-year freeze on most working-age benefits will result in almost half a million additional people experiencing poverty in 2020. This is because benefits are frozen at a time when inflation is high and wages aren’t keeping pace. As the freeze applies to benefits for people in work as well as those out of work, 85% of those pushed into poverty are estimated to be in working households.

Increasing the personal tax allowance is often highlighted by the government as a measure to help low earners, but the help is incredibly poorly targeted. Just £1 in every £6 spent on this policy goes to the bottom half of the income distribution, let alone the poorest. The latest OBR estimate is that it will cost £1.4bn in 2020 to meet the government’s pledge to raise the personal tax allowance to £12,500 and the higher rate threshold to £50,000. To help low-income working people that money would be far more effectively spent on enabling people to keep more of what they earn by increasing the work allowances in universal credit. 

On housing there were multiple measures intended to increase supply, but the detail on delivering more genuinely affordable homes was missing. To meet need, England must build 80,000 genuinely affordable homes per year. Lifting the Housing Revenue Account (HRA) borrowing cap in areas of high demand takes us a little way in this direction but is a far cry from the ambition needed. It is estimated that entirely lifting the HRA borrowing cap would only enable around 15,000 homes per year to be built. Even when combined with the additional social housing announced at the Conservative party conference we remain a long way short of what is needed. Communities secretary Sajid Javid is due to follow up with more detail in due course. This along with the social housing green paper will be opportunities to make sure the policy detail matches the policy aspiration.

Some of the measures announced could make a difference in the long term, but in the short term struggling families will continue to face pressure on their budget – and wonder if anything much has changed.

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