Richest households lose from 45p U-turn, but are still set to gain almost 40 times as much from tax cuts as poorer families

The richest 5 per cent of households still stand to gain £3,500 on average next year from the tax cuts announced in the Chancellor’s recent Fiscal Statement – almost 40 times as much as the average £90 cash gain for the poorest fifth of households – despite the decision to scrap the abolition of the 45p tax rate, the Resolution Foundation said today (Monday).

New Resolution Foundation analysis of where today’s U-turn leaves the distribution of gains from the Chancellor’s recent package of tax cuts – which include abolishing the Health and Social Care Levy, reducing the basic rate of income tax by 1p, and reversing the recent rise in dividend tax – shows:

• Smaller tax cuts at the top. Scrapping the abolition of the 45p tax rate removes 62 per cent of the cash gains going to the richest 5 per cent of households, and 54 per cent of the gains going to the richest 10 per cent.
• Still a very regressive policy package. A quarter of the cash gains from the remaining tax cuts package are going to the richest 5 per cent of households – far more than the 16 per cent of cash gains spread across the entire bottom half of the income distribution.
• Richest households will gain almost 40 times as much as poorer families. The top 5 per cent of households are still set to gain £3,500 on average next year from the remaining tax cuts, compared to just £90 on average for the poorest fifth of households.
• Chancellor still has tough choices to make before 23 November. The remaining £43 billion of unfunded tax cuts still leave the Chancellor on course to miss his fiscal target of having debt falling in the medium-term. Unless further U-turns are made, the Chancellor will need to announce significant spending cuts on 23 November. The scale of those spending cuts is largely unchanged by today’s U-turn.

Lalitha Try, Researcher at the Resolution Foundation, said:

“The welcome decision this morning to scrap the abolition of the 45p tax rate has made the Chancellor’s package of tax cuts less focused on the very richest households. But the top are still the main winners, and the scale of spending cuts required to pay for them is largely unaffected.

“Despite today’s U-turn, the richest 5 per cent of households still stand to gain far more than the entire bottom half of the income distribution combined.

“The Chancellor remains wildly off-course in meeting his fiscal target of having debt falling in the medium-term, and is on course to announce significant new spending cuts on 23 November as a result.”