On St Georges Day, the Chancellor Alistair Darling pledged to compensate some of the key losers from the Government's changes to the tax system, which came into force in April 2008. However, a report published by the Social Market Foundation suggests that any feasible package could only compensate a proportion of those who lost out from the changes.
The report, by SMF Chief Economist
Ian Mulheirn, analyses possible compensation packages, targeting different low-income groups.
- A package which targets young workers, single childless workers, and low-income pensioners, would cover 50%-60% of those affected, but cost about £2.5bn per year.
- A package which focuses on all pensioners and single childless workers would achieve 30% coverage, and cost about £1.5bn per year.
- A package which employed the pensioners’ Winter Fuel Payments, raising the National Minimum Wage for young workers and boosting tax credits for childless single people would be the cheapest option. It could cost somewhere between £500m and £1bn, but would help only 15-20% of those affected.
The full analysis details the various groups who are affected by the changes, and how the Treasury may be able to compensate them.
Update: 28th April 2008
We have produced an updated version of the report, which includes different assumptions for take up of improved Working Tax Credits, and for the likely levels of Winter Fuel Payments.
