Was this an intergenerationally fair budget for younger generations and should younger generations welcome the announcements made? Read on for IF’s top line response.
This week’s budget was a non-budget really. The Chancellor has “little fiscal headroom” so as expected, a few spending pledges were offered here and there, but the big news was a pre-election tax cut for workers.
Cutting National Insurance Contributions (NICs) – which is an extra tax on earned income – is good for workers. Pensioners do not benefit for two reasons: they are exempt from NICs; and anyway their income tends to come from pensions, interest, dividends and rents. So, whilst the “grey lobby” may argue that they are losing out, it is more true to say that older generations will be winning out a bit less. In any case, thanks to the Triple Lock, the State Pension will increase by more than double the current rate of inflation, with increases of over 10% in 2023 and over 8% in 2024.
If you want to catch up on our other recently published research on taxation, trains over planes, the ageing of the countryside, the lack of young people’s savings or how intergenerational fairness should intersect with the net zero transition, go to our research pages on the website.
Choosing to cut NICs is intergenerationally fair
The Chancellor has two main tax levers – Income Tax and National Insurance Contributions (NICs) with NICs effectively just another tax on income received from work. Progress has been made on aligning the thresholds at which people start to pay the two taxes, with both now levied on annual earnings over £12,570. Reducing NICs is intergenerationally fairer than reducing income tax. Why? NICs are a working-age tax and contributions cease at 65 years of age.
Over-65s will still gain 8% pay rise
Individuals who reach 65 years of age and continue to work as employees will receive an effective 8% pay increase over their younger colleagues from April 2024. If they continue to work as a self-employed individual then they also escape the self-employment NICs rate of 6% that workers below that age have to pay.
If NICs remain under a future administration
Both the Chancellor and the Prime Minister have confirmed an ambition to abolish NICs completely. However if the NICs regime remains, then on intergenerational fairness grounds, and in the light of a rapidly ageing society that will cost more money to care for through increased health and social care spending, IF has long called for NICs to be paid by anyone of any age who works.
Merge NICs with Income Tax
IF believes that on intergenerational equity grounds, unearned income i.e. income that arises from areas other than employment such as from rents, shares, dividends etc should be treated equally by the tax system. As IF’s “Play Fair” report explains, huge amounts of income goes under-taxed because our tax regime focuses too heavily on earned income. Abolishing the system of National Insurance Contributions (NICs) and incorporating the equivalent rates into a unified Income Tax schedule, alongside equalising the taxation levels on all forms of income, would lead to additional annual tax revenue of £30 billion.
Housing
The good news is that there were no further announcements on Stamp Duty Land Tax (SDLT) reliefs to first-time buyers. Experts agree that providing subsidies for first-time-buyers may present well to the public but its effect is to drive up house prices further.
Capital Gains Tax cut
By cutting higher rate Capital Gains Tax on residential property sales – from 28% to 24% – the Chancellor is helping landlords and largely older owners of multiple properties. The Chancellor hopes to stimulate sales and encourage holders of multiple homes to release these properties for sale and increase transactions. Whether such action will release enough property onto the housing market to bring down the cost of buying a home for younger generations is yet to be seen. IF remains sceptical.
There was no good news on increased funds for building more homes for young people facing unprecedented levels of rent and the largest gap between incomes and house prices recorded. Similarly, in spite of a government recognition that the country urgently requires more social homes to rent, the Chancellor chose not to provide any central government help and continue to hand that pressure down to near-bankrupt local government departments who are already having to make historically high spending cuts.
Furthermore, the government chose not to extend the two-year period in which 100% of the cost of a replacement home could be funded through Right to Buy sales receipts. Making this stipulation permanent would have helped local authorities to replace social housing lost through Right to Buy. Instead, the government decided to increase the permanent cap, which was in place before 2022/23, from 40% to 50%.
Fossil fuels continue
Nuclear
Future generations will not welcome the government ambition to provide 25% of the country’s energy by 2050 using modular nuclear reactors. Nuclear has been rebranded as “green” and “zero carbon” for generations today in spite of its toxic legacy for generations to come. Furthermore, the costs are eyewatering. The decision to proceed with Hinkley Point C back in 2016, dubbed “the most expensive building on earth” was estimated to cost around £25bn. That cost has now increased to £34bn, which future generations will have to pay for, along with the legacy of toxic waste endangering generations to come. You can read more about IF’s position on why nuclear energy is an intergenerational issue in our Toxic Time Capsule report.
North sea oil and gas
More bad news for younger and future generations with the government’s continuing commitment to encourage further North Sea oil and gas exploration which has obvious negative implications for younger and future generations. IF has previously written about how the cost of companies escaping their de-commissioning responsibilities for existing redundant oil and gas infrastructure is being passed on to younger and future generations in our Rigged report here.
Fuel Duty
The decision to freeze Fuel Duty largely benefits older wealthier people and discourages a modal shift to cleaner, greener transport. Young people increasingly cannot afford the cost of learning to drive, buying, insuring and running a vehicle, with insurance premiums for under-25s running to thousands of pounds.
Air Passenger Duty
While the government has announced that non-economy passengers will have to pay more Air Passenger Duty (APD), continuing to encourage and subsidise fossil-fuelled aviation over less environmentally damaging rail is an intergenerational sleight of hand. France has already banned domestic air travel where there is an equivalent rail journey of under 2.5 hours. Spain has followed suit. IF has argued that, on intergenerational justice grounds, the government should transfer aviation subsidies over to rail for mainland domestic travel, which would result in lower rail prices and encourage a modal shift to greener transport with similar journey times from city centre to city centre. You can read IF’s Trains over planes report here.
Children?
Childcare
More money for more free childcare places is welcome. The issue remains that too many families still cannot access childcare provision due to a lack of staff. While the Chancellor insists that plans are “on track” to extend the offer to 30 hours for all children over 5 years of age, young families require greater government investment in order to be able return to the labour market and contribute to growing the country’s economy.
Child Benefit
While we welcome the Chancellor’s decision to remove the unfairness in The High Income Child Benefit Charge in that a household with one parent earning more than £50,000 a year would see some or all of the benefit withdrawn, whereas two parents each earning £49,000 will receive the benefit in full, IF argues that with 1 million children experiencing destitution in 2022 and 4.2 million growing up in poverty, funds should have been better targeted at those families at the bottom of the income distribution, especially the 87,000 children currently living in temporary accommodation.
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