Memorandum submitted by the Scotland Office
INQUIRY INTO POVERTY IN SCOTLAND ADDENDUM:
BUDGET 2007 AND POVERTY IN SCOTLAND
INTRODUCTION
1. This addendum notes the implications
for poverty in Scotland as a result of measures set out in the
Chancellor of the Exchequer's Budget in March 2007.
2. Budget 2007 was billed as Building Britain's
long-term future: prosperity and fairness for families. The Budget
reiterated the Government's commitment to promoting fairness alongside
flexibility and enterprise to ensure that everyone can take advantage
of opportunities to fulfil their potential. The Government has
undertaken a comprehensive programme of reform to the tax and
benefit system with the aims of encouraging work and saving, supporting
families, and ensuring security for all in old age. This latest
Budget announced the next stage of these reforms, including removing
the 10 pence starting rate and cutting the basic rate of income
tax from 22 pence to 20 pence in April 2008, alongside increases
to the Child Tax Credit and the threshold for the Working Tax
Credit. Particular measures targeting poverty are as described
in the following paragraphs.
EMPLOYMENT MEASURES
3. The Budget provides further help to lone
parents to stay in employment, by continuing to make In-Work Credit
available to eligible lone parents in the current pilot areas
until June 2008, which will continue to benefit around 7,400 eligible
lone parents in the Edinburgh pilot area.
4. The Budget Introduces a four-week run-on
in entitlement to Working Tax Credit from the day that a previously
eligible claimant ceases to work 16 hours. This reflects the fact
that claimants of Working Tax Credit are now subject to a mandatory
four-week reporting period when they cease work (or experience
other changes in circumstances).
5. The Chancellor outlined his intention
to build on the success of the New Deal for young people (NDYP),
to ensure that opportunities provided continue to match the demands
of the labour market. The impact of measures aimed at improving
New Deal education and training will be assessed. Further, in
order to ensure a smooth transition to work, the Government will
develop and test a set of measures targeted to provide in-work
training through the Train to Gain service.
6. The Chancellor announced local employment
partnerships with large retail employers (Asda, B&Q, Tesco,
Sainsburys and M&S) working in partnership with Jobcentre
Plus at a local level, to help the long-term unemployed and economically
inactive back to work.
7. There will be further improvements to
the administration of Housing Benefit, and the Budget sets out
an intention to reform Housing Benefit subsidy for temporary accommodation.
8. Following the Low Pay Commission recommendations,
the Chancellor announced a raising of the adult rate of the National
Minimum Wage to £5.52 per hour (currently £5.35 per
hour), the youth rate, for workers aged between 18-21, to £4.60
(currently £4.45 per hour) and the development rate, for
16 and 17-year olds, to £3.40 (currently £3.30 per hour);
all from October 2007. Overall this should benefit around 110,000
people on the minimum wage in Scotland.
TAX AND
BENEFIT REFORM
9. This Budget announced the removal of
the starting rate of tax and cutting the basic rate of income
tax from 22 pence to 20 pence in April 2008, creating a simpler
structure of two rates: a 20 pence basic rate and a 40 pence higher
rate. This will benefit around 2.3 million households in Scotland,
with the average household being £100 better off. The basic
rate changes need to be considered along with the increase in
the child element of the Child Tax Credit and/or the increase
in the Working Tax Credit threshold.
10. The Budget announced an increase in
the higher personal allowances for those aged 65 or over by £1,180
above indexation in April 2008, removing 50,000 Scottish pensioners
from paying tax. By April 2011, no pensioner aged 75 or over will
pay any tax until their income reaches £10,000.
11. The Budget announced an increase in
the child element of the Child Tax Credit by £150 a year
above earnings indexation in April 2008, raising the child element
to £2,080 a year. This will be of potential benefit to 222,000
families receiving Child Tax Credit in Scotland.
12. The Chancellor announced an increase
in the threshold for Working Tax Credit by £1,200 to £6,420
in April 2008, further strengthening the incentives to work for
families with children and low-income working households. 500,000
families in Scotland are benefiting from tax credits.
13. The withdrawal rate on tax credits will
be raised by 2% to 39%, helping to retain the current focus of
tax credits.
14. The Chancellor announced an increase
in the weekly rate of Child Benefit for the eldest child to £20
in April 2010, providing support to all families in line with
the principle of progressive universalism. This will benefit the
604,000 families in Scotland who receive Child Benefit.
15. The Chancellor announced an increase
in the annual Individual Savings Accounts investment limit from
April 2008 to £7,200, with an increase in the cash limit
to £3,600, in order to further encourage saving.
Scotland Office
May 2007
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