Select Committee on Treasury First Special Report



  • ANNEX B: EFFECTS OF DIRECT TAX AND BENEFIT CHANGES IN THE 2008 PRE-BUDGET REPORT AND BUDGET 2007
  • This annex shows the combined effects of the Budget 2007 direct tax and benefit changes with the 2008 Pre-Budget Report personal tax measures (including 13 May increase to personal allowances).
  • The distributional analysis in this annex is presented on a household basis, as the effects of Budget 2007 can only be seen on this basis, since it included significant increases in tax credits, which are paid to households according to household income. So the combined effect of Budget 2007 and the 2008 Pre-Budget Report can only be shown by household.
  • The annex shows the reduction in the number of households paying more net tax as a result of the removal of the 10p tax rate. In 2009-10, the number of these households falls from 5.3 million originally to 600,000. In 2011-12, when all the 2008 Pre-Budget Report measures have come into place, this number falls further, to 500,000.
  • Household analysis of the Budget 2007 and 2008 Pre-Budget Report personal tax measures[5]
  • Table B1 below shows the effects of the 2008 Pre-Budget Report measures combined with the Budget 2007 personal tax changes in 2009-10, compared to April 2007, before the Budget 2007 measures took effect.
  • This shows that:
    • -  21 million households gain next year by an average of almost £6 a week from the direct tax and benefit changes in Budget 2007, May 2008 and the 2008 Pre-Budget Report
    • -  the number of households paying more net tax as a result of the Budget 2007 changes falls from 5.3 million originally to 0.6 million in 2009-10 once the Pre-Budget Report measures have taken effect;
    • -  no additional households pay more net tax as a result of the 2008 Pre-Budget Report measures in 2009-10. All households gain relative to their position in April 2008 (i.e. just looking at the 2008 Pre-Budget Report measures and 13 May increase in the personal allowance).

      • Table B1: effects of Budget 2007 and 2008 Pre-Budget Report measures in 2009-10 compared to April 2007 by household income[6]
2009-10, effects of Budget 2007 and Pre-Budget Report 2008
Income decileGain (m) Average gain (£p/w) No changeLose (m) of which lose from Budget 2007 (m) Average loss (£p/w)
Bottom
1.0
5.7
1.5
0.1
0.1
-0.8
2
1.5
6.0
1.0
0.1
0.1
-0.7
3
1.8
4.8
0.7
0.1
0.1
-0.9
4
1.8
4.1
0.6
0.1
0.1
-0.7
5
2.1
4.0
0.4
0.1
0.1
-0.7
6
2.4
4.6
0.2
-
-
-
7
2.5
5.4
0.1
-
-
-
8
2.6
6.7
-
-
-
-
9
2.6
8.5
-
-
-
-
Top
2.6
7.3
-
-
-
-
All
21.1
5.8
4.6
0.6
0.6
-0.8
  • Table B2 below shows the effects of the 2008 Pre-Budget Report measures combined with the Budget 2007 personal tax changes in 2011-12, when all measures have been brought in, compared to April 2007, before the Budget 2007 measures took effect.
    • This shows that:
      • -  around 20 million households continue to gain from the full set of direct tax and benefit reforms brought in since Budget 2007, on average by over £5.50 a week;
      • -  in 2011-12, the number of households paying more net tax from the Budget 2007 changes has reduced even further, to 0.5 million, as a result of the permanent £120 increase in the personal allowance, the increase in the NICs primary threshold, and holding tax and NICs thresholds constant in 2010-11 despite forecast negative RPI in September 2009; and
      • -  in 2011-12, 1.5 million households in the top half of the income distribution pay more net tax as a result of the 2008 Pre-Budget Report personal tax measures to put the public finances on a path to achieve cyclically-adjusted current balance and a declining debt to GDP ratio by 2015-16. These are households that have the greatest ability to manage this additional cost, with most in the top 10% of incomes.

  • Table B2: effects of Budget 2007 and 2008 Pre-Budget Report measures in 2011-12 compared to April 2007 by household income
2011-12, effects of Budget 2007, 13 May and Pre-Budget Report 2008
Income decileGain (m) Average gain (£p/w) No changeLose (m) of which lose from Budget 2007 (m) Average loss (£p/w)
Bottom
1.1
5.7
1.5
0.1
-
-0.8
2
1.6
6.1
1.0
0.1
0.1
-0.8
3
1.9
4.9
0.7
0.1
0.1
-0.7
4
1.9
4.3
0.6
0.1
0.1
-0.6
5
2.2
4.2
0.4
0.1
-
-0.7
6
2.4
4.7
0.2
0.1
-
-1.2
7
2.4
5.4
0.1
0.1
-
-1.4
8
2.4
6.6
0.1
0.2
-
-1.9
9
2.3
7.7
-
0.3
-
-3.7
Top
1.5
6.5
-
1.1
0.1
-36.9
All
19.7
5.6
4.6
2.0
0.5
-20.9

Analysis by household type

This section sets out the information shown above broken down by household types instead of income deciles. It is based on the same methodology as above.

Table B3 below sets out the results in table B1 by household type. It shows that:

-  the 21 million households gaining are distributed across all household types. Couples of working age and single non-pensioners are most likely to gain from the changes to income tax and NICs.

-  all lone parents gain from the combined set of measures from Budget 2007 onwards

-  most pensioners gain from the measures, with very few losing in April 2009

-  the smaller remaining number of households that pay more net tax from the removal of the 10p tax rate are mainly of working age without children

Table B3: effects of Budget 2007 reforms, 13 May announcement and 2008 Pre-Budget Report measures in 2009-10 by household type (millions of households)
2009-10, effects of Budget 2007, 13 May and PBR 2008  
Income decileGain (m) Average gain (£p/w) No changeLose (m) of which lose from Budget 2007 (m) Average loss (£p/w)
Single non-pensioner
2.8
4.1
1.1
0.2
0.2
-0.7
Couple without children
4.2
6.3
0.3
0.2
0.2
-0.8
Couple with children
4.4
7.2
-
-
-
--
Lone parent
1.6
7.0
0.0
0.0
0.0
0.0
Single pensioner
2.0
2.2
1.9
0.1
0.1
-0.7
Couple pensioner
1.9
4.0
0.9
-
-
-
Multiple tax units
4.2
7.1
0.4
0.2
0.2
-0.9
All
21.1
5.8
4.6
0.6
0.6
-0.8

Looking at 2011-12, table B4 below sets out the results in table B2 by household type. It shows that:

-  households continue to gain across all household types. Couples of working age and single non-pensioners are still most likely to gain from the changes to income tax and NICs.

-  almost all lone parents continue to gain from the combined set of measures from Budget 2007 onwards

-  most pensioners gain from the measures, still with very few losing in April 2011

As shown in Annex A, households paying more net tax from the 2008 Pre-Budget Report measures on income tax and NICs are in working households with someone earning over £40,000

Table B4: effects of Budget 2007 reforms, 13 May announcement and 2008 Pre-Budget Report measures in 2011-12 by household type (millions of households)
2011-12, effects of Budget 2007, 13 May and PBR 2008  
Income decileGain (m) Average gain (£p/w) No changeLose (m) of which lose from Budget 2007 (m) Average loss (£p/w)
Single non-pensioner
2.6
3.8
1.1
0.4
0.1
-8.9
Couple without children
3.9
5.7
0.3
0.5
0.1
-28.4
Couple with children
3.8
7.2
-
0.7
0.1
-25.3
Lone parent
1.6
7.2
-
0.0
0.0
0.0
Single pensioner
2.0
2.2
1.9
0.1
0.1
-4.3
Couple pensioner
1.9
3.9
0.9
0.1
-
-
Multiple tax units
4.1
7.0
0.3
0.3
0.1
-22.1
All
19.7
5.6
4.6
2.0
0.5
-20.9




5   Household level analysis is produced by HM Treasury using its tax and benefit micro-simulation model. This allows analysis of the effects of Budget and Pre-Budget Report measures on the population as a whole. The model uses survey data from the Expenditure and Food Survey (EFS) from 2004-05 to 2006-07, uprated to 2008-09. Back

6   N.B. Figures may not sum due to rounding. Total numbers are rounded to the nearest 100,000.

'-' signifies 50,000 or fewer. Applies to all tables in Annex B. Back


 
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Prepared 15 December 2008