On 9 September this year, the Prime Minister, Theresa May, promised that her Government would support those families who are ‘just about managing’. This is a key, if rather loosely defined, group previously referred to as ‘hard-working families’ (by Gordon Brown) and the ‘squeezed middle’ (by Ed Milliband). The Resolution Foundation defines “Jams” as the six million or so low-income working families with net income of between £12,000 and £34,000 a year, although in practice many in this group move in and out of work.
But how might the Government help this group in the autumn statement on Wednesday? Various tax cuts have been suggested including an increase in the 40p tax threshold from £43,000 to £50,000. This idea was initially proposed by David Cameron in 2014 to take millions of out of the higher tax rate zone. And the Labour party appear to support this policy even though families on these incomes are rather better off than the ‘Jams’. Indeed, if both members of a couple earn £45,000 each and have no children they are among the very best off families in the country. This is not, therefore, a well-targeted policy to support those just about getting by.
Another possible tax cut could be to accelerate plans to increase the threshold at which people start to pay income tax. The current plan is to raise it to £12,500 by 2020. This could be accelerated perhaps by increasing the personal allowance to £11,500 immediately, rather than waiting until 2017-18. Such a reform might well help some ‘Jams’ but it will also help all tax-payers and so, again, be an expensive way of supporting a particular group.
A much more cost-effective way of helping low-income working families would be to reverse the planned cuts to universal credit ‘work allowance’, which reduced the amount people can earn before benefit payments are withdrawn. These changes, if implemented, mean that working households will lose an average of £1,000 in 2020, rising to £1,300 for those with children. The Chancellor might also reconsider capping child benefit at two children from April 2017 as this loss of income will come on top of extra costs from rising inflation. And while those just about managing certainly deserve support, the Chancellor should not forget those on the very lowest incomes, as we see levels of poverty and destitution increase.