Wide range of measures makes it harder to see the big picture
The net loss to households after the budget is 1.5% but more time is needed to work out the overall impact
The best indication that we can obtain at present suggests that about 40 per cent of these young people are in households that are in the bottom 30 per cent of the household income distribution.
The consequences for these individuals in low income households – whether as independent households or in a low income family – seem likely to be more severe than those for the young unemployed living in households with above average incomes.
Next year will see further action on the restructuring of support for housing costs, with a move, on a pilot basis, towards a new Housing Assistance Payment.
This is designed to address the disincentive effects of the current Rent and Mortgage Supplement scheme, identified clearly in earlier work by the ESRI and others. The task is a difficult one, needing to balance concerns about incentives, adequacy of the support, and cost. Close monitoring of this new scheme will be required to arrive at an optimal design and implementation.
On the taxation side, there are three measures in this budget that can be expected to have a broadly progressive impact. The first is the set of restrictions on tax relief for high-valued pensions, which are strongly associated with high incomes. The second is the increase in Dirt, as such evidence as is available suggests that high-income households have a large share of total bank deposits, and low income households rather little.
A new CSO Survey on Household Finance and Consumption is currently under way. Statistical results based on the anonymised data from this survey are expected next year, and will help to shed light on these issues.
The third element is the restriction on tax relief for health insurance premiums – something which we will investigate in future work.
By contrast, the move to a property tax on a full-year basis is likely to be regressive, bearing somewhat more heavily on low income groups, as few households appear to be taking up the deferral option, and deferral itself does no more than shift the tax liability to a future year.
Several positive features of the implementation of the property tax might also be noted; here we mention two. The property tax did bring in substantial revenue in its first (half) year of operation, despite earlier concerns about this issue. Furthermore, the provision of multiple payment options, including direct payments from pay packets, has made budgeting for the tax much easier than the much unloved rates system, with its two large payments per year.
We expect to provide a more detailed analysis before the end of the year. Based on the evidence available today, I would anticipate that the broad result will not be far from losses which are equal in percentage terms across the income distribution, though with considerable variation between households at the same income levels.
Tim Callan is a research professor
at the ESRI