Much of the debate about the forthcoming budget is about what tax changes will be made. But with the cost-of-living crisis hitting lower income households the hardest, changes made to welfare payments and schemes will be even more important. In considering this ,it is important to distinguish between what happens immediately and longer-term changes.
Given the extraordinary hit to incomes from rising prices – with the July inflation rate at 9.1 per cent – more help is needed for the hardest-hit households in the short term. The Government has already introduced measures earlier this year and needs to do more heading into the winter. It is important that these measures are targeted to give most to those who need it. More special fuel allowance payments or an additional once off payment for welfare recipients are both worth considering. Another energy payment to all households should be avoided as it gives cash to high- earners who do not need it.
Fortunately buoyant tax revenues give scope to act this year via once off measures – and possibly also to bring forward the introduction of permanent measures, such as welfare rises ,which would normally happen the following January.
How to shape the permanent changes in the welfare package bears thought and the Tax Strategy Papers published this week should help. A significant general increase in weekly welfare payments is clearly justified – and figures up to ¤15 are mentioned in the papers. There may also be a trade-off here between general increases and specific measures to address key areas of need. The papers refer to work by the Vincentian Partnership which identifies in particular the importance of the Living Alone Allowance. The senior officials who wrote the Social Protection paper ask whether a larger increase here might be better than increasing adult dependent rates in tandem with the general welfare rise.
ESRI research has also underlined the importance of the Living Alone Allowance in responding to problems caused by higher fuel prices, as well as the Fuel Allowance and the payment for a qualified child. Significant benefit may be possible here for reasonably modest sums of money. Policy cannot be perfect, but basing it on the hard evidence that is available can only make it better.
The Tax Strategy Papers also look at options for pensions and the working family payment, important to lower income households in the workplace. ESRI work has also looked at what tax measures might be used to help lower income households.
Much of this important detail may get lost in the wider budget debate. But in many ways the devil is in the detail. It is more important than ever this year to get that right on budget day this year.