Conservative Tax Cuts Worth Ten Times More to High Earners Than Basic Earners

New TUC-commissioned analysis published today (Thursday) of tax policies in the Conservative Party manifesto shows that the party has chosen to prioritise unfunded tax giveaways to the wealthy over support for the low-paid and middle earners.

It shows that the big winners from unfunded tax cut proposals would be higher earners, with the lowest paid getting much smaller gains.

The analysis looked at the average impacts for each decile across the household income spectrum. It found that the poorest decile would get nothing on average, and the second poorest only £2 a year. However, the average gain for the richest decile would be £875 a year.

Furthermore, while the maximum benefit a basic-rate taxpayer can expect from the proposed personal allowance increase is just £222 per year, the maximum benefit for a higher rate taxpayer would be £1,126.

In addition, a taxpayer earning between £50,000 and £100,000 (the level of income at which the personal allowance starts being tapered away) would also benefit from proposals to raise the higher-rate tax threshold, meaning that their after-tax income could rise by over £2,000 per year – around ten times more than the tax gains for a basic earner.

The Conservative manifesto also includes plans for extreme cuts to welfare and public services. The TUC believes that the relatively small tax gains for low earners would therefore be significantly out-weighed by major reductions to in-work support like tax credits and the services that low-paid families rely on most.

The TUC analysis modelled the impact of an alternative approach with identical costs to the Conservative proposals, which targets help to low and middle-earners through improvements to Universal Credit (see notes, and UC option 2 in the analysis). Under this approach, most middle-earners would be at least £500 better off (deciles 3,4 and 5), with some families more than £700 better off.

TUC General Secretary Frances O’Grady said: “We should be targeting help where it’s most needed. But David Cameron’s tax plans will give ten times as much to the rich as to families on regular earnings.

“Families have just suffered the longest decline in living standards since Queen Victoria was on the throne. But before wages have even recovered, the Conservatives are prioritising special treatment for the wealthiest.

“The pledge to help minimum wage workers is a con. Most of them don’t earn enough to pay income tax, but Conservative plans for extreme cuts will hit their tax credits, children’s benefits and local services. All in all, low-paid workers and their families will be left much worse off.

“A better plan to help low-paid workers and their families would be to target support through Universal Credit. This would make low and middle-earner families hundreds of pounds better off, as well as giving a boost to businesses in their local economy.”