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Why everyone is about to get poorer under Labour

From children to pensioners, Britons of all ages will struggle over the next five year

Source - Daily Telegraph 14/09/24

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Tax rises are a “dead cert” in next month’s Budget and those with the broadest shoulders are due to bear the brunt, it has been warned.

However, forecasts show people of all ages are poised to struggle over the next five years of a Labour government.

A surge in poverty numbers and stagnating wage growth are on the cards – along with expected tax rises to plug the “£22bn black hole” in public finances.

It comes after pensioners were dealt a blow this week, when Labour voted to strip 10 million of them from the winter fuel allowance worth up to £300.



Child poverty on the rise

Projections now show 1.5 million people, including 400,000 children, will fall into poverty over the next five years.

The Resolution Foundation think tank forecasts 23pc of the population will be in poverty – the highest rate since 2000-01 – if the Government does not address slow income growth and frozen benefit caps.

It said removing the two-child benefit cap will go a long way to reversing the trend, but Sir Keir Starmer plans to keep the restriction in force and suspended seven rebel MPs who voted in favour of scrapping the cap in July.

Lifting the two-child cap would cost the taxpayer £3.4bn a year, according to the Institute for Fiscal Studies.

The Resolution Foundation, which also suggested ending the freeze to the local housing allowance and the household benefit cap, said it is clear that “fairly substantial changes to social security policy will be needed to significantly move the dial on poverty”.

So far, Labour has not committed to any reforms. It has, however, set up a child poverty taskforce headed by Liz Kendall, the work and pensions secretary, and Bridget Phillipson, the education secretary.

Sir Keir said ministers “will leave no stone unturned to give every child the very best start at life”. 

The Government will do its best to avoid the criticisms rained down on Welsh Labour earlier this year when it published a strategy for child poverty without detailing specific funding, targets or ways of monitoring success.

A number of children’s groups, including Action for Children and Barnardo’s, said they were “deeply disappointed” by the plan.


Workers’ wage growth to slow

In the same report, the Resolution Foundation said “robust” income growth expected this year will “quickly come to a halt”.

The previous government’s cuts to National Insurance, and the healthy returns on savings accounts means median household income will grow 3pc in 2024-25.

However, the average annual growth rate is forecast to dramatically fall to just 0.4pc over the following five years, according to the Office for Budget Responsibility (OBR).

The Bank of England also projects unemployment to rise by 150,000 people, increasing from 4.4pc of the workforce to a peak of 4.8pc in 2026-27.

Meanwhile, the ongoing freeze to personal tax thresholds will see tax on the median wage be £230 higher in 2028-29 than it would be if thresholds were uprated by inflation each year from 2025-26.

So while Labour has pledged not to increase taxes on working people, the impact of fiscal drag will result in more people going over the thresholds.

The OBR estimated that three million more taxpayers could be moved into the higher rate tax threshold by 2028-2029.

Income tax bands, which stand at up to £50,270 for a basic rate taxpayer, up to £125,140 for a higher-rate taxpayer, and above that for an additional rate payer, are frozen until 2028.


Drivers to pay more at the pumps

The Prime Minister has opened the door to a rise in fuel duty in October’s Budget.

Sir Keir has suggested an increase in the levy, paid by millions of motorists, is on the table.

Motorists already burdened with surging car insurance costs and fuel prices would be hit even harder if Labour ends the 14-year freeze on fuel duty.

Fuel duty now stands at 52.95p a litre after a temporary reduction of 5p brought in by Rishi Sunak when he was chancellor in the wake of the war in Ukraine.

This temporary reduction was already planned to come to an end in March, but a further increase is suspected.

An increase of 5p would raise more than £2bn a year for Treasury coffers.

For a driver doing the average 7,400 miles a year, a 5p increase would result in an extra £43 to run a petrol car and £39 for a diesel motor, according to What Car?.


Profit squeeze on landlords

Speculation is rife over the Government’s future changes to capital gains tax (CGT), with a raid likely on the cards.

Adam Corlett, of the Resolution Foundation, said tax rises are a “dead cert” for October’s Budget and speculation is rife over what will be targeted. 

Changes to capital tax are a likely contender. Chancellor Rachel Reeves has repeatedly failed to rule out aligning capital gains tax with income tax bands – a move that could leave the average landlord £11,000 worse off, according to analysis.

As it stands, a basic-rate taxpayer pays 10pc capital gains tax on assets and 18pc on property, while a higher-rate taxpayer will pay 20pc on assets and 24pc on property.

Uprating these in line with income tax thresholds of 40pc and 45pc for higher earners would be a huge jump.

Sarah Coles, of Hargreaves Lansdown, said: “An arbitrary hike of the CGT rate could put people off investing, and stop them from selling – which is a terrible outcome for investors, and means the measure might not raise as much tax as expected for the Government.”

Landlords are also waiting with bated breath for the new Renters’ Rights Bill, which will scrap no-fault evictions and ban rental bidding wars.

Labour’s housing minister, Matthew Pennycook, wants to pass the legislation immediately, and is keen to include a “hardship test” in the bill, which would let judges stop evictions in cases where renters were found to be worse off.


Diners priced out of eating out

The cost of dining out is expected to rise due to reforms to workers’ rights planned by Angela Rayner.

Labour hopes to boost protection against unfair dismissal, tighten rules around zero-hour contracts and overhaul sick pay.

As 19pc of workers in hospitality are on zero-hour contracts, the Resolution Foundation said reforms could have a “large impact on employers”.

A report reads: “It may be that raising employment standards pushes up costs in hospitality, and thereby raises prices in the sector, potentially with knock-on impacts on demand. 

“If meals out become more expensive because hospitality staff are paid more, have stronger job protection, and better pay when off sick, it might be that we eat out a bit less.”

Proposals by the deputy prime minister to make it harder for employers to sack workers are also likely to make bosses reluctant to hire staff in the first place, the think tank said.

There’s a risk employers will increasingly turn to temporary contracts instead, reducing the risk of being permanently stuck with unsatisfactory employees or with workers who they cannot get rid of in a downturn.


Pensioners fall into tax trap

Nearly 350,000 pensioners will be brought into income tax for the first time next year as the state pension rises by an expected 4pc.

Those on the new state pension will see their earnings rise by £460 from £11,502 to £11,962 in April.

Ms Reeves has insisted pensioners will be £1,700 better off by 2029 thanks to the rises.

But with the tax-free personal allowance frozen at £12,570, many pensioners will find themselves dragged into the tax bracket as their incomes rise above this threshold. A growing number of retirees will therefore be forced to file a tax return.

Everyone will be paying income tax on their new state pension alone within four years, if the OBR’s triple lock forecasts hold true, as it is expected to hit £12,845 by 2027-28.

Labour has also been urged to slash the tax-free lump sum as part of a wider tax raid on pensioner wealth. 

The Chancellor should consider cutting the amount of money pensioners can take out of their retirement pots without paying tax from £268,275 to £100,000, according to the Fabian Society, a leading left-wing think tank.


Pensioners struggle with energy bills

Despite having sparked outrage from all sides of the House, the Government has refused to back down on its decision to cut the winter fuel allowance for 10 million pensioners.

Only those who claim pension credit will continue to get the payments of between £200 and £300 this year.

On Tuesday, MPs voted by 348 to 228 against a Conservative motion to reverse the cut, but 53 Labour MPs did not record a vote.

Caroline Abrahams, of Age UK, said the allowance cut means this winter will be “a deeply challenging one for millions of older people”.

Research by Labour in 2017 claimed that almost 4,000 pensioners could die if winter fuel payments were axed as they would be unable to heat their homes.




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