Philip Hammond is being urged to use the budget to reform universal credit to support younger voters, amid growing concerns over the government’s flagship benefits programme.
A report by the influential Resolution Foundation thinktank says the chancellor should reverse cuts to universal credit and unfreeze working age benefits to address the poor economic prospects facing millennials, when he sets out his plans on 22 November.
The Conservatives have come under increasing pressure to woo younger voters, with budget seen as a key opportunity for the party.
The thinktank said more than half of the gains from unfreezing working age benefits from next April would go to millennials. It said a low-income family with two children could gain as much as £315 a year, costing the Treasury as much as £1.9bn in 2018-19 to reverse the freeze put in place for four years from April 2016 by George Osborne.
It said the chancellor could support younger families by restoring work allowances under the universal credit regime for those with children back to the levels they were set at before 2016, at a cost of about £2.1bn. Almost half of the gains would go to younger voters.
The report comes amid growing concerns over the implementation of universal credit, with food banks warning they will struggle to meet the soaring need for emergency food supplied from low-income families this Christmas due to the six-week waiting period for those awaiting benefits payments.
The suggestions come as the Conservatives look for new ways to support younger voters, who they are at risk of losing. Theresa May moved to address the problem at the party’s autumn conference, pledging to increase the student loan repayment threshold, while Hammond earmarked an extra £10bn for the Tories’ flagship help to buy scheme for first-time homebuyers.
Conservatives including Nadhim Zahawi have suggested targeted tax cuts for younger people in recent weeks. However, the Resolution Foundation said such a step would be a bad idea due to the costs involved, while disproportionately helping wealthier youngsters.
The report finds cutting the basic rate of income tax to 15% for the under-30s would cost about £3.2bn by 2021-22, while such a move would also lead to the richest 10% of twentysomethings benefiting by twice as much as the poorest in this age group.
The thinktank suggested the chancellor could raise about £1bn a year by scrapping an exemption for employee and self-employed national insurance contributions (NICs) for workers at or above the state pension age. However, it notes that Hammond is unlikely to want to act on NICs, after he was forced into a U-turn on changes for the self-employed in the March budget.
Yet equalising the tax treatment of workers of different ages is progressive, according to the report, as four-fifths of the revenues would come from the richest fifth of pensioners, with most unaffected.
Laura Gardiner, senior policy analyst at the Resolution Foundation, said: “The chancellor should remember the bigger picture and deliver a budget that tackles one of the biggest challenges Britain faces – our failure to deliver living standards progress for young people today.”
The research comes as the chancellor faces increasingly limited room for manoeuvre in the budget, with the government’s independent spending watchdog set to downgrade the outlook for the public finances due to the weaker than forecast productivity of British workers.
Accountancy firm PwC estimates Hammond has about £3bn less available to ease austerity than he had in March this year, before the expected downgrade to the public finances by the Office for Budget Responsibility. Although it said the deficit, which is the gap between government spending and tax receipts, is due to be about £10bn less than estimated for this year, the consultants reckon public borrowing will be about £7bn higher than initially forecast by 2021-22.
Andrew Sentance, a former member of the Bank of England’s monetary policy committee who is now a senior economic adviser at PwC, said: “The government should respond to this productivity challenge in the budget and beyond with measures to boost skills, infrastructure development and innovation. But this has to be a long-term industrial strategy – there are no quick or easy fixes to increasing productivity growth.”
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