Keeping up or falling behind? The impact of benefit and tax uprating on incomes and poverty

Publication type

Journal Article

Authors

Publication date

June 1, 2008

Summary:

Each year, the Government decides how much to raise benefits and tax allowances, a
process known as ‘uprating’. Different uprating methods are applied to different parts
of the tax and benefit system, including uprating in line with earnings, uprating with
inflation and no uprating at all. The basis for these upratings is rarely debated, yet has
major long-term consequences for the relative living standards of different groups and
for public finances. For example, it will be virtually impossible for the government to
end child poverty if payments for families with children rise more slowly than other
incomes.

This paper aims at making more visible the scale and implications of current uprating
conventions, and of some alternatives, for income distribution, poverty rates and the
public finances. To create greater clarity about the long-term effects of different
uprating regimes, it considers what would happen over a 20 year period from 2006/7
under various policy scenarios, if everything else stayed the same.

Results show that today’s uprating systems imply substantial long-term reductions in
personal disposable incomes relative to earnings. While all groups will be affected,
those with the lowest incomes will be hit hardest, causing widening economic
inequality. Some or all of the extra money raised may be needed for public spending
to pay for demographic change and improving services. However, the raising of these
funds appears unfair, falling disproportionately on poorer groups. A more open debate
about this often hidden area of public policy may lead to different choices about how
much extra money is needed and who should pay for it. Above all, this would mean
that decisions that prevent the poorest members of society from keeping up with
rising living standards would not be taken in the dark.

Published in

Fiscal Studies

Volume and page numbers

Volume: 29 (4): 467-498 , p.467 -498

DOI

http://dx.doi.org/10.1111/j.1475-5890.2008.00082.x

Subjects

Notes

Albert Sloman Library Periodicals *restricted to Univ. Essex registered users*


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