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Our most feared headline: VAT increase

All budgets have headline measures, and often the true impact of the Chancellor’s statement doesn’t deliver itself for a day or two as the commentariat digests the detail. This emergency budget, containing some of the most austere measures in generations as the new government sets out how it intends to reduce Britain’s deficit, will no doubt be no exception.

For Save the Children, which campaigns in the UK to end child poverty, we have been looking out for the impact of the budget on the very poorest families.

Our most feared headline measure happened today: an increase in VAT from 17.5 to 20%. One of the most regressive taxes, it hits the poorest families hardest: the bottom 20% of households pay 12% of their disposable income on VAT compared to just 6% of the disposable incomes of the top 20%. The very poorest families in Britain can now expect their annual VAT bill to rise to at least £1600 per annum.

On top of this, we saw:

  • the freezing of child benefit for three years
  • the budget for other benefits being cut (as they are delinked from the retail price index measure of inflation and linked instead to the less generous consumer price index)
  • housing benefit being cut
  • and the removal of many cash benefits to pregnant women and mothers of young children on low incomes.

Taken together, these represent a substantial loss of income for the very poorest families: those who do not earn enough to benefit from the positive changes to income tax for low and middle income earners also announced today.

What was unexpected was Mr George Osborne’s announcement at the very end of his budget speech that families eligible for child tax credit would see an increase of £150 per annum for this year, and the explicit promise that child poverty will not rise in the next two years as a result of the measures announced today.

This direct increase in support for the poorest families is of course welcome, acting as it will to compensate for some of the losses outlined above. What we cannot know yet, and what will emerge in the days to come as the numbers are crunched, is whether the very poorest families, those
already well below the poverty line, will still find themselves yet worse off. It’s one thing to promise that child poverty will not rise. It’s quite another to promise that the already poor will not get poorer.

And even with these numbers, what we won’t know for perhaps several years is how much the impact of public spending cuts (25% for many government departments), and the resultant removal of key services and  thousands of public sector jobs on which poor families depend, will further deepen poverty and increase the numbers of children growing up below the poverty line.

The VAT increase is today’s budget headline: we will be making sure in the immediate days, and then the months and years to come, that the real impact of this budget on Britain’s poorest children continues to make the headlines.

What’s more, we’ll be ensuring the pressure on government to act to lift children out of poverty, rather than simply maintain the status quo as was promised today, never lets up.

A staggering 3.9 million children in the UK are living in poverty – find out more.

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