This is a one off special to update you on the announcements likely to affect Child Poverty in today’s budget.

Key budget announcements

Child Benefit

The Chancellor had previously announced that Child Benefit would be removed from all families containing a higher rate tax payer, that is, earning above £42,475. Today he announced that only families where one earner receives above £50,000 would lose Child Benefit, with the amount received reduced by 1 per cent for every £100 earned over that limit, meaning that only families with an earner receiving £60,000 or over will lose Child Benefit altogether. No plans were announced to reverse the freeze in the level of Child Benefit that will apply until 2013-14. The plans will cost the Exchequer £185m in 2012-13, £690m in 2013-14 and £630 in 2014-15.

Increases in the personal tax allowance

The personal allowance for Income Tax will increase by £1,100 in 2013-14, with some of this increase passed onto higher rate tax payers. This costs the Treasury £3,320m in 2013-14, £3,510m in 2014-15 and £3,580 in 2015-16.

Welfare cuts to come?

The Chancellor signalled possible future cuts to social security spending, stating in his speech that: "I am today publishing analysis that shows that if in the next Spending Review we maintain the same rate of reductions in departmental spending as we have done in this review, we would need to make savings in welfare of £10 billion by 2016."

The Budget document (p21) states that: "The Government will be examining the cost drivers on all areas of public spending and identifying the further reforms needed to deliver a sustainable welfare system and public services within the resources available."

Analysis and Background

The only reference to Child Poverty in the Budget is at page 90: "The Social Mobility and Child Poverty Commission will assess the Government’s progress in reducing child poverty and improving life chances against a set of measures." JRF funded projections by the IFS for child poverty in future years are here. 

Charts B1, B2, B3 and B4 (pages 91 to 93) show the cumulative impact of the Budget Measures on Household Incomes. The measures show households lower down in the income distribution in general losing larger proportions of their income, although families in the top income decile see the largest losses.

The households that lose least are those in deciles 6, 7 and 8. Certain measures are excluded from this analysis, including caps in the amount of income tax relief available, and the reduction of the top rate of income tax from 50 to 45%.

JRF produced a pre-budget document setting out the changes we hoped to see, and their likely impact on families on low incomes.

Previous IFS analysis of the distributional impact of changing the personal allowance on household incomes is available.  Their analysis of who loses from changes due to be introduced in the coming year is here.