A plan being considered by Rishi Sunak to offset rising energy bills would leave behind 5 million of the UK’s poorest people and give a quarter of top earners a tax break, an analysis shows.
The chancellor is said to be considering giving a municipal tax relief to people whose properties fall in band A to C, as part of a package of measures to tackle the cost of living crisis.
Critics of the plan have pointed out that it would benefit high-income households, including people living in expensive homes in areas such as London and the South East.
Analysis by progressive think tank IPPR found that 40 percent of people who are in line to profit have above-average incomes.
A quarter of the highest-earning people in the country – those in the top 10 percent of income – would see its city tax reduced, according to calculations by Henry Parkes, a senior economist at IPPR.
Meanwhile, a quarter of the UK’s poorest – about 5 million people in the bottom 30 percent of income – would not receive any tax relief.
The problem with the plan is that a municipal tax band “is not always a good predictor of revenue and is therefore a poor targeting mechanism for support,” Parkes said.
“This is a crisis for those with the lowest incomes and support must be distributed on that basis.”
The IPPR has proposed more targeted support for those most in need, such as reversing the £20 cut to Universal Credit, extending and increasing the warm housing discount and scrapping a planned increase in National Insurance contributions.
Instead, money could be raised by reforming the capital gains tax, which would shift the burden onto wealthier households, the IPPR argues.
The chancellor is under pressure to put in place comprehensive measures to tackle rising bills, with regulator Ofgem expected to announce a 50 percent increase in its price cap next week.
Households using the average amount of gas and electricity face annual bills of around £2,000, and energy prices are driving up the costs of a range of other goods. Supply chain disruption and worker shortages are also causing inflation to rise.
Average real wages are now falling as wage increases fail to keep up with the rising cost of living. The price cap increase is expected to hit low-income families the hardest, as they spend a higher proportion of their budgets on energy.
According to a report in The times, the Treasury has rejected proposals to offer cash grants to help cover the bills.
The Social Market Foundation proposed a single payment plan of 300 pounds sterling to households in which no one is a higher rate taxpayer. People with universal credit or legacy benefits would receive an extra £200.
A government spokesman said: “We are providing around £12bn worth of support this financial year and next to help families with the cost of living and more work is being done to find the right response to cost pressures. life that people face.
“We’re cutting the Universal Credit reduction to make sure work pays, freezing taxes on alcohol and fuel to keep costs down, and providing targeted support to help households with their energy bills.”