A day after we published our analysis of the distributional consequences of the so-called “mini”-budget, the Chancellor Kwasi Kwarteng announce a U-turn on the abolition of the higher rate of income tax (45%, for yearly incomes above £150,000). This was the most contentious and outrageous, at a time of a cost-of-living crisis, of the tax cuts announced by the Government, which also include a reduction of 1 percentage point (from 20% to 19%) in the basic rate, the abolition of the Health and Social Care Levy, a cut in the Stamp Duty, cancelation of a planned hike in corporate tax, further tax reductions for individuals living in investment zones, a freeze of alcohol duties, and extensions of duty-free areas. Still, the measure accounted for a yearly cost to the budget of only up to £3 billion, out of more than £40 billion of the whole package. While the Government hopes that scrapping this extra gift to the rich would take the steam out of the wide and transversal opposition to the bill, our analysis indicates that the overall tax cut is still deeply regressive.

The richest decile will still gain from the measure almost 100 times more than the poorest decile in absolute terms, and more than 10 times in percentage terms (Figure 1).

 

Figure 1: Monthly increases in equivalised disposable household income, 2023, by decile. The baseline is the system before the “mini-budget” announcements.

Note: Blue histogram: nominal changes (left axis). Orange dots: percentage changes (right axis).  Source: Our computation using UKMOD version A2.26.

 

Gains of more than 1% of equivalised disposable household income would be ubiquitous in the richest deciles and rare in the poorest (Figure 2), with more disadvantaged households composed of elderly people, lone parents, young mothers, or disabled, and households with no earners virtually excluded from the largesse (Figure 3).

 

Figure 2: Gainers (more than 1% of equivalised disposable household income), 2023, by decile. The baseline is the system before the “mini-budget” announcements.

Source: Our computation using UKMOD version A2.26.

 

Figure 3: Gainers (more than 1% of equivalised disposable household income), 2023, by household type. The baseline is the system before the “mini-budget” announcements.

Source: Our computation using UKMOD version A2.26.

 

The U-turn does not bring us back: even after scrapping the abolition of the higher rate of income tax, the tax cuts remain highly regressive. And the plans for a new Austerity have already begun…