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

Abstract

Each year, the Government decides how much to raise benefits and tax allowances. In
the UK the basis for these upratings is rarely debated, yet has major long-term
consequences for the relative living standards of different groups as well as for the
public finances. This paper considers the medium term implications of present
uprating policies which vary across parameters of the tax-benefit system. Continuing
for 20 years, other things staying the same, would result in a near doubling of the
child poverty rate alongside a substantial gain to the public finances. At the same time
pensioners are largely protected by the earnings indexation of pensioner benefits and,
in time, the basic state pension. We show how difficult it will be to meet the UK child
poverty targets unless the greater inequality inherent in the current regime for uprating
payments and allowances is redressed.