Measures announced in the July Budget strengthened the incentive to work, despite the proposed in-work tax credits cuts, according to a study released today by the Institute for Fiscal Studies (IFS).
The report found that the complete package of changes, which included raising the personal allowance for income tax and introducing the National Living Wage, has made it more profitable for the majority of sectors of society to seek out employment.
Lone parents, however, will be badly hit by tax credit cuts and will be disincentivised to find work.
James Browne, senior research economist at the IFS, explained to City A.M.: “Lone parents are the big group who see their work incentives weaken but they’re a relatively small group in the overall population – though, it has to be said, they’re also one of the groups who are particularly responsive to these incentives.”
The study calculates that the effect of all the measures combined will reduce household incomes by £455 a year on average, but cautions that this figure masks variations across different households.
The report comes just ahead of the Autumn Statement, which will take place next Wednesday.
A Treasury spokesman said: “On tax credits, the Chancellor has already made clear that the government will listen about how we make a transition to the higher wage, lower tax and lower welfare economy he wants to see, and will announce proposals on how we do that at the autumn statement next week.”