Young people have missed out in the government’s mini-budget as savings from personal tax cuts will disproportionately favour older, higher earners, financial experts have warned.
Chancellor Kwasi Kwarteng announced the biggest tax cuts in 50 years earlier today, abolishing the top 45 per cent rate of income tax, scrapping the National Insurance increase and cutting Stamp Duty for homebuyers.
In his speech, Mr Kwarteng argued that abolishing the top tax rate will stimulate growth, simplify the economy and make Britain more competitive.
“It will reward enterprise and work. It will incentivise growth. It will benefit the whole economy and whole country,” he said.
But experts have told i there was little in the budget to benefit young people.
Personal Finance Analyst at Hargreaves Lansdown, Sarah Coles, said: “The people who missed out in this budget are those on lower earnings and we do know that at the start of their careers, young people earn less, so to that extent young people have missed out because there are far more tax savings here for higher earners.”
Ms Coles said someone making £20,000 will save £167 a year through a combination of income tax and national insurance from next April when the cuts come into effect, while someone earning £80,000 will save £1,220.
The cut to Stamp Duty for first home buyers from £300,000 to £425,000 could be a boon for young people, she said, but it may also have the effect of pushing up house prices and shutting them out of the market.
She said more targeted help for people on lower incomes would have been vital, and there was no additional support provided for those facing a highly expensive rental market.
Following the mini-budget, claims emerged that a graduate earning £50,000 will pay a “higher” marginal rate (51 per cent) than someone on £150,000 (42 per cent) and that a graduate on £25,000 would be paying 40 per cent in a marginal rate, just two points less than top earners.
Ms Coles said if the equations were taking student loan repayments into account, that should be regarded as different from tax.
“They both come out of your salary before you can spend it, and they are both big drains on graduate incomes, so they feel similar,” she said.
But student loan repayments were paying back a loan, an individual had personally taken out, with interest.
“In the same way you wouldn’t add a mortgage to your tax bill when working out your tax burden, it’s not strictly right to add any other kind of loan repayments.”
Shaun Moore, tax and financial planning expert at Quilter, also disagreed with the claims a graduate on £50,000 would pay higher marginal tax than someone on £150,000.
But he did say those graduates earning over the current £27,295 earnings threshold will see their marginal tax rate sit at 40 per cent from April next year.
This comes after the government announced plans to reduce the repayment threshold for student loans to £25,000, for new borrowers starting courses from September 2023, and which will remain in place until 2026-7.
“Many young graduates will see this as daylight robbery,” Mr Moore said.
“Ultimately, they have done the right thing by working hard to gain a degree in order to accelerate their career, yet they are to be slapped with a huge level of tax as a result.”
Some Conservative MPs have argued their energy support measures will ease pressure on those with lower incomes.
When asked on Sky News whether the tax measures were fair, Conservative MP Andrea Leadsom said the “really important thing” was the scale of support for energy bills.
“It is so important that people understand that if they’re on universal credit or if they’re a pensioner, this support is in the region of £2000 per household, and that is going to really help with the cost of living crisis.”