Budget 2013: The £10k personal allowance won’t reverse the impact of welfare cuts

The small benefits the lowest earners will see from today's tax allowance rise does little to compensate for the enormous hit they will take from cuts to benefits.

One of the key measures in today’s budget was an increase in the personal tax allowance, which will rise from £9,440 in to £10,000 in 2014/15. It was always an ambition of the Coalition to reach 10k before the next election, but they have revealed today that they will get there a year earlier. Taking people out of the tax system has an intuitive appeal if, like the Chancellor, you want to ‘set free the aspirations of the nation’. But what is the actual impact on household incomes?

The red bars in the chart below shows what the distributional impact of the change. While personal allowance rises are often presented as a measure benefitting those on the lowest incomes, in actual fact it is middle and higher earning households that gain the most. Indeed, the lowest earners will only gain 0.05 per cent of weekly incomes from the change. The biggest winners are those earning more than median earnings, who will see their weekly income rise by over than 0.2 per cent. The reason for this is simple – the lowest earning households are less likely to have incomes above the personal allowance anyway, so an increase has little or no effect on them. The highest earners, on the other hand, will often have two earners earning above the personal allowance, so they get the full benefit.

When compared to the impact of the 1% benefit up-rating cap announced in the Autumn Statement, the regressive nature of the coalition's tax and benefit policies is even starker. The red bars in the chart show the distributional change in household incomes as a result of the reforms announced last December. It is clear the small benefit the lowest earners will see as a result of today’s tax allowance rise does little to compensate for the enormous hit they will take because of real-terms cuts in child benefit, tax credits and a host of other working-age benefits.

The Chancellor wants to do something to help hard-working families, but some of the hardest-working families on low-incomes will see little benefit from today’s announcement on income tax, while at the same time bearing the brunt of the coalition’s cuts to welfare. Looking to the future, with the prospect of even more cuts to come, we have to ask whether it is fair for the poorest to shoulder so much of the burden.

A demonstrator wears a mask depicting George Osborne during a gathering by the Public and Commercial Services Union. Photograph: Getty Images.

Spencer Thompson is economic analyst at IPPR

Photo: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.