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

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Is defeat in Stoke the beginning of the end for Paul Nuttall?

The Ukip leader was his party's unity candidate. But after his defeat in Stoke, the old divisions are beginning to show again

In a speech to Ukip’s spring conference in Bolton on February 17, the party’s once and probably future leader Nigel Farage laid down the gauntlet for his successor, Paul Nuttall. Stoke’s by-election was “fundamental” to the future of the party – and Nuttall had to win.
 
One week on, Nuttall has failed that test miserably and thrown the fundamental questions hanging over Ukip’s future into harsh relief. 

For all his bullish talk of supplanting Labour in its industrial heartlands, the Ukip leader only managed to increase the party’s vote share by 2.2 percentage points on 2015. This paltry increase came despite Stoke’s 70 per cent Brexit majority, and a media narrative that was, until the revelations around Nuttall and Hillsborough, talking the party’s chances up.
 
So what now for Nuttall? There is, for the time being, little chance of him resigning – and, in truth, few inside Ukip expected him to win. Nuttall was relying on two well-rehearsed lines as get-out-of-jail free cards very early on in the campaign. 

The first was that the seat was a lowly 72 on Ukip’s target list. The second was that he had been leader of party whose image had been tarnished by infighting both figurative and literal for all of 12 weeks – the real work of his project had yet to begin. 

The chances of that project ever succeeding were modest at the very best. After yesterday’s defeat, it looks even more unlikely. Nuttall had originally stated his intention to run in the likely by-election in Leigh, Greater Manchester, when Andy Burnham wins the Greater Manchester metro mayoralty as is expected in May (Wigan, the borough of which Leigh is part, voted 64 per cent for Brexit).

If he goes ahead and stands – which he may well do – he will have to overturn a Labour majority of over 14,000. That, even before the unedifying row over the veracity of his Hillsborough recollections, was always going to be a big challenge. If he goes for it and loses, his leadership – predicated as it is on his supposed ability to win votes in the north - will be dead in the water. 

Nuttall is not entirely to blame, but he is a big part of Ukip’s problem. I visited Stoke the day before The Guardian published its initial report on Nuttall’s Hillsborough claims, and even then Nuttall’s campaign manager admitted that he was unlikely to convince the “hard core” of Conservative voters to back him. 

There are manifold reasons for this, but chief among them is that Nuttall, despite his newfound love of tweed, is no Nigel Farage. Not only does he lack his name recognition and box office appeal, but the sad truth is that the Tory voters Ukip need to attract are much less likely to vote for a party led by a Scouser whose platform consists of reassuring working-class voters their NHS and benefits are safe.
 
It is Farage and his allies – most notably the party’s main donor Arron Banks – who hold the most power over Nuttall’s future. Banks, who Nuttall publicly disowned as a non-member after he said he was “sick to death” of people “milking” the Hillsborough disaster, said on the eve of the Stoke poll that Ukip had to “remain radical” if it wanted to keep receiving his money. Farage himself has said the party’s campaign ought to have been “clearer” on immigration. 

Senior party figures are already briefing against Nuttall and his team in the Telegraph, whose proprietors are chummy with the beer-swilling Farage-Banks axis. They deride him for his efforts to turn Ukip into “NiceKip” or “Nukip” in order to appeal to more women voters, and for the heavy-handedness of his pitch to Labour voters (“There were times when I wondered whether I’ve got a purple rosette or a red one on”, one told the paper). 

It is Nuttall’s policy advisers - the anti-Farage awkward squad of Suzanne Evans, MEP Patrick O’Flynn (who famously branded Farage "snarling, thin-skinned and aggressive") and former leadership candidate Lisa Duffy – come in for the harshest criticism. Herein lies the leader's almost impossible task. Despite having pitched to members as a unity candidate, the two sides’ visions for Ukip are irreconcilable – one urges him to emulate Trump (who Nuttall says he would not have voted for), and the other urges a more moderate tack. 

Endorsing his leader on Question Time last night, Ukip’s sole MP Douglas Carswell blamed the legacy of the party’s Tea Party-inspired 2015 general election campaign, which saw Farage complain about foreigners with HIV using the NHS in ITV’s leaders debate, for the party’s poor performance in Stoke. Others, such as MEP Bill Etheridge, say precisely the opposite – that Nuttall must be more like Farage. 

Neither side has yet called for Nuttall’s head. He insists he is “not going anywhere”. With his febrile party no stranger to abortive coup and counter-coup, he is unlikely to be the one who has the final say.