Budget 2012: Who gets hit hardest?

 

Labour leader Ed Miliband spoke up for the squeezed middle today as the government stressed how it was helping low to middle income families. But the Treasury's own figures claim to show that, while everyone is a loser, the people hit hardest by the Budget changes are Britain's very poorest and very richest.

The official Red Book detailing the government's assessment of the Budget's impact shows that the 40% of households who lose the least as a proportion of their income are in the top half of the income table. The biggest losers are the bottom 20% and the top 10%.

Graph showing how poorest and richest lose most from the Budget

It is worth noting that this graph does not include the impact of the cut to the 50% rate of tax because, the Treasury says, "the behavioural response is so large that presenting a static analysis would not be representative of likely actual impacts". In other words, it is too difficult to work out how much a tax cut for people earning over £150,000 will save them.

Another way of thinking about the Budget's impact is to look at how much people have got to spend. This graph looks at how the changes are expected to change household expenditure. Again, everyone will have less to spend but again it is the very poorest and the very richest who will see the greatest squeeze on their spending power.

Graph showing changes to household expenditure

So, while there has been much attention paid to the squeezed middle today, perhaps it is worth noting what is likely to happen to the group described to me on Twitter today as "the squashed bottom".

UPDATE 16:52 GMT

To give you some idea where the income bands for each 10% of households fall, you can see figures from last year here.

 
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  • rate this
    +2

    Comment number 13.

    The budget increases the burden on the poorest, and the only real extra tax on the rich here is the extra cost of smoking.
    But it is relatibvely only a flea-bite when you consider what smoking does to the health of those who indulge and the nauseous discomfort it brings to those around them.

  • rate this
    0

    Comment number 12.

    Well, well.
    With millions unemployed, the governement continues to pay benefits to relatively well off people for producing still more people to become unemployed in due course. Isn't it time to scrap child benefit altogether?
    Meanwhile, the old folks are nice targets - they have not got the energy to fight.

  • rate this
    -1

    Comment number 11.

    The Tories look after their own don't they, so why do middle income people vote them? It must be snobbishness because the Tories aren't looking after the middle income earners, SAME OLD TORIES.

  • rate this
    +1

    Comment number 10.

    That was typical graph by a statistician that meant nothing to me at all. Can you make it a bit clearer - not all of us know about percentiles of net expenditures as percentage of net income distribution or whatever it was about.
    Come on Mark, make an effort mate!

  • rate this
    +1

    Comment number 9.

    Putting the tax allowance up also imposes a 60p tax on incomes from £100,000 to £118,000 from next April as the allowance is withdrawn for those well-off people. Add national insurance and someone looking to work hard through that income band could find that for many years any pay rise they got was subject to 62% tax. Not simple. Not transparent. Not fair.

  • rate this
    -4

    Comment number 8.

    I receive Co. Pension but remain employed part-time so my wife looks after home, 1 child and ageing relatives. I pay Income Tax on both Co. Pension + employment earnings. If 1% for each £100 > £50K is to apply to ALL income as opposed to just employment earnings then in 2013-2014 I will pay £42.50 less income tax but my wife will lose £496 Child Benefit. Is that fair for 'middle England'?

  • rate this
    +2

    Comment number 7.

    If you've got three kids and your salary increases, due to promotion, bonuses or overtime, from £50,000 to £60,000 you'll lose about £7,500 of the £10,000 to tax, national insurance and loss of child benefit. How the hell does that promote work? If millionaires aren't prepared to pay 50% how the hell can Osborne expect working families to pay 75%? And how much will this cost to administer?

  • rate this
    0

    Comment number 6.

    The Chancellor stated that anyone earning less than £100,000 would benefit from the tax changes. Wrong. The reduction of the threshold at which you pay higher rate tax is higher than the increase in personal tax allowance. To own up to this would have been inconvenient and exposed the reality that this Budget really was designed to benefit the millionaires sitting in the Cabinet!

  • rate this
    +8

    Comment number 5.

    What must not be forgotten is that budgets also impact on public spending and the cuts in services affect the bottom and middle but not the top. There are myriad increases in charges by councils and others that result from the reductions in expenditure as well as the loss of services and this will soon show in the NHS. Pensioners - increases by CPI as well as reduction/loss of age based allowances

  • rate this
    -3

    Comment number 4.

    What's new, to simplify matters, the RICH get richer and the POOR get poorer, nothing EVER changes! Steal from the POOR to pay the RICH, Robin Hood in reverse!

  • rate this
    +2

    Comment number 3.

    The poorest pensioners will lose out in the longer term. The state pension proposal of £140pw coupled with the triple guarantee is likely to mean anyone solely dependent on the new state pension is likely to be paying income tax in around 10 to 15 years after the introduction of the new pension.

  • rate this
    +8

    Comment number 2.

    Once again your article omits one of the largest sectors - the pensioners.
    Anyone in the middle band of pensioners up to £30000 will lose proportionately more as a result of the stealth tax of personal allowance merging. This group is also never represented correctly in terms of a higher incidence of inflation by the nature of spending needs particularly fuel costs and care services and products.

  • rate this
    +6

    Comment number 1.

    Those charts would be a lot more useful if we knew the bounds for the income deciles - I'd like to know which one I fall in!

 

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