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A budget for the squeezed middle

6 December 2012

Ed Miliband may have coined the term, but it seems George Osborne has the squeezed middle on his mind too. The overall effect of yesterday’s budget* was to take from the rich, take from the poor and give to the middle. The IFS has crunched the numbers and produced the latest in its series of decile charts:

The bottom half of households lose out mainly due to the Chancellor’s decision to increase most working-age benefits by only 1 per cent a year for the next three years, and hence cutting them in real terms.

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The rich, meanwhile, have been hit mainly by the cut in the tax-free allowance for pension contributions and the below-inflation 1 per cent increase in the point where the 40p income tax rate kicks in.

It’s those above the middle but not in the top 10 per cent who come out best, benefitting from yesterday’s two big tax cuts: the cancellation of January’s 3p per litre fuel duty rise, and the extra £235 rise in the point at which you start paying income tax.

The IFS has also produced a decile chart for the effects of all the austerity measures introduced since January 2010. The picture is similar: the richest 10 per cent have lost the most, followed by the poorest, while households just above the middle (especially those without kids) and pensioners (ironically, given March’s ‘granny tax’ headlines) have been relatively well-protected.

Of course, this is only the impact of the government’s tax and welfare policies, not how the various groups have been affected by the economy (and other measures such as Quantitative Easing) in recent years.

*It may be called the Autumn Statement, but in the words of IFS director Paul Johnson, ‘We got pretty much the full gamut of tax and spending announcements that you’d expect in a Budget, and some big fiscal and economic news to boot. The idea that there is only one Budget a year has been laid pretty firmly to rest.’

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  • Daniel Maris

    Of course what that graph doesn’t show is that nearly all public sector workers and a large chunk of private sector workers have been on a pay freeze during a period of
    inflation up to 5%.Many of the same workers have seen their pension contributions increase by 20-30%.

    What this graph doesn’t show is that the richest people in the country have been enjoying increases such as 27% last year in their remuneration.

  • old_labour

    The headline is misleading.

    The article quotes the effects of changes since January 2010.

    The coalition formed a government in May 2010.

    The article would have been more truthful if it stripped out the Darling measures.

  • Nick Reid

    Thanks for posting this as I was getting confused by the Spectator’s take on the Autumn statement yesterday. Fraser Nelson kept tweeting that a “raid on the middle classes” had paid for yesterday’s statement’s measures.

    Whereas the Treasury deciles breakdown couldn’t be clearly: there was a clear political message that the “striving middle classes” (the 6th, 7th & 8th deciles the Tories need to keep onside) were the main beneficiaries of any Treasury largesse funded for by the richest decile (“we’re all in this together”).

    Throw in the fact that pensioners continue to receive relatively generous inflation adjusted rises and it is clear that Osborne is trying to secure the votes of those most likely to vote Tory in 2015.

    • HooksLaw

      All you have to do now is tell them. I am not sure they will have noticed.

  • toco10

    So much for the rhetoric of Red Ed and Ed Balls claiming the middle income earners are being squeezed the most.As ever this pair of clowns have got the wrong end of the stick which should come as no surprise given the chaos they created at The Treasury when Ministers in the disgraced Labour Government of Gordon Brown.The Coalition is recognising the very people the country needs to secure our future wellbeing.

    • telemachus

      I have just been listening to Charismatic Ed stating the obverse, namely that those losing out are the working poor
      Problem with George is that he “knows the rich” and had contact with a few of the middle types in Oxford( you have to share a staircase with some of these) but he absolutely cannot visualise the struggle of the poor

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