Issue date
03 Apr 2014

One in four women do not earn enough to benefit from the latest rise in the income tax personal allowance, which increases from £9,440 to £10,000 this Sunday (6 April), according to a new report published today (Thursday) by the TUC.

The TUC report says that the government’s policy of raising the personal allowance – the amount someone can earn before they start to pay income tax – is an expensive and poorly targeted policy, that doesn’t do enough to help low-paid staff or parents on low to middle incomes.

The report cites recent analysis by the Institute for Fiscal Studies (IFS) which shows that rich families gain the most from the policy, while the poorest gain the least.

The TUC report says that it has cost over £10bn to raise the personal allowance from £6,475 in 2010/11 to £10,000 this April (2014/15).

Despite this huge cost, a quarter of all women workers will not benefit at all from this Sunday’s increase as they earn less than £9,440 a year (the 2013/14 personal allowance). It is wrong that the government is spending billions of pounds on a tax cut that benefits someone earning as much as £99,000 but does nothing to help the four million lowest paid workers who earn less than £9,440, says the TUC.

The report says that around one in six UK employees do not earn enough to benefit at all from this April’s rise in the personal allowance. A further 333,000 employees – almost three-quarters of whom are women – will only partially benefit from the increase as they earn between £9,440 and £10,000.

The report also shows that raising the personal allowance is failing to help working families on low to middle incomes in receipt of Universal Credit (UC). The TUC is concerned that because working families’ entitlement to UC is based on their post-tax income, for many two-thirds of any financial gain from the personal allowance will be taken away through reductions to UC.

This means that a family where the parents are earning up to £100,000 each will gain more than four times as much from this April’s personal allowance rise as a family on a low to middle income receiving UC would.

The TUC is urging the government to stop penalising families receiving UC by increasing the ‘work allowance’ – the point at which families’ entitlement to UC starts to fall – in line with any further rises in the personal allowance.

TUC General Secretary Frances O’Grady said: “Raising the personal allowance is one of the government’s most expensive policies, and most of its £10bn cost is benefitting wealthy families, while those on the lowest incomes lose out completely.

“From this Sunday, a worker on £99,000 will get a £195 tax cut, while four million of the UK’s lowest paid workers will get nothing. This shows the government has got its priorities badly wrong.

“It is odd to see politicians fighting to take the credit for a policy that does so little to help hard-working families, and one which is also particularly bad at helping women.

“It is frustrating to see families on low to middle incomes losing out from the personal allowance rise because the policy comes into direct conflict with UC. With those earning £99,000 set to see their incomes rise by more than four times as much than a low earner claiming in-work benefits, the focus of this initiative is badly wrong.

“If the government really wants to help hard-working families on low to middle incomes it should abandon further rises in the personal allowance and focus instead on reversing damaging cuts to tax credits and UC that will leave millions of families worse off.”

NOTES TO EDITORS:

- Percentage of people earning less than the personal allowance tax threshold

Men

Women

All employees

Earn less than £9,440 (2013/2014 personal allowance)

Less than 10 per cent

24.3 per cent

15.9 per cent

Earn less than £10,000 (2014/2015 personal allowance)

Less than 10 per cent

26.2 per cent

17.2 per cent

- Number of employees earning less than the personal allowance tax threshold

Men

Women

All employees

Earn less than £9,440

1,025,000

3,039,000

4,064,000

Earn less than £10,000

1,121,000

3,276,000

4,397,000

Source: Derived from the Office for National Statistics Annual Survey of Hours and Earnings 2013, table 1.7a: gross annual pay

- Earnings and tax paid by income level, 2010-15

 

2013-14

2014-15

Tax cut in 2014/15

Earnings

£99,000

£99,000

Tax paid

£29,422

£29,227

£195

Earnings

£50,000

£50,000

Tax paid

£9,822

£9,627

£195

Earnings

£25,000

£25,000

Tax paid

£3,112

£3,000

£112

Earnings

£8,000

£8,000

Tax paid

-

-

£0

- Low and middle income households claiming UC will have their benefit withdrawn at a 65 per cent taper rate (above their specified work allowance) as their post-tax income rises. This means that as their income rises from the personal allowance increase they will lose 65 per cent of the gains as their UC payments are correspondingly reduced. Families in these circumstances will therefore see an even smaller benefit from the increased personal allowance than those households modelled in the above table.

- Higher earners benefit from the full personal allowance increase this April (in contrast to several previous personal allowance increases) as the higher rate threshold was not reduced to offset the gains for those in the 40 per cent tax bracket. This gives them, in common with basic rate taxpayers, a tax cut of £112 a year. In addition, the higher rate threshold rose slightly. That means that as well as benefitting from a higher personal allowance, higher rate taxpayers will pay tax at 20 per cent on an additional £415 of their earnings, giving them an additional £83 tax cut. That gives them an overall tax cut of £195.

- The TUC report is available at https://www.tuc.org.uk/sites/default/files/IncomeTaxPersonalAllowance.pdf

- The IFS research is available at http://www.ifs.org.uk/publications/6045

- The TUC is organising Fair Pay Fortnight from Monday 24 March to Sunday 6 April. It will be a series of events across England and Wales to raise awareness about falling living standards. www.fairpayfortnight.org

- All TUC press releases can be found at www.tuc.org.uk

- Follow the TUC on Twitter: @tucnews

Contacts:

Media enquiries:
Liz Chinchen   T: 020 7467 1248    M: 07778 158175    E: [email protected]
Rob Holdsworth    T: 020 7467 1372    M: 07717 531150     E: [email protected]