Budget will hit poor harder than rich, according to IFS report

A Thinktank challenges claim of ‘tough but fair’ measures and predicts poorer families will suffer in second half of parliament

Britain’s leading experts on tax and spending have strongly challenged George Osborne’s claims to have delivered a “tough but fair” budget, concluding that the measures in the emergency package would hit the poor harder than the rich.
The Institute for Fiscal Studies said the chancellor and Nick Clegg could only assert that the better off were the big losers from the austerity move by including reforms announced by Labour, such as the changes to pension contributions.
The thinktank gave its view as David Cameron came under Commons pressure to justify the insistence that the budget was fair, and as Osborne admitted he was looking for extra welfare savings to spare Whitehall departments, other than health and international development, from cuts averaging 25% during this parliament.
Noting that Britain was facing the “longest, deepest, sustained cuts in public spending since the second world war, Robert Chote, the IFS director, said: “Osborne and Clegg have been keen to describe yesterday’s measures as progressive in the sense that the rich will feel more pain than the poor. That is a debatable claim. The budget looks less progressive – indeed somewhat regressive – when you take out the effect of measures that were inherited from the previous government, when you look further into the future than 2012-13, and when you include some other measures that the Treasury has chosen not to model.”
The IFS estimates that the squeeze on poorer families would increase in the second half of the parliament as welfare cuts kicked in and the two-year increase in child tax credit ended.
Yvette Cooper, the shadow work and pensions secretary, said: “The IFS has confirmed today exactly what we thought yesterday: that George Osborne’s budget was a typical Tory budget – unfair and hitting those on lower incomes hardest. So much for ‘we’re all in this together’.”
Osborne’s aides said that it was legitimate for the government to include pre-announced measures in its analysis of fairness. It was arbitrary to look at Tuesday’s measures in isolation. “What matters is what happens over the course of this parliament,” one said, adding that the richest 10% of the population suffered most from the budget once both Alistair Darling’s and Osborne’s measures were taken into account.
The IFS found that the richest 10% would be 7.5% worse off by 2014-15 because of measures coming into force during the current parliament but that almost seven percentage points of that was due to Labour changes.
The poorest 10% were left almost untouched by Labour’s plans but would see their incomes cut by more than 2.5% over the next five years.
With the IFS estimating that some government departments could face cuts, in real spending, of up to a
third during this parliament, Chote added: “Perhaps the most important omission in any distributional analysis of this sort is the impact of the looming cuts to public services, which are likely to hit poorer households significantly harder than richer households.” The thinktank said that if the coalition wanted to cut spending on schools and defence by only 10% there would need to be reductions of up to 33% in housing, universities and the police. It added that Britain was facing an unprecedented six consecutive years of public spending cuts, which would more than wipe out all the increases under 13 years of Labour.
Osborne said: “If, over the coming couple of months, we can find further savings in the welfare budget, then we can bring that 25% number down. In the end that is the trade-off, not just between departments, but also between the very large welfare bill and the departmental expenditure bill.”
Cameron was twice pressed to explain why tables on the distributional impact of the budget stopped in 2012-13, before £8bn of welfare cuts came into force, and took into account measures announced by the last Labour government.
He replied that he would have two further budgets after 2012-13 that would do more to ease child poverty. But Labour MPs claimed that Cameron’s true intention was, by that date, to have altered the definition of child poverty – a move his new poverty adviser, Frank Field, had recommended.
Darling, the shadow chancellor, also challenged Simon Hughes, the Liberal Democrat leader, to justify claims that the budget was fair when the single biggest measure – the increase in VAT – had been denounced by him only days earlier as “the most regressive form of tax” in that it “penalises the poor”.
Vince Cable, the business secretary, claimed raising VAT was not necessarily regressive, saying the tax was fairly “progressive” due to the exemptions on food, children’s clothing and other key essentials in the expenditure of poorer people.

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