Does the budget hurt the rich more than the poor?

Author: Alice Tarleton|Posted: 5:34 pm on 23/06/10
Category: Coalition, Fiction, George Osborne, Public spending
The claim
“Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top. It is a progressive budget.”
Chancellor George Osborne, budget speech, 22 June 2010

The background
Yesterday slasher-in-chief George Osborne set out an austerity budget of spending pain. He sweetened the pill – slightly – by saying it was a “progressive budget” – i.e. the cuts and tax rises would hurt the rich more than the poor.

The chancellor even published charts breaking down the impact of the austerity measures – not something that happened in Labour-era budgets. We discussed these briefly yesterday. As we noted, the charts only go up to 2012-13 – before more than half of the government’s planned welfare cuts had kicked in.

They also include the effects of reforms Labour had pencilled in at earlier budgets, such as an increase in national insurance rates.

So if we look at yesterday’s budget alone, is Osborne still right to claim the poor would be spared the worst of the pain?

The analysis
The Institute for Fiscal Studies has filled in the missing pieces. Their breakdown makes the coalition look less like Robin Hood and more like Marie Antoinette.

Firstly, they distinguish between Labour’s reforms, and those announced yesterday (see the graph on p14).

Labour had planned to squeeze by far the most money from the richest, and the least from the poorest. But the coalition’s measures have the opposite effect – taking most (as a percentage of income) from the poorest and the least from the richest. That’s regressive, rather than progressive.

Unlike the Treasury, the IFS also looked ahead to 2014-15 (p 15). In this year things get worse, not better, for the poorest.

There is one thing worth noting – the IFS reckons one of the more controversial measures, the VAT rise, is progressive, depending on how you measure it. But the overall picture is less generous to the coalition.

This analysis focuses on tax and benefit changes. It doesn’t include the impact of another source of budget bad news: public spending cuts.

There is undoubtedly more pain to come on this front. Unless welfare spending is cut more deeply public services (apart from the protected areas of the NHS and overseas aid) face 25 per cent cuts over the next parliament. Unsurprisingly the poor benefit more than the rich from things like free education and healthcare, leaving them potentially more vulnerable to cuts – although we await autumn’s spending review for more detail on how the axe will fall.

We asked the Treasury whether they recognised the IFS’s figures, and will update this if we get a response.

The conclusion
George Osborne may have vaunted the progressive credentials of his budget in the Commons yesterday. But independent analysis shows he owes much of that to the past government.

The new measures announced in the coalition’s budget will, according to the Institute for Fiscal Studies, hurt the poor more than the rich.

– Related FactCheck: Budget 2010

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