In a move that forced the government on to the defensive, the highly respected Institute for Fiscal Studies challenged the chancellor’s contention that his plans for four years of belt-tightening would be progressive, safeguard frontline school spending, and require smaller savings for departments than Alistair Darling would have demanded.
The IFS said poor people would be hit harder than the rich, the four-year plan would see spending for most secondary school pupils cut, and Whitehall departments would face deeper cuts than under Labour’s plans.
The IFS also said that the £2.5bn pupil premium would fail to compensate for rising school numbers and other cuts in the education budget, resulting in funding reductions for 60% of primary school pupils and 87% of secondary school children.
Angela Eagle, shadow chief secretary to the Treasury, said: “George Osborne’s smoke and mirrors have well and truly unravelled. On any measure his plans hit the poorest hardest. And the IFS have all but called him a liar for his ridiculous claim that he is cutting less than Labour planned.”
In its detailed analysis of Wednesday’s comprehensive spending review, the IFS said the £7bn of fresh welfare cuts, together with public spending reductions, reinforced the regressive nature of the changes introduced by the coalition since it came to power. Families with children would be the hardest hit by the changes and only by including the increase in the top rate of income tax introduced by Labour could the coalition justify the claim that the better-off were being hit more than the poor.
“The tax and benefit changes are regressive rather than progressive across most of the income distribution. And when we add in the new measures announced yesterday this is, unsurprisingly, reinforced,” said the acting director of the IFS, Carl Emmerson.
“Our analysis continues to show that, with the notable exception of the richest 2%, the tax and benefit components of the fiscal consolidation are, overall, being implemented in a regressive way.”
Emmerson expressed concerns about the government’s plans to reform council tax benefit, saying it would make the system more complex and less transparent. “It will also make it harder to make the benefit system fit together better as a whole. The incentive it provides to local authorities to encourage low-income people to move elsewhere is undesirable.”
The IFS also questioned Osborne’s claim that the 19% cut he is demanding of Whitehall departments was slightly less draconian than the 20% cut pencilled in by Labour. The thinktank said that once both sets of plans had been adjusted for the ringfencing of the NHS and Department for International Development, Labour’s cut would have been 16%.
A Treasury spokesman said last night it was legitimate for the government to include tax changes previously planned by Labour in the assessment of whether the coalition’s tax, spending and welfare package was progressive.
David Cameron, meanwhile, said that higher earners would pay more as a percentage of their income and that fairness was “about asking how much people give as well as how much people get”.
He added: “They pay most, not just as an amount of cash, they pay more as a percentage of their income, and that is what the definition of what being progressive is. You are asking those, as you go up the income scale, not just to pay more in cash but to pay more as a percentage of your income. That is what the figures show.”
None of the cuts would increase child poverty, he said, thanks to extra help for youngsters from deprived backgrounds.
“I think that we have done it in a way so we can genuinely say: it is difficult, it is tough but it is fair and we are going to take the country with us,” the prime mini ster added.
Imran Hussain, head of policy, rights and advocacy for the Child Poverty Action Group, said: “The IFS analysis is a devastating dismissal of the chancellor’s hollow claims of fairness yesterday. The government’s reputation on fairness is now shot to pieces. The IFS have made clear the awful truth that families with children are hardest hit.”