The Staggers

The New Statesman’s rolling politics blog

IFS: tax and welfare measures are “regressive”

Osborne caught out on claim that combined tax and benefit changes are “progressive”.

By George Eaton Published 21 October 2010 19:00

The oracle has spoken. At its media briefing this afternoon, the Institute for Fiscal Studies concluded that the tax and benefit measures announced in the Spending Review are "clearly regressive".

It flatly rejected the Treasury's argument that its combined tax and welfare measures up to 2012/13 are "progressive", a claim that was made possible only by the fact that the government's analysis ignores a third of the changes due to take place. These include some of the most regressive measures, such as the cap on housing benefit, the cuts to council tax benefit and the disability living allowance, and the time-limiting of the employment and support allowance.

The Treasury's justification was the lack of data available to "attribute changes in tax, tax credits or benefits to individuals". But the IFS number-crunchers believe that a "rough estimate" of the likely distributional impact can be made. The graph below is the result.

Graph

As the IFS notes, the white line (measuring the impact of tax and benefit changes as a proportion of income) shows that the changes were "slightly regressive or flat within the bottom nine-tenths of households".

The IFS has also produced another graph (see below), estimating the distributional effect of changes up to 2014/15, which shows the regressive impact even more clearly. As a percentage of net income, the poorest 10 per cent lose more than every other group, including the richest 10 per cent.

Graph

In many ways it's admirable that the coaliton, unlike previous Conservative administrations, is willing to engage in the progressive/regressive debate. But it can't choose to fight on this terrain and then cry foul when it's caught out.

Some on the right are starting to wonder whether a straight-out Thatcherite defence of regressive economics would serve the government better.

Special Offer: Get 12 issues of New Statesman magazine for just £12

Tags: Spending Cuts George Osborne

More from George Eaton

23 comments

Fri, 2010-10-22 09:43 — Dave C (not verified)

Now Clegg's trying to kill the messenger that brings the bad news:

"Deputy Prime Minister Nick Clegg has launched a direct attack on a leading think tank after it branded the government's Spending Review 'unfair'."

http://www.bbc.co.uk/news/uk-politics-11603419

It doesn't bode well for the Office of Budget Responsibility (OBR), now headed by former IFS man Robert Chote. The moment the OBR criticises the Government, Clegg will be on the attack.

Fri, 2010-10-22 10:02 — Nick (not verified)

Dave C and Ehtch Tee:

It is an absolute joke how Cameron pulls puppet Clegg's strings and get him to spout how the IFS don't know what they are talking about!

Of course, we should all believe 35 business men who earn millions and stand shoulder to shoulder with Cameron and co. Why? because they are quaking in their boots at the prospect of a proper clamp down on tax avoidance. The old palls act survives.

Fri, 2010-10-22 10:15 — swatantra nandanwar

It was great to see Cameron and Clegg out on the stump trying to sell their cuts to the public at large.
The two are so much alike, on the same wavelength, its absolutely amazing, its uncanny; the chemistry works so well. More Conservatives upport Clegg than Lib Dems, so Clegg is pretty save from getting a drubbing. Central office will pull out all the stops to get their chum Clegg back in Westminster. This Cameron Clegg team is stronger than the Blair Brown team in 97. Osborne and Hague must be getting a bit jealous.

Fri, 2010-10-22 10:31 — Nick (not verified)

Swatandra: Clegg will need all the support he can get off his new found chum, as his own parties slice of the vote slumps to an all time low of 10%. Clegg should be more worried about his own party than himself, he should turn his attention to how his declining popularity will be reflected in Liberal constituencies. I'n not so sure they will warm to chum Cameron when deciding where to put their vote.

Fri, 2010-10-22 11:17 — Pat (not verified)

Funny that Nick Clegg had a different view of the IFS in April when they supported him. Just goes to show that he will say whatever his master tells him to.

Labour should start a campaign on getting companies to pay avoided tax: call it "corporate responsibility" or something. It is disgusting that they avoid/evade so much tax whilst the rest of us pay more.

Thu, 2010-10-21 20:25 — ang (not verified)

Clearest graph so far.

This should be on the front page of every newspaper tomorrow, especially the Labour papers. It says it all!

Thu, 2010-10-21 21:02 — Nick (not verified)

Oh I'm sure Osborne will retort with some ridiculous reliance on the 35 business bods behind his plans Ang. Funny thing is, that at the time of the election I seem to remember how the coalition was bleating on about 100 business bods backing them; are we to assume that in six months 65 out of 100 have lost all faith?

These changes put us back in the dark ages, hardly progressive. Get rid of them before they do any more harm.

Thu, 2010-10-21 21:06 — The Luddite (not verified)

This is crystal ball economics.

Thu, 2010-10-21 21:19 — ang (not verified)

Nick: Osborne always bleats on about business' being 'in their gang' because the Tories are in the pockets of big business, but surely a govt needs the people on side too.

Channel 4 news was the only news channel to highlight the ridiculous 'thunderbird puppet' clegg insisting ( at a Q & A today) that the CSR hit the richest hardest, when shortly after, the IFS produced the above graph. What a muppet (or should that be puppet)

Thu, 2010-10-21 21:47 — Hans Castorp (not verified)

We are all Filboid Studge eaters now:

http://en.wikisource.org/wiki/Filboid_Studge,_the_Story_of_a_Mouse_That_...

Luddite, the only thing renolent of balls here is your idiot denial - with nothing to aver in support - of the IFS report. If you want to believe timourous lightweight Nick Clegg, you'll have to do better than sneer silly insinuations on leftist websites.

Thu, 2010-10-21 22:58 — puzzlebobble (not verified)

isn't the isolated spike at the richest only because of Labour's 50% rate of tax? should they be including their predecessors changes? The graph would look a whole lot worse without it.

Thu, 2010-10-21 23:10 — Nick (not verified)

Ang: I had a look at the names of the 35 Tory backers, looking at the wealth wrapped up between them, I wonder how much of their tax avoidance deprives this country of what it should otherwise morally and properly receive by way of billions in evaded tax?

Never ever again should we allow totally out of touch people of wealth to sit in judgement on how our country is controlled.

Fri, 2010-10-22 00:30 — sense (not verified)

Well i work for a living not on a high wage and pay my own rent and council tax with not much to spare, so i dont really care if someone who does not work gets instead of £350 p week towards rent i could never afford and gets only £240 instead in central london which i STILL could not afford working full time wow big deal!!