IFS: tax and welfare measures are “regressive”

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

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.

George Eaton is political editor of the New Statesman.

GETTY
Show Hide image

The NS Podcast #204: Carswell and Collapse

The New Statesman podcast.

Helen and Stephen are joined by Jonn Elledge to lament our exit from the EU, discuss what they feel about the EEA, and decide who they loathe more: Douglas Carswell or Daniel Hannan. Jason Cowley and George Eaton then introduce our special-issue on Labour's collapse. And you ask us: what do we think of the Labour Leave MPs?

You can subscribe to the podcast through iTunes here or with this RSS feed: http://rss.acast.com/newstatesman, or listen using the player below.

Want to give us feedback on our podcast, or have an idea for something we should cover?

Visit newstatesman.com/podcast for more details and how to contact us.