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How the Spending Review hit the poorest hardest

The poorest 10 per cent suffered the greatest loss of income from the Chancellor’s decisions.

NB: The green line on the graph is the one to watch.

Once again, George Osborne audaciously declared that those "with the most should pay the most". But turn to page 98 of the Spending Review document and the picture becomes rather more complicated.

The Treasury graph below shows that, as a percentage of net income, the poorest 10 per cent pay more than every other group, with the exception of the richest 10 per cent. Osborne's claim that those on the highest incomes will pay more, not just in cash terms (a less progressive measure), but also as a proportion of their income is therefore wrong.

If you strip out the pre-announced measures from the Budget (the black line), the graph shows that the poorest 10 per cent have actually lost the most from the Spending Review. The overall effect of the measures announced today is therefore clearly regressive.

Don't forget, too, that the poorest, who have to carefully balance food and heating costs, can afford such losses far less than the richest.

Graph

One expects the Institute for Fiscal Studies will have a lot more to say about this over the next 48 hours.

34 comments

Joanne Davis's picture

The tories claim they have the interests of this country's education at heart; so why cut Educational Maintenance Allowance which allow the poorest children aged 16-19 to go to college?

Spiller's picture

I'd like to see David Blanchflower's take on this, Please

chris's picture

Blanchflower? I can do that for you.
"THERE WILL BE A DOUBLE DIP RECESSION. ANF IF THERE'S NOT, THERE SHOULD HAVE BEEN".

Acamar's picture

People with large families, who find themselves out of work or become long-term ill, will be in a terrible position.

But you know, it is the children who will suffer.

You cannot have a government imposing serious harm on children. There is a word for this, and it's abuse.

Jamie's picture

Not that I have any interest in defending the Tories, but it should also be noted that RIGHT UNDERNEATH THE GRAPH IT SAYS:

"It should be noted that the bottom decile contains many households with temporarily low
incomes, for whom income based analysis, as opposed to expenditure based analysis, may not
give an accurate picture of living conditions. In this decile, around 40 per cent of households
contain an adult that is self employed or a student. While some of these households will have
permanently low incomes, many will not. In contrast, in the second decile, only around 20 per
cent of households contain an adult in one of these groups."

Mike's picture

So you're criticising him for telling the truth? That those with the most (the richest 10%) are in fact paying the most, even when given as a percentage of their income? You say that the poor are paying the most in the title, but you then go on to contradict yourself in the article. What are you on about?

damianneum's picture

Mike: the title refers to the fact that taken in isolation from the pre-announced Budget measures, the spending review hits the poorest hardest.

As I said at the top of the post, look at the green line.

michaelpetek's picture

Every time I hear the Eton Boating Song I feel as a Jew must feel listening to the Horst Wessel Song.

Paul's picture

Not only have the poorest decile been hit hardest but also the second decile suffers more than the richer groupings. This doesn’t even cover the fact that someone on £50 a week is obviously going to be hurt more from a 1.5% cut to their income than someone on £550 a week.

Nick's picture

Thank you George for clarifying that. Mike: This whole argument that those earning more pay more, is frankly a little absurd. The crucial difference between those on the breadline and the much better off is that the former have to make stark choices over affordability. Someone on a very low income has to decide on whether they can afford food or heating for instance. They live on income which is at the lowest end of the scale. You can argue all you like over how the high earners may proportionally pay more in tax and buy into consumerism and so forth. The fact is they can afford to, they can far more easily go without and therefore can contribute to the paying back of deficits far more readily than someone on a much lower income.

The poor are being hit way too hard and this spending review is set to make it worse, I see it day in and day out. If we are all in it together it must take into account how you can't apply punitive measures to those on the minimum amounts needed to keep pace with escalating costs of living. Hammering the poor won't cause them to become wage earners, it will only confirm their already depleted standing in society, it's not the way to stimulate people.

Simon's picture

Is it true that EMA for 16-19 year olds is to be scrapped,and if so when from? I beleive that this benefit is currently allocated unfairly.

CrISpY DuCk's picture

Wheres the graph for the 500,000 if you believe the Tory figures that this spending revue puts on the dole.We're all in this together eh.

Patricia Brown's picture

I am worried, and this rarely happens.It was appauling the laugh riot they made of the questiona nd answer sessiona nd davey poo managed to avoid answering anything and rather dramatically changed topic to continue repeating his latest propaganda.

ang's picture

cameron never gives any staight answers, unless it's in response to the scripted Tory questions.

Lots of cheering from the coalition, yes well done George, you've managed to screw the poor again, isn't that great, what an absolutely spiffing good egg he is ra ra ra!

One hour later:
IFS: Spending review, 'regressive'
As poetic as it comes.

Eddy S's picture

protecting capital spending was quite wise. the spending cuts will have the effect of keeping interest rates lower for longer, this will help boost the private sector. i wouldn't be surprised if the economy starts to grow stronger in a year or two.

ReneMugenzi's picture

George might have been right in cutting the spending, but his announcement missed a crucial element ''The economy growth plan''
He has also faired to show innovation and creativity in bring up how they would support the private sector to grow so that they can be able to accommodate thousands of public sector employees that will loose their jobs as result of these cuts.

Nick's picture

To all of you who think these spending cuts weren't as bad as they could have been; think about what you're saying? It was Cameron and Clegg who told us that we needed the most savage of cuts to avoid the country 'going bust'. So if they aren't as bad as Cameron and Clegg told us they need to be, it surely stands to reason (in their logic) that their deficit reductions plans won't work!

We all know the cuts were hyped up and then scaled back, with the exception of those on welfare. Be under no illusion, this is a massive destruction of our welfare state.

This will backfire on Cameron and Clegg, just wait and see.

mike's picture

For fucks sake, why can't we be more like France and just say NO!?!?!

ang's picture

Luddite: Georgie boy likes to take credit for saving us all, when we were on the 'brink of catastrophe' and for steering us nicely out of a recession and into growth, when actually it was messers Brown and Darling. Georgie, you don't have the intellect luvvy!

ang's picture

Mike: It has to be a 'massive' no. I'm in, but we need millions to make an impact.

This is where the unions come in and although the Tories will try to tar them as criminals , they actually stand up for workers rights and will be an extremely important force in the next few years.

Nick's picture

I have to laugh at how Osborne gets it all wrong on Employment & Support Allowance! He makes a big din about only being able to claim it for a maximum of 12 months. What the dimwit doesn't tell you all is how it only applies to contribution based Employment & Support Allowance. Once the contribution period runs out, the claimant will simply revert to income based Employment & Support Allowance. The net saving will be minimal because the claimants who qualify for the contribution based ESA will have exhausted any savings they possess after 12 months and will therefore qualify for the income based variant.

Is this what he calls 'dealing with the deficit decisively'?

Does this man think anything through?

The 'anomaly' has yet to come to the surface, but it will. Laughable!

Jim's picture

How is it the banks, reckless in the feeding frenzy of recent years, have managed to come out of this unscathed!! i wonder what the bonuses will look like in the city this year?!!!

Nick's picture

Going back to my post on ESA. The quarterly figures to February 2010 show that of a total 479 thousand ESA Claims, only 163 were contribution based. The number of people still on ESA also dramatically reduces after the first year by around 50%. So in any one quarter the maximum saving is likely to no more than 80 thousand claims. The problem Osborne has is that a high number of these 80 thousand contribution based claimants would otherwise be able to claim Income Based ESA anyway. The rule is that if you don’t qualify for the contribution based variant you have to be considered for income based ESA. So Osborne’s savings are not going to be what he thought of, but it will sound good in the papers! Does he not consider any facts?

Nick's picture

Jim: Because the like of Osborne are bedellows of the Bankers. Cameron, Clegg, Cable & Osborne love a bit of banking under the duvet you know!

Nick's picture

Jim: Because the likes of Osborne are bedfellows of the Bankers. Cameron, Clegg, Cable & Osborne love a bit of banking under the duvet you know!

babybear3333's picture

Anyone with an ounce of common sense can see that the rich 10% have more than a thousand times the income of the poorest 10%. Shame on anyoe who condones this or CONDEMS it!

Barny's picture

@ Acamar - 'You cannot have a government imposing serious harm on children. There is a word for this, and it's abuse.' So right. Unfortunately local government is already implementing huge cuts in funding for Children's and Young People's services before the impact of the CSR is even fully felt. I'm seeing whole teams and services being wiped out. This is not going to be good and there will be a social consequence and reaction.

Nick's picture

In monetary terms, I'd make a saving of £2M to be far more realistic than the extraordinary claims of billions made by Osborne. The DWP's own figures were posted earlier by me. Taking the case of 80,000 claims being saved in any one quarter, the net saving would be 80,000 x £65.45 (the £65.45 being the basic amount most people receive)= £523,6000 x 4 quarters =£2044000, How on earth does Osborne equate that to anywhere near a bilion or more, it's little more than £2 Million!

Does Osborne not possess a calculator?

Nick's picture

Osborne announces the cuts without doing the maths! How can we trust a chancellor who says we will save 'billions' by reducing ESA, when in fact we are talking about a couple of million at most? These figures quoted by Osborne simply don't add up!

Nick's picture

Why doesn't Osborne stop wasting his time on miscalcuted benefit cuts when far more could be found by clamping down on tax avoidance?

Take his father's £15 million wallpaper firm 'Osborne & Little'. A very exclusive range of wallpapers which have furnished Buckingham Palace and the White House is produced by the firm; so we are not talking about a few rolls of chiptex from B&Q here.

Conveniently, Osborne & Little's profits have fallen of late, no mere coincidence when the focus is likely to be on how much he is paid, it's currently and undeclared amount.

Osborne pays his 'share dividend' into the Osborne 'family trust' (as declared in his member's interests statement). It's obvious tax avoidance, the reality is his 'dividend' is income and should be treated just like PAYE. But no, he uses the well known avoidance loophole as a means of evading his liability by diverting it into a 'family trust' for future Inheritance Tax avoidance purposes. If Osborne came clean and made sure many others who do the same all paid their dues, there would be no need to fiddle around with meaningless figures from the DWP budget which will save us no where near what he says they will. He's an irresponsible gambler who is playing with our economy in the most ilogical and ill conceived way, it's all guess work based on trying to please the media rather than looking at the pounds, shillings and pence.

Phil's picture

George, you're misinterpreting the graph. It's far worse than you're making out.

The black part of the bar chart contains the measures from the budget and previous Government, the "progressive" claims for which the IFS had already comprehensively debunked back in June.

The green part of the graph shows the additional fiscal impact of the new cuts announced as part of the spending review. They quite clearly show that the bottom 10% lose more than ANY other group, followed by the 2nd lowest 10%.

And of course that's before taking account of who will lose out from the non-availability of the public services being cut. Namely the people who rely on public services the most, as well as those who will lose their jobs.

Luddite's picture

Where's Gordon, still hiding north of the border.

Politically Incorrect's picture

At the end of the day one Big Society gesture would be for persons like myself, now retird, who have worked as money advisers or debt counsellors to monitor 5 real family units during the next 5 years as regards income expenditure and also spending in private sector necessitated by closure of public services eg having to buy books because local library closed down or resources cut. Theorising by comfortably situated economists and commentators is pointless. Bottom line single parent earning 18K per annum loses 1K per annum a much more desparate scenario than Professional couple income 100K per annum losing £5.5K per annum; simples!

zsremrxc's picture

It is political failure that has trashed this country and killed ordinary working people wholesale in the past...now we see clearly in the present bunch of damned to hell liars... a terrifying future. !

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