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22 June 2010

Osborne’s “progressive” façade

Talk of a “fair and progressive” Budget disguises how cuts will hit the poorest hardest.

By George Eaton

The coalition is determined to present today’s Budget as “fair and progressive”, with tax rises for the richest and tax cuts for the poorest. But does the rhetoric match the reality?

On tax, George Osborne will point to the plan (first mooted by the Lib Dems) to raise the personal tax allowance by £1,000 to £7,475, a move that will take 850,000 of the lowest-paid out of income tax altogether.

But this measure isn’t as progressive as it initially appears. For a start, those individuals too poor to pay tax in the first place will gain nothing from the move. In 2009-2010, only 62 per cent of the adult population earned enough to pay income tax. Should the measure be combined with a rise in regressive VAT, the overall effect may be far from progressive.

But it’s only once we take account of the likely spending cuts that any claim this Budget will be “progressive” falls apart. The coalition’s decision to rely on spending cuts, rather than tax rises, to plug the deficit will have disastrous consequences for the poor.

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With spending in non-ring-fenced departments poised to fall by up to 25 per cent, it is the poorest who will be hardest hit. As I noted yesterday, an analysis by the Financial Times showed that cuts would hit large parts of the north twice as hard as the south.

Today’s FT contains a succinct explanation:

Spending cuts of such a scale could not be presented as “progressive” because public spending is concentrated in poorer areas and poorer families, suggesting that the Budget will have a sting in the tail.

Will Osborne, a better politician than he is an economist, have the chutzpah to claim that his cuts are “progressive”? If he does, Labour will be presented with an open goal.

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