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25 August 2010

New evidence that Osborne’s Budget hits the poorest hardest

IFS study proves conclusively that June emergency Budget was regressive, not progressive.

By George Eaton

“Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top.

It is a progressive Budget.”

George Osborne, 22 June 2010

“[T]he tax and benefit changes announced in the emergency Budget are clearly regressive as, on average, they hit the poorest households more than those in the upper-middle of the income distribution.”

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Institute for Fiscal Studies, 25 August 2010

There’s yet more evidence that George Osborne’s emergency Budget was regressive, not progressive, courtesy of that oracle of economics, the Institute for Fiscal Studies, this morning.

The IFS first concluded that Osborne’s Budget was “generally regressive” the day after his speech to the House, but that analysis excluded some benefit changes due to be in place by 2014-2015.

The new research, which looks at the effect of all tax and benefit reforms due to be introduced between now and April 2014, should end all attempts by the coalition to celebrate the Budget as “progressive”.

As the graph below shows, the poorest families lose the most from the Budget, while the richest families lose least.

Budget

So, what is the political fallout from all of this? It’s going to be an uncomfortable day for Nick Clegg (who claimed that fairness had been “hard-wired” into the Budget), with one Lib Dem MP, Mike Hancock, already on the warpath. He said: “We didn’t sign up for a coalition that was going to hurt the poorest people in society, and I certainly didn’t get elected to do that ever.”

It’ll also be worth watching to see how the increasingly combative Simon Hughes responds, having been assured by Clegg that the Budget was progressive.

As I’ve argued before, Osborne and the rest of the coalition now have a clear choice. They can either abandon the most punitive aspects of their deficit reduction programme, or they can, in true Thatcherite style, mount a defence of regressive economics.

But, after today’s findings, it’s clearer than ever that dressing up regressive cuts as “progressive” is intellectually and morally unsustainable.

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