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20 October 2010

How the Spending Review hit the poorest hardest

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

By George Eaton

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.

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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.