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23 January 2015

IFS report dispels Osborne’s myth that we’re “all in it together”

Middle to higher income households, according to a report from the Institute for Fiscal Studies, have actually escaped “remarkably unscathed” from the coalition’s austerity drive.

By Ashley Cowburn

Low-income families with children have bore the brunt of the coalition’s austerity drive, according to a report this morning by an independent economic think-tank.

The report, by the Institute for Fiscal Studies (IFS), suggests that the coalition’s tax and benefit changes have cost the average family more than £1,000 a year. It also adds that the richest tenth have lost out significantly in cash terms, though not as a percentage of income.

Interestingly, it can be taken from the report that Osborne’s mantra of we’re “all in it together” is little more than a myth: middle to higher income households have actually escaped “remarkably unscathed” from the coalition’s austerity measures, according to the IFS. And those in the same wage bracket, without children, have been left better off as a result of the coalition’s tax and benefit changes. But for middle and higher income families with children, the loss of tax credits and child benefit “has more than offset the effect of income tax cuts”.

Pensioners were relatively unaffected, on average, as the hike in VAT largely offset their gains from the “triple lock” on the state pension.

Cathy Jamieson, Labour’s shadow treasury minister, said today that the report shows that tax and benefit changes under the coalition have left households £1,127 a year worse off on average. Jamieson said: “Families with children have been hit hardest of all by David Cameron’s choices – a clear betrayal of his promise to lead the most family-friendly government ever.

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“For all the government’s claims, this report shows that they have raised tax by over £13.5bn a year. And for millions of working people the rise in VAT and cuts to things like tax credits have more than offset changes to the personal allowance.

“It is clear working people can’t afford five more years of this government.”

Responding to the IFS briefing note a spokesperson for HM Treasury said:

[The report] confirms that the richest have lost the most from the Government’s changes to taxes and welfare. Treasury analysis has shown that throughout the parliament that the richest 10 per cent of households have made the largest contribution to reducing the deficit. The Treasury presents the most complete, rigorous and detailed record of the impact of this government’s policies on households. At Autumn Statement this confirmed that the richest 20 per cent of households will contribute more to reducing the deficit than the remaining 80 per cent put together.”

But no mention from the Treasury of those low-income families mentioned in the IFS report. While the government claims the richest have made “the largest contribution” in reducing the deficit, the poorest have actually lost the greatest percentage of their income. The coalition’s sustained attack on the most vulnerable people in society through its relentless austerity drive has left the poorest families on the verge of destitution – but, according to the Treasury, the “richest have lost the most”. 

James Browne, a senior research economist at IFS and co-author of the report said: “Whichever way you cut it, low-income households with children and the very richest households have lost out significantly from the changes as a percentage of their incomes.”

“Increases in the tax-free personal allowance have played an important role in protecting middle-income, working-age households meaning that those without children have actually gained overall.”