By Chris Giles, Economics Editor
Published: June 24 2010 03:00
The Budget was regressive, hitting the poor harder than the rich, the independent Institute for Fiscal Studies said yesterday.
The think-tank’s assessment casts doubt on the Liberal Democrats’ main justification for supporting the measures announced by George Osborne.
Contradicting the Treasury’s account of “progressive” Budget measures, IFS researchers noted that ministers were only able to make that claim by including measures announced by the previous government, omitting large welfare cuts to the poor and ignoring cuts to public services of which the poor are the heaviest users.
Robert Chote, IFS director, said: “Perhaps the most important omission in any distributional analysis of this sort is the impact of the looming cuts to public services, which are likely to hit poorer households significantly harder than richer households”.
The IFS conclusions will heap pressure on Liberal Democrat MPs, who fear they could be vulnerable to the charge that their sole purpose in the coalition is to vote through tough measures that target the poor as a means of bringing down the deficit.
Although the IFS did not provide an estimate of the impact of cuts to government departments across the income distribution, the Office for National Statistics has recently published estimates of which households benefit from government services.
Earlier this month, the government statistical office noted that education services, which are in line for big cuts, are disproportionately used by poorer families “due to the concentration of children in this [lower] part of the [income] distribution”.
A Financial Times simulation of the effect of cutting public services by 15 per cent – a figure that equates to the total cut in departmental spending – showed the losses were heavily concentrated in poor families and dwarfed the effects of other Budget tax and benefit changes.
Losses among the poorest 20 per cent of families would approach 8 per cent of income, with losses below 3 per cent among the richest fifth of families.
The results contrast with the Treasury’s analysis, which omitted the effect of public spending cuts and so showed bigger proportionate losses among the richest families.
Conservative aides to the chancellor insisted last night that ministers had been totally straight and clear about what was included in their analysis and what was excluded.
One claimed the chancellor’s boast that the Budget “was progressive” was accurate. He said the government had chosen to implement some of Lab-our’s policies so it was right they should be included in the Treasury’s analysis.
Although he accepted the ONS figures did give a good picture of the current allocation of spending on public services across households, he added that it was too early to say whether the spending cuts would be regressive because allocations depended on the outcome of the October spending review. “You will have to wait and see,” he said.
But such is the distribution of public spending, with the poorest families benefiting by £6,315 a year in 2008-09 and the richest receiving public services worth £3,870, that it is almost impossible to cut them in a way that makes the change take proportionately more from the rich than the poor.
To come close, the government would have to contemplate measures such as removing free education from richer families. Mr Chote said it was already possible to reach a reasonable conclusion about the distributional impact of public service cuts.