Thursday, 26 August 2010

FAIR? Who are Clegg and Cameron kidding?

According to a report by the Institute of Fiscal Studies (IFS), the Budget has hit poorest families the hardest.

From the BBC

In George Osborne's June Budget, the chancellor increased VAT from 17.5% to 20% and cut welfare spending.

Child benefit and public sector pay were frozen and 25% cut from public service spending.

The IFS said: "Low-income households of working age lose the most as a proportion of income from the tax and benefit reforms announced in the emergency Budget.

"Those who lose the least are households of working age without children in the upper half of the income distribution.

"They do not lose out from cuts in welfare spending, and they are the biggest beneficiaries from the increase in the income tax personal allowance."

The report also questioned the government's decision to use the Consumer Prices Index (CPI) instead of the Retail Prices Index (RPI) when calculating certain benefits.

The report said that more than three-quarters of benefit claimants were affected by increases in housing costs, which are included in the RPI.

Many analysts say that government spending cuts often have a disproportionate impact on the poorest households.

They site the example of Canada, which cut spending sharply in the 1990s and saw the gap between rich and poor widen. The same phenomenon has occurred in Sweden and Finland, they say.


The BBC's chief economics correspondent Hugh Pym says the disagreement between the Treasury and the IFS over their forecasts was about timescales.

When George Osborne said in the Budget the measures were progressive, he was referring to changes taking effect by 2012. The IFS argues that we should look at a longer period, up to 2014, taking in a fuller range of measures including cuts to housing benefit.

On that basis, the IFS stands by its analysis that the full package of measures, taking in Alistair Darling's last Budget and Mr Osborne's changes, is regressive, our correspondent says.

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