The more you look at the IFS analysis, the worse it gets

Poorer families are in fact paying nearly five times more than the richest to bring down the budget deficit at a speed and value greater than anything tried before. This comes on top of evidence from the House of Commons Library that women will bear 73% of the impact of the budget as tax credits and child benefit and scaled back.

Our guest writer is Rachel Reeves, Labour Member of Parliament for Leeds West

In June I wrote a piece for the Guardian’s Comment is Free, citing the ‘shocking’ evidence from the Institute of Fiscal Studies that George Osborne’s budget will cost the poorest families four times as much as the richest families. Two months on, and after much number crunching, the IFS has revised its analysis.

Poorer families are in fact paying nearly five times more than the richest to bring down the budget deficit at a speed and value greater than anything tried before. This comes on top of evidence from the House of Commons Library that women will bear 73% of the impact of the budget as tax credits and child benefit and scaled back.

This week it was left to Nick Clegg to defend this regressive budget that will push more families, and especially children according to the analysis, back in to poverty. Clegg defended the budget on two counts.

First he said that:

“Much of the IFS analysis was about benefits, but we want to get people off benefits and into work.  That is a plan for real fairness.”

A laudable ambition which we all share.  But, hardly consistent with a budget that on the Office of Budget Responsibility’s forecast (the very quango set up by Osborne) reduces growth this year and next and adds an extra 100,000 people to the unemployment count this year and for the duration of the Parliament. The budget is regressive, and if you take in to account the impact on unemployment, even more so.

The second defence from the leader of the once-progressive Liberal Democrats is that the capital gains tax increases weren’t included.  But as the IFS point out:

“The capital gains tax measures that were excluded only came to about £800m compared to £4.1 billion in welfare measures excluded by the Treasury in their assessment.”

Even if all the capital gains impact were included it would not alter the facts. The poor lose out, while those at the top of the income distribution who have much greater capacity for absorbing some of pain and who arguably bear a little more responsibility for the recession, can carry on as usual.

The IFS analysis shows that because of the changes to benefits – particularly linking benefits to CPI and not RPI (a broader measure of prices) – substantially cutting housing benefits, freezing child benefit, and cuts to Disability Living Allowance and tax credits – the poor lose out.  This is compounded by the increase in VAT which falls harder on low income families.

Child and pensioner poverty fell substantially under Labour, but to meet the target of abolishing child poverty by 2020 a lot more is needed.  The new government point to the pupil premium and plans to offer a tax incentive to keep married couples together.  But, the stark reality of this budget is clear from the IFS numbers.  For every income bracket, families with children lose out most, and those with least money to spare are hit hardest.

For families in the bottom income decile, earning £190 a week, the budget will make them £8 a week worse off – whereas families in the top decile, earning an average of £1,600 a week the hit is £13. More than affordable at the top but plunging people in to poverty at the bottom. Expect child poverty to increase even higher.  Expect income inequality to start rising sharply – especially as most wage settlements are linked to the broader RPI rather than CPI.

From the Conservatives, we should have expected this sort of budget.  From the Liberal Democrats, it is further evidence that they abandoned their principles on entering office. For families up and down Britain it is just a prelude to what this government defines as ‘progressive’ politics.

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