IFS: Tax and benefit changes are regressive

Today the Institute for Fiscal Studies (IFS) said that the Government’s plan for fiscal consolidation is regressive, and will hit the poorest disproportionately hard, once cuts to welfare are fully taken into account.

Today the Institute for Fiscal Studies (IFS) said the government’s plan for fiscal consolidation is regressive, and will hit the poorest disproportionately hard, once cuts to welfare are fully taken into account.

Analysis from the IFS shows that the poorest income decile will lose the largest percentage of income because of the proposed changes to welfare. Their numbers show that the reforms in place by 2012-13 are “slightly regressive” or flat within the bottom nine-tenths of households.

The IFS disputes the Treasury’s claim the reforms are progressive, and argues the changes by 2014-15 will be “clearly regressive”, stating families with children will be the biggest losers.

IFS acting director Carl Emmerson said chancellor George Osborne’s baseline did not include cuts already taken and the June budget. He told gathered media that the Treasury’s claim that overall the tax measures were progressive was due to the new Government’s implementation of the tax increases announced by the previous Labour Chancellor. This includes the 50p rate – of which George Osborne said “I don’t like it” – and the NICs increases which the Tories described as a “jobs tax“.

He added:

“Our analysis – published in August, shows that by including a wider set of benefit reforms announced by this Government leads to the conclusion that the impact of all tax and benefit measures yet to come in reduces the incomes of lower income households by more than that of higher income households with the notable exception of the richest 2% of the population who are the hardest hit.

“Therefore the tax and benefit changes are regressive rather than progressive across most of the income distribution. And when we add in the new measures announced yesterday this finding is, unsurprisingly, reinforced.

“So our analysis continues to show that, with the notable exception of the richest 2%, the tax and benefit components of the fiscal consolidation are, overall, being in implemented in a regressive way.”

An IPSOS-Mori poll brought further bad news for the coalition government today. Two-thirds of those surveyed would prefer slower spending cuts rather than cutting spending too quickly; this is a slight drop since September polling, back down to June levels.

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