In the June 2010 Budget, initially dubbed the ‘Emergency Budget’ by Chancellor George Osborne, and subsequently re-branded the ‘Progressive Budget’ by his coalition partner Nick Clegg, the government announced welfare cuts totalling £11 billion and significant cuts in housing benefit, Disability Living Allowance and tax credits.
A new study from the Institute for Fiscal Studies (IFS) analyses the “distributional effect” of the tax and benefit changes in the Budget. The study concludes that the overall effect of the Budget is “clearly regressive”, while the tax and benefit changes announced by the previous Government for the same period (i.e., between June 2010 and April 2014) were progressive.
IFS finds that low-income households of working age lose the most from the Budget reforms because of the cuts to welfare spending. Those who lose the least are households of working age without children in the upper half of the income distribution. This is because they do not lose out from cuts in welfare spending and are the biggest beneficiaries from the increase in the income tax personal allowance.
Nick Clegg came out fighting in response to the IFS study, however, and claimed its analysis was incomplete. He said: “This IFS analysis is, by definition, partial. It does not include the things we want to do to get people off benefits and into work.
“If you just look at who is receiving benefits then, in a sense, you don’t ask the most important question of all — which is how you can relieve poverty and make Britain fairer by getting people off benefits and into work.”
But Labour leadership contender David Miliband rejected any criticism of the IFS report and said it showed the government has “targeted children and the most vulnerable in our society”.
He added: “In a little over 100 days, David Cameron and George Osborne have taken backward steps that threaten Labour’s work in government in lifting 500,000 children out of poverty.
“They have all but given up on their ‘aspiration’ of bringing the percentage of all children living on less than 60% of the median income to below 10% by 2020.
“As local government minister Bob Neill confessed in the House of Commons in June: ‘Those in greatest need ultimately bear the burden of paying off the debt.'”
Another Labour leadership candidate Ed Balls said: “The idea that families with children on the lowest incomes are being hit hardest is just shocking, to be honest.
“And it’s a complete assault on the welfare state and on families and children from a government which has always claimed in its language to support families.”
Balls also criticised Clegg’s categorisation of the IFS analysis as somehow flawed. “I was in government for a long time, and I think one of the things you learn is that, however uncomfortable it may be, the Institute for Fiscal Studies independent analysts tend to get things right and they tend to do things in a fair way,” he said.
- The distributional effect of tax and benefit reforms to be introduced between June 2010 and April 2014: a revised assessment (Institute for Fiscal Studies)
- Nick Clegg says report attacking emergency budget is ‘partial’ (Guardian)
- Budget cuts unlawful absent ‘equality assessment’ (The Solicitor)
- Cuts are an “ideological choice”, not an economic necessity (The Solicitor)
- Emergency Budget 2010 (The Solicitor)
- Tax and Benefits (Findlaw.co.uk)
- Tax and Benefits Q&A (Community Forum)
- Find Solicitors (Contact Law)
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