Budget is regressive, says IFS

24 Aug 10
A leading think-tank has disproved government claims that the June Budget was 'progressive', saying the measures introduced will hit the poorest hardest
By Lucy Phillips

25 August 2010

The Institute for Fiscal Studies has disproved government claims that the June Budget was ‘progressive’, saying the measures introduced will hit the poorest hardest.

The think-tank's analysis of the coalition’s emergency Budget describes the changes to taxes and benefits as ‘clearly regressive’, hitting the poorest households more on average than upper-middle income earners.

The study contradicts claims made by the chancellor in his Budget speech and in the documentation accompanying it. Both asserted that the tax and benefit adjustments between now and 2012/13 would hit the richest more than the poorest.

The IFS analysis will be particularly unwelcome for deputy prime minister and Liberal Democrat leader Nick Clegg, who has championed the coalition’s ‘progressive cuts’ in a bid to align them with his party’s ideals for a fair tax system. Unease among grassroots members is also likely to escalate at the LibDem party conference next month when a motion will call for the government to ensure the most vulnerable in society are not disproportionately affected by the coalition’s austerity measures.

According to the IFS analysis, by research economists James Browne and Peter Levell, low-income households of working age will lose out the most as a result of the Budget. Higher income working age adults without children will fare the best since they will not lose out from any cuts in welfare payments. They also benefit most from the increase in the income tax personal allowance.

The report, The distributional effect of tax and benefit reforms to be introduced between June 2010 and April 2014: a revised assessment, notes that ‘the biggest single change’ to welfare policy in the emergency Budget was the decision to link benefits with the consumer price index  rather than the higher retail price index.

But the Treasury rejected the IFS analysis. A spokesperson said: 'It is selective, ignoring the pro-growth and employment effects of Budget measures such as helping households move from benefits into work, and reductions in Corporation Tax... We stand full-square behind our Budget analysis which is based on what can accurately and completely be measured.

'Not taking action would have been regressive – burdening current and future taxpayers with the ever rising cost of economic failure.'

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