IFS says Budget hits the poorest hardest

The Institute of Fiscal Studies (IFS) has warned the first coalition government’s Budget will hit the poorest families hardest.

The think tank says the measures announced in June were “regressive”, pointing to families with children being set to lose the largest proportion of their income owing to benefit cuts announced by Chancellor George Osborne.

The IFS challenges the government’s own call that the Budget was progressive and says the “main measures which will lead to losses among better-off households were announced by the previous government”.

“They hit the poorest households more than those in the upper-middle of the income distribution in cash, let alone percentage, terms”

The report says: “Once all of the benefit cuts are considered, the tax and benefit changes announced in the emergency budget are clearly regressive as, on average, they hit the poorest households more than those in the upper-middle of the income distribution in cash, let alone percentage, terms.”

It says that cuts to the likes of housing benefits would hit the poorest families by £422 from the Budget to April 2014, meaning only the top 10% of households would be hit more than the bottom 60%. 

The report also questions the government’s decision in the June 2010 Budget to link benefits to the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) from April 2011. (article continues below)

The government’s argument for the move was that its sees CPI as a better measure of inflation as the way it is calculated allows for the fact consumers are able to protect themselves from price changes by substituting towards relatively cheaper goods, and because the goods and services it covers better reflect the “inflation experience” of households receiving benefits.

However, the report says: “We find the first of these arguments to be sound but the second to be more questionable—only 23% of benefit claimants are unaffected by increases in mortgage interest payments and council tax, which are the main items that are excluded from the CPI but included in the RPI.”

According to the BBC, the Treasury says it does not accept the “selective” findings of the IFS.

A spokesman for the Treasury says: “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.”