FactCheck: families £1500 poorer?
Updated on 08 December 2008
The Tories claim Labour's "tax bombshell" leaves families worse off. FactCheck explodes the numbers.
The claim
"Since Labour took over, the average family with children will be almost £1,500 worse off once [Gordon Brown's] latest tax and national insurance bombshell is taken into account."
Philip Hammond, shadow chief secretary to the treasury, 5 December 2008, quoted in the Daily Mail, The Daily Telegraph and others.
The background
"Tax bombshell!" the Tories bellowed last week when the government's pre-budget report - an emergency budget in all but name - proposed increased national insurance and a new top rate of tax from 2011.
But with a host of other changes, including a predicted £17bn VAT cut, thrown in to the budgetary mix, how much worse off will the average, hard-working voter actually be?
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The background
A highly respected independent thinktank put out a detailed report last week picking over the changes.
The Tories weighed in to comment on one particular aspect of their findings - that the average family would be left £1,500 worse off compared with 1997.
But is the party spinning the figures correctly?
The analysis
Back to the small print of the Institute for Fiscal Studies report, The distributional effect of the 2008 pre-budget report.
The table at the top of page 15 seems - at first glance - to back up the Tories' claim. It compares the impact of tax and benefit changes on net income with the picture in 1997-98 - or in other words, what would have happened if Labour had kept exactly the same tax and benefits system they inherited from the Conservatives, adjusted for inflation.
A number of groups are due to benefit under Labour (single parents, unemployed or single-earner couples with kids, and pensioners). But a number also lose out, worst off being a single-earner couple without kids (£1,684 down) and a two-earner couple with kids (down £1,466).
However, there's a crucial rider to these figures - rising incomes.
The latest figures available - for 2006-07 - show median household income has increased by 20 per cent in real terms since 1996-97.
If all the households in the country were lined up, the median would be the one in the middle, so using this measure gives an average that's less affected by footballer-size salaries, or the extremely poor.
The figures Hammond quotes don't take this increase in average incomes into account - they're looking at the theoretical effect of tax and benefits on income rather than the whole economic picture.
"The figure they're quoting is for the average amount a two-earner couple with children is losing out as a result of tax and benefit changes since 1997 - subtracting all the other changes in the economy and just focusing on how much better or worse off people would be if there had been no changes," explained James Browne, one of the report's authors.
It's not that all families with kids are worse off on this measure - as we saw above, couples with only one parent earning a crust or employed lone parents end up better off, statistically.
But the picture for the two-earner couple isn't as hard-up as the Tories suggest.
"The average two-earner couple is better off in absolute terms than in 1997," said Browne. "But they would be even better off if no changes had been made."
The verdict
Labour's tax and benefit changes will end up costing a family with children and two working parents around £1,500 a year by 2011, compared with the tax and benefit system the party inherited in 1997.
So there's some evidence for the point behind Hammond's claim - that Labour is increasing taxes on an average family - hence he doesn't get a higher FactCheck rating.
But the claim he makes is a step too far - rising incomes over the past decade mean an average two-earner family will still end up being richer than they were in 1997, regardless of Gordon's increased tax take.
Other types of family - such as couples where only one parent works - come out slightly better off on average simply on the basis of Labour's tax changes.
FactCheck rating: 3.5
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Every time a FactCheck article is published we'll give it a rating from zero to five.
The lower end of the scale indicates that the claim in question largerly checks out, while the upper end of the scale suggests misrepresentation, exaggeration, a massaging of statistics and/or language.
In the unlikely event that we award a 5 out of 5, our factcheckers have concluded that the claim under examination has absolutely no basis in fact.
The sources
IFS: The distributional effect of the 2008 pre-budget report
IFS: Poverty and inequality in the UK 2008
Pre-budget report 2008
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