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Budget cuts will 'hit the poorest hardest'

By Channel 4 News

Updated on 23 June 2010

The Institute for Fiscal Studies says Chancellor George Osborne budget cuts "hit the poorest hardest". Political editor Gary Gibbon says you see how difficult it will be to secure and hold the progressive mantle through this saga ahead.

The IFS has challenged the chancellor's claim that his budget was progressive. They said if the effect of measures inherited from the Labour government were disregarded, yesterday's changes were actually "regressive overall". 

Mr Osborne also hinted more welfare cuts could be on the way in his autumn spending review, to ease the pain on other departments.

Prime Minister David Cameron, meanwhile, indicated that public sector pensions would also be hit as the government set about repairing the £85bn "black hole" in the public finances.

The respected IFS warned that public services were facing "the longest, deepest, sustained period of cuts" since the Second World War.

Political editor Gary Gibbon writes:
IFS analysis of the emergency budget suggests that it is "somewhat regressive" when you "take out the effect of measures inherited from Labour, when you look further into the future than 2012-13 and when you include some other measures that the Treasury has chosen not to model."

Factor in on top of that the serious pressure on the DWP to come up with big additional cuts in welfare payments to reduce the pain on other departmental budgets and keeping things "progressive", living up to the boasts, making the graphs much pointed to by Lib Dem MPs a reality in a five-year retrenchment that leans heavily on cuts over tax hikes… and you see how difficult it will be to secure and hold the progressive mantle through this saga ahead.

Though the IFS does have comfort for those Lib Dem modernisers who are busily trying to convince their fellow MPs that the party’s election line that VAT is regressive is wrong. The IFS says it is progressive if you look at groups by spending not income.

Read more from Gary Gibbon's blog

In its post-Budget analysis the IFS said that some departments could now see their spending slashed by a third - with the Home Office, justice, transport, housing and higher education all potentially set to lose out.

However it said that the impact on services could be mitigated if the Government was able to find further welfare savings.

Another £13bn in benefit cuts could mean Whitehall departments would be facing budget reductions averaging 20 per cent over the next four years rather than the 25 per cent Mr Osborne predicted in his Commons statement.

More on the budget from Channel 4 News:
- FactCheck: a 'progressive' budget?
- Emergency budget: George's big day
- 'The low paid will bear the brunt'
- Osborne's 'tough but fair' budget
- Full coverage of the emergency budget

Acting Labour leader Harriet Harman also clashed angrily with David Cameron at prime minister's questions today over the effect of the emergency budget on pensioners and families.

In rowdy exchanges at Commons question time, Ms Harman repeatedly accused David Cameron of not being "straight" with the public about the impact of the Government's proposals.

She claimed restoring the earnings link would give pensioners "nothing extra" because no extra money had been set aside to pay for it.

Economics editor Faisal Islam writes:
Just how unavoidable was the VAT rise, as the Chancellor mentioned in his speech? The IFS show that the net additional tax rise announced yesterday was £8billion. Or put another way, a £20bn tax rise (mainly a £13bn VAT rise) minus a £12bn tax giveaway.

So to be absolutely clear, in the absence of the tax cuts, the VAT rise was utterly avoidable. Another way to look at it: That the VAT rise was unavoidable because of the coalition negotiations with the Lib Dems.

Read more from Faisal Islam's blog

And she insisted elderly people would be left worse off once the impact of the VAT rise was taken into consideration.

But Mr Cameron fiercely rejected her charge, saying £1bn was being put into pensions.

Ms Harman said: "What the electorate detest is broken promises. People will want to know how your Budget will affect them.

"You weren't straight with pensioners. You weren't straight with families. You weren't straight on VAT.

"When the Chancellor got up to present his Budget he proclaimed: 'I'm not going to hide hard choices in the small print of the Budget documents, you're going to hear them straight from me...'

"But isn't the truth, that was his first promise and he broke it even before he sat down."

Mr Cameron said: "You talk about broken promises. We remember 'no more boom and bust'. What happened to that promise. We remember 'prudence with a purpose'. What happened to that.

"The fact is the Labour party have got absolutely nothing to say about the biggest problem facing this country, which is a massive budget deficit.

"They might be adopting Greek-anomics, but we're sorting out the problem."

Freud: 'cost of our welfare system will shock you'

Lord David Freud, minster for welfare reform, told Channel 4 News: "The direct cost of our welfare system will shock you. There is fraud and error in excess every year of £5bn. We disregard nearly a billion and it actually costs £2.5bn to administer.

"There is nearly £9bn of cost in a very inefficient, broken system that we need to start driving down.

"Mending the system is the priority that we are going to set ourselves in time for the autumn spending review.

"What we are looking at is reforming and simplifying the system so that people are always incentivised to work and that they are rewarded for doing so."

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