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Clegg rejects budget 'poorest pay most' claims

By Channel 4 News

Updated on 25 August 2010

The UK's poorest families will be hit the hardest by the coalition's emergency budget, the Institute for Fiscal Studies (IFS) claims - but Deputy Prime Minister Nick Clegg tells Faisal Islam the government is fair if all of its policies are considered.

The UK's poorest families will be hit the hardest by the coalition's emergency budget, the Institute for Fiscal Studies (IFS) claims  (Getty)

In June new Chancellor George Osborne claimed that his emergency budget was a "progressive budget".

He claimed this was because it was supported by distributional analysis in the budget documentation that showed tax and benefit changes due to come into effect between now and 2012-13 would hit the richest more than the poorest in the country.

However, according to analysis carried out by the Institute for Fiscal Studies (IFS), the economic think tank claims that it is actually the poorest that are being hit hardest by Osborne's budget.

The IFS researchers claim that the Budget was in fact generally "regressive".

Deputy Prime Minister Nick Clegg told Channel 4 News Economics Editor Faisal Islam: "Much of the IFS analysis was about benefits, but we want to get people off benefits and into work.

"That is a plan for real fairness, that is progressive and I think that is a richer understanding of what fairness is about than a single snapshot, that doesn't - that simpy doesn't - provide the full picture of what we're trying to do over the coming months and years."

Senior research economist at the IFS, James Browne, said: "I'm surprised by the criticism from the government. We're essentially doing exactly the same as they did in the annexe of the budget, but including more measures, not less."

'Not surprising' poor hit more than rich - time for the government to admit it?
It was, apparently, Nick Clegg, who was obsessed with having some sort of tabular evidence, a piece of paper no less, in the budget, that he could use to show the Lib Dem masses that the budget was fair and "progressive", writes Channel 4 News Economics Editor Faisal Islam.

This has created something of a rod for the coalition's back. In many ways it should not be surprising that the cuts agenda hits the poor more than the rich.

In the US, for example, this would be standard practice, and probably uncontroversial.

Perhaps the most striking thing about the government response to the Institute for Fiscal Studies (IFS) report is that they are so keen to bat down suggestions that the poor will face the biggest initial hit from austerity.

It is a mathematical consequence of cuts to benefits, a landmark coalition policy. They could, and perhaps should, openly admit that the budget was regressive on almost every fair measure, and then defend it politically as the consequence of dealing with a bloated benefits bill.

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The IFS says the distributional analysis in the budget documents also excluded the effects of some cuts to housing benefit, disability living allowance and tax credits that will tend to hit the bottom half of the income distribution more than the top half. Its researchers say the report is an attempt to reflect the impact of all the benefit cuts announced in the budget. The IFS used data and analysis published by the Department for Work and Pensions since the budget two months ago to come up with its statistics.

The IFS says it shows, 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 income distribution in cash.

Yvette Cooper, Labour's shadow works and pensions secretary accused the government of carrying out a "shocking and unfair attack on children and families."

'Very worried'
"There's a pay freeze, less benefits, and public sector cuts," teaching assistant Joanne Morgan, from Torfaen, told Channel 4 News.

"And with the high prices of food and petrol - I'm really worried we will have to leave the house my children grew up in."

Ms Morgan said she understands why cuts have to be made, but feels the distribution of pain is very uneven and will hit children, including those in the school where she works, particularly hard.

"They didn't do anything to cause it - why have children got to be hit?" she asked.

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Dave Prentis, Unison general secretary, said: "There is no compassion in this coalition. The chancellor's claims that his budget was fair and progressive have been blown out of the water.

"Well, he didn’t fool us then and he's not fooling anyone now. That is why Unison is stepping up its campaign to protect the vital public services that the vulnerable and needy rely on most, ahead of the Comprehensive Spending Review.

"The Tories always revert to type. They are still the party that clobbers those on the lowest incomes, whilst helping the rich to get richer. It is a disgrace that children from low-income families are the ones paying the price for this bankers' recession." 

But, the Treasury "does not accept" with the IFS report. Financial secretary to the Treasury Mark Hoban told Channel 4 News the IFS report was "selective", with "flawed assumptions" and stressed that the government stood by its initial analysis that the budget was "fair and progressive".

"Some of the things the IFS have taken into account, some of the things they have excluded, have distorted the analysis," he said.

"The analysis we produced at the time of the budget speaks for itself. It demonstrated it was a progressive and fair budget. We introduced a number of measures that would help those at the bottom of the income scale."

He said the big difference between the coalition government and the previous government was the information they had provided in June on the impact of the budget measures on families - rather than hiding away the impact in budget documents.

He rejected the suggestion that the poor would suffer, saying: "Everyone will have to pay a price as part of this. That's the legacy that Labour has saddled us with. But we have to make these reforms if we are going to get the economy going again."

Matthew Taylor, chief executive of the Royal Society for the encouragement of Arts, Manufactures and Commerceblogged for Channel 4 News here that it was extremely hard for the coalition to do what it wanted to do - cut public spending - without hurting the poor.

"It is very hard to reduce public expenditure without impacting more on the poor than the well-off. It is even harder when – as the coalition has – you have made a blanket guarantee to protect the income levels of all pensioners," he wrote.  

"The coalition needs to be clear in its aims, its policies and its message - a hesitant spokesman for the Treasury had at least three competing defences on the Today programme this morning.

"But whilst sympathising with the chancellor's dilemma, there are two things I would advise the coalition against strongly: don't over-claim at budget or spending review time - something which dealt a heavy blow to Gordon Brown's credibility, and don’t slag off the IFS - which is highly respected for its rigor and objectivity."

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

The IFS says its study found that the poorest six tenths of households lost more in cash terms as a result of the budget measures than wealthier households in all but the richest 10 per cent.

The report found that Osborne's tax and benefit changes between June 2010 and April 2014 will cost the poorest 10 per cent of households £422.83.

But those in the second richest 10 per cent would only find themselves £339.12 worse off.

The study was part funded by the End Child Poverty campaign and attempts to reflect the impact of all the benefit cuts announced in June's budget.

The report said: "Low-income households of working age lose the most from the June 2010 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."

'Hard to do what they are doing without hitting the poorest hardest'
"What we come down to is the government saying, 'We believe that we need to reduce the deficit quickly, and we believe we should do this through cuts rather than tax rises,'" Helen Barnard, policy manager at the Joseph Rowntree Foundation, told Channel 4 News.

"That was always likely to hit the poorest hardest. But it is when they say they are 'progressive' that we run into problems. It is hard to do what they're doing without hitting the poor - they just need to say if that is what they're doing.

"The IFS charts show that, when you look at all of it, the budget definitely hits the poorer harder, apart from the richest top ten per cent. I think looking across the whole of what the government is doing is fair; but I am not convinced that, even if you did that, they are progressive.

"Some of their plans - like Welfare to Work - are positive. But we have not seen very much from them yet that is fair. The big test will be the spending review - then we will see what they can deliver on fairness. The first thing we would like to see is on every cut they make, how it will affect people in poverty."

Helen Barnard is policy manager at the Joseph Rowntree Foundation, a charity attempting to understand and tackle the UK's social problems.

A Treasury spokesman said: "The government does not accept the IFS analysis.

"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.

"It is essential that policy is informed by transparent analysis: That's why 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."

Political impact
For the Liberal Democrats, who have long associated themselves, as a party, with fairness, the IFS's report will come as a blow.

When they set up the coalition government with the Conservative party, it is unlikely that they were seeking headlines about the poorest being hit the hardest on their watch any more than the Conservatives were.

When, on the day of the budget, Channel 4 News suggested to business secretary Vince Cable that the poorest would feel the most pain with the new numbers, he did not seem convinced.

"I think I need to study that more carefully. Most of the impact is very progressive up the income scale. As far as the bottom is concerned I'm puzzled by that conclusion.

"The two main categories of people who are poor - one group is pensioners who are now being protected better in a way they never were before, because their pensions are linked to earnings and pension credits are also protected so fewer of them are dragged into means testing.

"The final comment that the chancellor made is that because of the big increase in the child component of child tax credit, children in poverty will be protected also. In terms of the impact on the poorest, the two main groups have been safeguarded."

Nottingham shoppers on how they feel about the budget
You can always get a bargain at the Hyson Green market in Nottingham, writes Channel 4 News Midlands correspondent, Darshna Soni.

Every Wednesday, dozens of stalls offer everything from fruit and vegetables, to fabric, to furniture.

I spent the morning asking shoppers how they feel about their income since the budget. Many here are on benefits. A mile from the city centre, the area is one of the most deprived in the city. Although there’s been massive regeneration here recently, residents still have significantly poorer life expectancy than in England as a whole.

Patricia Gittus was out shopping with her grandson.

"I come here because it's cheap," she tells me. "Only rich people can afford to shop in town."

Ayaz Mahmood agreed, saying: "I don't feel better off. There's nobody looking out for us round here. It feels like people who aren't well off and who can't afford it, are having to pay out more."

One man we spoke to, however, had a different view.

"This government has been brilliant for me," said Colin Rick, who runs a car boot stall.

"People who can't afford to go into town, they come here for a bargain. So this budget, it's been good for us, business has actually gone up."  

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