25 Aug 2010

IFS Budget analysis means it is time for transparency

‘Clearly regressive’ are two words that will be sending shivers down the spines of the Coalition ministers. For the first time the Institute of Fiscal Studies (IFS) has completed a comprehensive analysis of who will pay for the Budget measures announced in June, known as a distributional analysis in the jargon.
It breaks down the average cost of the Budget measures by stripping down the population into 10 groups (known as deciles).

The day after the Budget the IFS tentatively suggested that George Osborne’s new Budget measures were ‘somewhat regressive’, but admitted they did not have the data to consider some of the main cuts to housing and disability benefits.

Today, with the help of the Department of Work and Pensions statistics, they have filled in the gaps, and the results are eyewatering. The poor are not only paying more than the rich in proportion to their income – the standard statistical definition of being ‘regressive’. But the poorest groups are paying more from their vastly smaller incomes than almost all the richest groups in cash terms. I’ll flesh out the numbers later.

This is absolutely astonishing, given the Government’s rhetoric that June’s Budget was a ‘progressive Budget’.

The Treasury have obviously queried the methodology. I put the general point to the Chancellor in my interview last week, and his main point was that his whole Budget package was progressive, if you include everything he will legislate for (ie Labour’s National Insurance rises, and pension relief changes). Fair enough, but that has never been the basis for these calculations in the past. Even more concerning for the Chancellor is the fact that the IFS conclude that even on his favoured basis, the Budget is ‘somewhat regressive’.

This wouldn’t matter were it not for the Government’s repeated claims on fairness. The Coalition Treasury has been admirably transparent in many regards since the election, but has not, as yet, released a proper breakdown of the impact on rich and poor of the Chancellor’s new Budget measures (as requested by the Treasury Select Committee).

It does matter, because pretty soon theoretical experiments with austerity are going to become very real for most of the population. Precisely who pays for this austerity will come to define this government. It’s time for full transparency.