In his Budget speech George Osborne made a claim for much-needed transparency in spelling out the grim options that lay ahead. ‘I am not going to hide hard choices from the British people or to bury them in the small print of the Budget documents. You’re going to hear them straight from me here in this speech,’ he told us. However, on one of the biggest claims he was about to make – ‘that the measures are fair, that all sections of society contribute, but that the richest pay more than the poorest, not just in cash terms but as a proportion of income as well’ – was, within hours, being exposed as a shabby fraud.
Yes, Osborne’s first Budget red book contained, in Annex A, eight pages of charts purporting to demonstrate the basis for that claim to fairness. The charts divide households across the UK into 10 segments or deciles. They are ranked by net income, from poorest to richest. Then the impact of various Budget changes is allocated to each decile to demonstrate the proportions in which households are bearing the resultant pain. You don’t have to look very far for the doubts to start growing.
Chart A1, which purports to show the impact of all the measures in hard cash terms, shows that impact growing steadily across all the income deciles, taking 10 times as much from the richest decile of households (net family income above £49,700) as from the poorest (net family income below £14,200). However the very next chart, A2, looks at the impact of the changes as a percentage of net income. The story is transformed. Now the poorest decile emerges as the third-hardest hit, just behind the second richest decile (net family income in the range £38,401 to £49,700).
That’s not the end of the smoke and mirrors. The numbers in all these charts refer only to the fiscal year 2012/13. But George Osborne’s massive hike on taxes and squeeze on welfare benefits and government spending spans an entire five-year parliament, right through to 2014/15. By 2012/13 only £4.7bn of the £11bn raid on welfare budgets will be in place, only £17.3bn of the overall £32bn cut in overall government spending realised. The charts blatantly ignore the overall impact of this austerity programme on the poorest, compared with the better off. They say nothing at all about where the main burden of departmental and devolved government spending cuts will fall.
Retreat to the ‘small print’ the Chancellor claimed to eschew and the story gets even more confused. The Treasury modelling which produced these charts assumes 100% take-up of tax credits. And shockingly, it only covers benefit changes that ‘account for two thirds of the benefits and tax credits changes’ that make up the harshest Budget programme in decades. Two of the big items excluded from this analysis are the capping of housing benefit, to save £1.8bn a year by 2014/15 and tougher rules on disability living allowance which will be saving another £1.1bn by the end of this parliament. By contrast the watered down rise in the capital gains tax rate to 28% for wealthier taxpayers will be raising just £925m a year by 2014/15.
Within 24 hours of George Osborne sitting down, the Institute for Fiscal Studies had produced its usual forensic analysis of the coalition package. It had uncovered another major flaw in the new government’s claim that its emergency measures were at least ‘progressive’ in hitting the richest much harder than the poorest. As the Institute’s director Robert Chote put it: ‘The Budget looks less progressive – indeed somewhat regressive – when you take out the effect of measures that were inherited from the previous government, 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.’
It turns out that all those charts showing how progressive the coalition is being in sharing the pain include the tax changes introduced by Alistair Darling before the election to tax top earners more, reduce their allowances and introduce higher national insurance contributions for those in work. Break the Osborne budget charts on the distributional impact of the changes on households by 2014/15 into the new measures introduced by the Tory/LibDem coalition and those already in the pipeline from Labour and that claim to be progressive melts away.
Yes, in terms of change in net income, the richest 10% of households are hardest hit, overall. But, by the end of this parliament, the coalition’s contribution to the overall squeeze is three times greater for the poorest 10% of households than it is for the richest decile. Indeed, the poorest 10% of households is the hardest hit segment of all, by a quite a margin. Not quite the ambition set before the British people by Nick Clegg and Vince Cable before the election. Add in the further pain to come from a swingeing round of spending cuts this autumn and the disparity will become even more stark. For, as the IFS points out, ‘the looming cuts to public services …. are likely to hit poorer households significantly harder than richer households’.
The straight-talking George Osborne claimed in his speech on Tuesday that, in terms of tax credits, he would ‘reduce payments to families earning over £40,000 next year’. What he didn’t say was that the year after that, in 2012, for a family with one child aged over one, working less than 30 hours, with no childcare, tax credits will be removed altogether if their joint income is as low as £24,000 a year. For all the talk of a new, transparent politics, budget spin is alive and well as the coalition has amply demonstrated this week.
Alf Young is an award-winning Scottish journalist who writes regularly
for the Scottish Review
Get the
Scottish Review
in your inbox
free of charge
We need your help to maintain our inquiring journalism. Become
a Friend of SR
[click here]
The Library
Recent articles
[click here]
The holiday
edition
09.07.10-
02.08.10
No 282
Our favourite
places in Scotland
A selection of nominations
by SR writers and readers
[click here]
Faces of the
year…so far
A selection of
Bob Smith’s caricatures
[click here]
North to the
‘simmer dim’
R D Kernohan’s
summer journey to Orkney
and Shetland
[click here]
Daydreams
Francis O Young
Fragments of a life
[click here]
Ironing a sari
The July poem
Gerard Rochford
[click
here]
A surprise
from Islay
Bob Smith has completed
a new work and here it is
[click
here]
Next edition:
Tuesday 3 August
SR recommends for lively discussion of current politics:
www.scotlandquovadis.net
SR recommends for intelligent comment on Scottish literature:
