Wednesday, August 25, 2010

So who's right on Budget, IFS or the Coalition?

The Institute of Fiscal Studies has come out and said that the measures in the Coalition Budget passed in June would hit the poorest hardest and are regressive. This is not what I as a Liberal Democrat want to hear, but how accurate is their assessment?

The Government's side of things is that they think the IFS is being selective, by not factoring in things which boost employment prospects and reductions in Corporation Tax which give an incentive to companies to invest here and create jobs. The difficulty on this one is that there's no real way of measuring what'll happen. The Government is making optimistic assumptions, the IFS pessimistic. I suspect that the eventual outcome will be somewhere between the two.

A point I'd add is that the economy boosting stuff comes in over 4 years so will take longer than that for the full impact to be known - but the changes to things like Housing Benefit come in a lot sooner and their impact are immediate. By the same token, though, there are likely to be further rises in the tax threshold which will take even more than the 800,000 people already taken out of tax by the Coalition. And, again, I can't see any mention of the changes to Capital Gains Tax which have a greater impact on the rich - have they been factored into the IFS figures? Remember Nick Clegg's example about the rich banker paying a lower marginal rate of tax than his cleaner on the minimum wage? That disgraceful inequality is what that change, although it's not all that we wanted, is designed to address.

I wrote at the time that the Budget was eye-wateringly tough in some places, but a lot better than we would have got from the Tories governing alone. I stand by that assessment.

If I could get rid of just one thing from the Budget, it would have to be the removal of 10% of Housing Benefit after a year.  If you live in a Council house with rent of £200 a month, that means another £5 a week you will have to find after a year of struggling. If you can't get a Council House and are in a private let, that could go up to even £10 or £15 a week.

Let me be clear, people on Income Based JSA don't have an extra even £5 a week.

And if you haven't got a job after a year, the chances are it isn't because you're lazy. It's because there are no jobs or the ones that are available are so pathetically paid that you won't actually be able to feed your family and heat your house if you take it.

Oh, and aren't the Labour Party enjoying the IFS Report to the maximum? Well, I'm not going to take any nonsense from people who not only left us with an enormous deficit which makes cutting public spending vital, who made the 10p tax debacle, whose first act in office was to cut benefits for lone parents and who, according to the IFS, increased inequality to record levels during their first 10 years in office. To think that they widened the gap between rich and poor in a decade of some of the most benign economic circumstances of not only my lifetime but my parents' is quite staggering - and something for them to consider before they start throwing insults at the Coalition.

I suspect that we won't know for a while what the exact impact of the Budget will be. I suspect it won't be as bad as the IFS makes out. We also don't know yet what the full scale of  Iain Duncan Smith's welfare reforms will be and how that will impact on people.  I think there are just too many variables to make a firm prediction at the moment. It's important that we keep a careful eye on all the measures the Coalition is taking and judge them as a whole.


Andy said...

Good, thoughtful post. I completely agree with your point on housing benefit.

There are two main problem with the government's argument that "cutting corporation tax (and other measures) will create more jobs, therefore moving people out of poverty"

1) The lots of jobs are being scrapped. I worked for an organisation employing 250 people + contractors which has now been abolished.

2) There will still be some people without jobs or with very low paid jobs. They remain the poorest in society, and the cuts to benefits will still hurt them immensely

dazmando said...

Yeah I agree with you Carol so I linked to your blog

Rosalind said...


The budget is very tough, but Labour really have no right to criticise considering all they did to low earners in the 13 years they were in charge.

JohnM said...

sound advice!


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