Wednesday, 25 August 2010

Coalition supporters, there IS an alternative to "IFS denial" over the regressive budget

There are two ways in which Coalition supporters can respond to the Institute for Fiscal Studies study, commissioned by the End Child Poverty campaign, which shows beyond doubt that the new measures introduced by George Osborne in the Coalition government's first budget hit the poor hardest.

As the IFS report puts it:

The Chancellor claimed in his Budget speech that the June 2010 Budget was a 'progressive Budget', backed up by distributional analysis in the Budget documentation that showed that tax and benefit changes due to come into effect between now and 2012-13 will hit the richest more than the poorest. IFS researchers have previously cast doubt on this claim, noting that the main measures which will lead to losses amongst better-off households were announced by the previous government, and that the reforms to be in place by 2014-15 are generally regressive. 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.

IFS research published today makes use of analysis published by the Department for Work and Pensions since the Budget, and attempts to reflect the impact of all the benefit cuts announced in the Budget. It shows that, 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 the income distribution in cash, let alone percentage, terms.

Hence the IFS verdict is clear - and the graph offers a dramatic visualisation of it.

"Our analysis shows that the overall effect of the new reforms announced in the June 2010 Budget is regressive, whereas the tax and benefit reforms announced by the previous government for introduction between June 2010 and April 2014 are progressive", 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."

So how to respond?

The first option - the "IFS denial" route - is the choice of Coalition ministers. They could return again to that ingenious Nick Clegg defence of a regressive budget: why has that pesky think-tank not given the government any credit for measures it hasn't announced? Or the straighter denial of Mark Hoban on the Today programme, in sticking to a Red Book distributional chart which fell apart after 24 hours of scrutiny: "We are the first government to produce a detailed distribution analysis of our Budget measures. We went further than any previous government has gone in explaining how our measures would impact on people, why it's a progressive Budget and we stand by that robust analysis", he told the Today programme today, even as considerably more robust and independent analysis proves him wrong.

But there is an alternative to IFS denial. The second option is to acknowledge what the independent analysis shows. Both social liberals and progressive Conservatives who support the Coalition overall should join Labour voices in pointing that out. This is a clear credibiity test of independent-minded or evidence-based supporters of the Coalition. Politically this choice would strengthen the hand of those who want to increase pressure to ensure the aspiration to be progressive does not unravel within 24 hours after future budgets. (However, that reopens the central economic policy choice of the Coalition, since meeting the government's own fairness test mean rethinking the central choices on the speed and scale of the elimination of the structural deficit in one Parliament).

The central point is that it does matter that the Coalition has itself promised that distributional fairness will underpin everything it does - even as it fails its own test. Their budget would have been even more regressive had the government not mitigated the impact of its other regressive choices with £2 billion put into the child tax credit.

But this wasn't enough, as the IFS analysis for the End Child Poverty Coalition again shows. So the fairness pledge makes a difference - but only at the margin. A central question should now be what policy choices should the government make about deficit reduction if it took its own fairness rhetoric seriously?

That should strengthen the hand of Coalition supporters who did not intend the fairness pledge to be mere window dressing for a smallest state possible ideological drive under the cover of austerity. In particular, Simon Hughes' challenge to the Coalition's housing benefits change ought to be strengthened.

But the IFS verdict is before analysis of the distributional impact of the bulk of the forthcoming spending cuts is included. The government's course in October's spending review seems clearly set. The outcome will be considerably more regressive even than the emergency budget. Here, it might be better to drop the "progressive" claim than to see that shredded at once. The LibDems in particular may want to avoid being sent out to front-up a claim that the spending review is distributionally progressive if the government have not made that IFS-proof.

Hoban also effectively acknowledged on the Today programme that the government had not undertaken an equality impact assessment ahead of the budget, by refusing to respond several times to the question. Equalities Minister Theresa May had written to remind George Osborne and other colleagues ahead of the emergency budget that this was a legal requirement. The Fawcett Society has taken legal action, after evidence showed a disproportionate impact on women, to discover whether due process was followed in terms of the government's legal obligations to ensure equality impacts are considered.

1 comment:

Mike said...

I think there's a further option, which is to argue that it is economic mismanagement which is deeply regressive, and that no-one is hit harder by stymied growth than the poorest in society. It's a pity previous Labour governments were unable to recognise this as a long-term goal. Would the poor benefit if gilt-market investors refused to buy Government debt?

We're too obsessed with how we compensate people for poverty, and not enough with how we urgently pull them out of it.