Sunday 12 September 2010

Who benefits from public spending?

New Fabian research provides the most detailed study to date on who benefits
from public spending, in a report published and launched by the TUC as its annual Congress opens tomorrow. The TUC report by Tim Horton, Fabian Research Director, and Howard Reed of Landman Economics, makes a seminal contribution to public spending research and debate, and the "fairness test" for next months' Comprehensive Spending Review. You can download the TUC report - 'Where the Money Goes: How we benefit from public services' from the TUC Touchstone blog and also from the Fabian Society website.

The research was previewed in this front-page news report in Saturday's Guardian

On the TUC Touchstone blog, read TUC General Secretary Brendan Barber on the finding that cuts will hit the poorest harder, and co-author Howard Reed who sets out the approach and methodology of this important research project, and why it fills an important gap in existing knowledge about the distribution of public spending.

The Coalition government has promised that "fairness" will be its guiding principle . So David Cameron, Nick Clegg and George Osborne have all stressed the "we're in this together" principle will be central to its approach to deficit reduction - promising that the burdens must be fairly shared across society, and must not hit the relatively disadvantaged harder.

That is why there was such a high-profile debate about whether the June budget was "progressive", as the government insisted, or "regressive", as the independent Institute of Fiscal Studies concluded. Yet even that is only half of the story. With the Comprehensive Spending Review next month providing the most important moment of this Parliament, it will be necessary to look at tax, benefit and spending changes together to judge whether the aim of "progressive austerity" has been met.

Yet this depends on something which has been missing from public debate - detailed distributional analysis of who currently benefits from public spending, and the distributional impact of different possible choices about deficit reduction.

The new research published by the TUC begins to fill this gap. Tim Horton, Research Director of the Fabian Society, and Howard Reed of Landman Economics (and formerly in charge of economic modelling for both ippr and the Institute of Fiscal Studies) have conducted the most detailed modelling to date of the distributional impact of the major areas of public spending, in order to provide a basis to assess who currently benefits, and what the impact of future spending cuts will be.

It should help to illuminate debate about what different policy choices will mean. A "fairness" approach to deficit reduction depends on choices between different areas of public spending, the balance between spending and taxation and specific choices within each area, and the overall scale and speed of deficit reduction. The research models what is currently known about public spending choices - from the budget, and early decisions for the spending review such as the ring-fencing of health spending, and the above average settlements for education and defence - and the new spending model will also be used to assess the impact of the choices which the government goes on to make next month.

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