IFS: BUDGET TO HIT POOREST HARDEST

GEORGE Osborne’s era of austerity will hit the poorest the hardest, the Institute of Fiscal Studies (IFS) has claimed, casting doubt on the coalition’s “progressive” credentials.

When he unveiled his emergency Budget in June, the chancellor insisted those with the “broadest shoulders” would carry the burden of tax hikes and welfare cuts, but new IFS analysis released today claims the measures are “regressive”.

The IFS said the government’s decision to link benefits to the Consumer Price Index (CPI) rather than the Retail Prices Index would mean less generous benefits in the years ahead.

It also said cuts to housing benefit and higher VAT would disproportionately hurt the poorest in society, while the middle classes will benefit most from plans to raise the income tax threshold.

Although the richest 10 per cent will bear the brunt of measures announced in June’s Budget, the poorest fare worse than those on higher incomes. The poorest 60 per cent will lose between £450 and £510 a year by 2014, the IFS said, while higher earners will lose between £250 and £300 a year.

An unemployed couple with children in the bottom 20 per cent of earners will lose 8.2 per cent of their annual income by 2014, the IFS said, while a couple without children in the top 20 per cent will lose just 0.48 per cent of their income.

Last night, the Treasury moved quickly to dismiss the findings, insisting the IFS analysis was a “selective piece of work”. One official told City A.M. the IFS was “plain wrong”.

A Treasury source said: “The IFS is selective, ignoring the pro-growth and employment effects of measures such as helping households move from benefits into work, and reductions in corporation tax.

“In any event not taking action would have been regressive – burdening current and future taxpayers with the cost of economic failure.”

But James Browne, author of the IFS report, told City A.M. he was “bemused” by government claims of partiality. “We’re just doing what the government has attempted to do by working out the distributional effects of the measures in the Budget.”

Meanwhile Ed Balls, the Labour leadership contender, seized on the IFS report as proof the coalition was abandoning hard-pressed families.

He said: “This Tory-Lib Dem Budget will see the poorest families with children lose more than any other group. This report is the final nail in the coffin for George Osborne’s claims to have delivered anything but the most regressive Budget in a generation.”

But a Treasury source said: “We will take no lectures on fairness from a party that presided over a rise in child poverty and did not restore the pension-earnings link.”