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IFS rejects Budget’s progressive claims

THE Institute for Fiscal Studies (IFS) yesterday rejected chancellor George Osborne’s confident claim on Tuesday of a progressive Budget that would spread the pain across all sections of society but that the richest would contribute more than the poorest.

James Browne at the IFS said yesterday that the fiscal consolidation measures announced by the coalition government on Tuesday were only progressive because of reforms announced by the previous government. His analysis split the distributional impact of the measures into the reforms in the June Budget and those already announced.

He added: “If you look at reforms due to be introduced in 2013 and 2014 – benefit cuts announced yesterday for those years and subsequent years going forward – they hit the poorest hardest and indeed keep on hitting them more and more every year.”

“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,” said Robert Chote, director of the IFS, in his opening remarks.

Browne noted that neither the Treasury nor the IFS account for cuts to housing benefit, Disability Living Allowance and reforms to in-year changes to tax credit awards. He added that these are all likely to hit the poorest half more than the richest half. The capital gains tax reforms, also not included, would hit higher-rate taxpayers, but the impact would be small.

Browne concluded: “So it is likely that the overall impact of yesterday’s measures was regressive.”