Labour 'has cost the rich £25,000 every year'

Institute of Fiscal Studies has laid bare the scale of redistribution since 1997. Sean O’Grady reports

The richest households in Britain are about £25,000 a year worse off as a result of changes to the tax and benefits system introduced by Labour since 1997 – while the "working poor" are better off by almost £1,700, or 13 per cent of their income.

The very poorest sections of society – those with a typical annual income (after tax) of £9,000 or so – are about £1,200 better off. "Middle England" – those households with a typical joint income of £28,000 or more after tax – are a little worse off as a result of the changes to taxes and benefits, about £175 a year poorer.

These figures, from the respected Institute for Fiscal Studies (IFS), will bolster the Government's claims that it has been sharing the burden of adjustment in the economy "fairly". In his Budget speech, the Chancellor, Alistair Darling, said: "I believe those who have benefited the most from the strong growth in incomes in past years should now pay their fair share of tax." The IFS research bears out Mr Darling's belief.

The IFS also said that his Budget was the least generous pre-election Budget since at least the 1980s.

The outlook for those government departments that have not received guarantees "ring-fencing" their spending is bleak. Labour has pledged to protect "frontline" spending in the National Heath Service, schools, policing and the overseas aid budget. Given that debt-interest payments are set to rise by 12 per cent over the next few years, and that unemployment benefit payments will still be comparatively high, the squeeze in public spending will be concentrated on those areas that remain "unprotected".

The IFS says that could mean a staggering spending cut of about 25 per cent in areas such as defence, transport and higher education by 2014-15, compared with spending levels now.

Thus, all the boosts given by Mr Brown to public spending over the past decade will be wiped out by the middle of this decade, the IFS concludes.

The Institute's researchers have found that dramatic claims of differences between Labour and Conservative spokesmen on their plans for the public finances are much exaggerated. Given the improvement in the borrowing figures reported by Mr Darling in the Budget, and from what can be gleaned from the public utterances of Tory frontbenchers, the IFS says that the actual gap between the two parties' plans could be as little as £8bn a year – a small sum in the context of total public spending of about £700bn and borrowing of £163bn.

However, the IFS research also provides support for opposition claims that Labour is stifling the "aspirational classes". Any household in the top 40 per cent of incomes would have found themselves at least a little worse off since 1997 in terms of their tax bill, taking into account all changes to income tax, National Insurance, tax credits, social security benefits, inheritance tax, stamp duty and other measures.

The richest 10 per cent of households, with a typical joint net income of £75,462, are on average £6,724 worse off. Within that group, the very richest are the ones who have faced the heftiest losses since New Labour came to power, the IFS says. In households where at least one person earns more than £100,000, and those where the joint income is typically about £170,000, the loss is as much as £25,539 compared with where things would have been under the 1997 tax and benefits regime.

Many of the latest changes to taxes affect people who are just over the six-figure earnings bracket. These trends will be perpetuated by the new 50p rate at £150,000, the removal of personal allowances for those on more than £100,000, the restriction of pension benefits for those on more than £130,000 and tougher inheritance tax and stamp duty bands.

However, taking into account all changes in income since 1997 – including growth in salaries, bonuses, rents and investment incomes – the UK is still a very unequal society, despite the Treasury's efforts, the IFS points out. Income inequality has risen in each of the past three years and is now at its highest level since at least 1961, according to the IFS.

On the proximity of the Conservative and Labour fiscal plans, the IFS director Robert Chote commented: "The Conservatives have not said what their time horizon for reducing the structural budget would be, but if we make the plausible assumption that it would remain five years as now, then the extra fiscal tightening that they would need to achieve by 2015-16, on top of that planned by Labour, has fallen from 1.1 per cent of national income (£15bn) before the Budget to 0.6 per cent (£8bn) after it." So a 1.5 per cent rise in VAT to 19 per cent, for example, could be sufficient to bridge the gap and unite Mr Darling and George Osborne in perfect fiscal harmony.

Pro-Russia rebels guard a train containing the bodies of victims of the Malaysia Airlines flight MH 17 crash in Torez, Ukraine
Life and Style
Child's play: letting young people roam outdoors directly contradicts the current climate
lifeHow much independence should children have?
Arts and Entertainment
Tycoons' text: Warren Buffett and Bill Gates both cite John Brookes' 'Business Adventures' as their favourite book
booksFind out why America's richest men are reading John Brookes
Sign here, please: Magna Carta Island
propertyYours for a cool £4m
Have you tried new the Independent Digital Edition apps?
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Struggling actors who scrape a living working in repertory theatres should get paid a 'living wage', Sir Ian McKellen has claimed
Skye McCole Bartusiak's mother said she didn't use drink or drugs
peopleActress was known for role in Mel Gibson film The Patriot
Arts and Entertainment
Damon Albarn is starting work on a new West End musical
artsStar's 'leftfield experimental opera' is turning mainstream
Life and Style
Paul and his father
artsPaul Carter wants to play his own father in the film of his memoirs
Ben Stokes trudges off after his latest batting failure for England as Ishant Sharma celebrates one of his seven wickets
Arts and Entertainment
Members of the public are invited to submit their 'sexcapades' to Russell T Davies' new series Tofu
Sky's Colin Brazier rummages through an MH17 victim's belongings live on air
Arts and Entertainment
Keira Knightley and Benedict Cumberbatch star in the Alan Turing biopic The Imitation Game
arts + ents'The Imitation Game' stars Benedict Cumberbatch and Keira Knightley
i100... and no one notices
Arts and Entertainment
Friends reunited: Julian Ovenden, Richard Cant and Matt Bardock in rehearsals for the Donmar revival of 'My Night
with Reg'
theatrePoignancy of Kevin Elyot's play being revived just after his death
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Year 5/6 Teacher

£100 - £120 per day: Randstad Education Chelmsford: The successful applicant w...

Year 5/6 Teacher

£21000 - £35000 per day: Randstad Education Chelmsford: The JobThe successful ...

Business Analyst (Systems/ Incident Analyst)

£40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Business Analyst r...

SAP GRC Architect / Consultant

competitive: Progressive Recruitment: I am currently looking for a PERMANENT S...

Day In a Page

Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn
Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Alistair Carmichael: 'The UK as a whole is greater than the sum of its parts'

Meet the man who doesn't want to go down in history as the country's last Scottish Secretary
Legoland Windsor's master model-makers reveal the tricks of their trade (including how to stop the kids wrecking your Eiffel Tower)

Meet the people who play with Lego for a living

They are the master builders: Lego's crack team of model-makers, who have just glued down the last of 650,000 bricks as they recreate Paris in Windsor. Susie Mesure goes behind the scenes
The 20 best days out for the summer holidays: From Spitfires to summer ferry sailings

20 best days out for the summer holidays

From summer ferry sailings in Tyne and Wear and adventure days at Bear Grylls Survival Academy to Spitfires at the Imperial War Museum Duxford and bog-snorkelling at the World Alternative Games...
Open-air theatres: If all the world is a stage, then everyone gets in on the act

All the wood’s a stage

Open-air productions are the cue for better box-office receipts, new audiences, more interesting artistic challenges – and a picnic
Rand Paul is a Republican with an eye on the world

Rupert Cornwell: A Republican with an eye on the world

Rand Paul is laying out his presidential stall by taking on his party's disastrous record on foreign policy
Self-preservation society: Pickles are moving from the side of your plate to become the star dish

Self-preservation society

Pickles are moving from the side of your plate to become the star dish
Generation gap opens a career sinkhole

Britons live ever longer, but still society persists in glorifying youth

We are living longer but considered 'past it' younger, the reshuffle suggests. There may be trouble ahead, says DJ Taylor