Osborne's impact laid bare: The rich get richer and the poor get poorer
Government warns of new credit crunch as the poor feel the pain
The poor will be penalised and the better-off helped by George Osborne's latest economic measures, according to the respected Institute for Fiscal Studies.
The poor will suffer disproportionately from the Chancellor's failure to increase tax credits, a study by the IFS concludes, and will not benefit to the same extent as the better-off from the council tax freeze (because they pay less council tax) and the delay of the fuel duty increase (because they drive less). The overall effect of the Treasury's new plans will be to reduce the incomes of those in the bottom 30 per cent of earners and to benefit those in the top 60 per cent. The Chancellor's decision will also push more children into poverty, IFS researchers conclude.
Downing Street warned last night that the world's financial system is already experiencing another credit crunch, with banks refusing to lend to one another over fears of their exposure to sovereign debt in the eurozone. The Prime Minister's official spokesman said there was now "a serious situation in the financial markets", adding: "We are experiencing a credit crunch."
The world's largest central banks announced yesterday that they would take co-ordinated action to ease the funding strains on the global banking sector. The US Federal Reserve, the European Central Bank, the Bank of England and the central banks of Canada, Japan and Switzerland said they will make it cheaper for banks to buy US dollars, which they hope will help businesses and households access finance more easily.
Asked whether the Government believed the eurozone was about to collapse Mr Cameron's spokesman added: "I think you shouldn't interpret today's announcements in that way. Central banks are saying, We can see that there are severe strains in financial markets, and the situation has been getting worse."
Mr Osborne's spending review last year was "clearly regressive", the IFS said, pointing out that decisions to cap housing benefit and to cut disability allowances hit the poorest earners harder than the wealthy. This week's measures will continue that trend, it added. "The new tax and benefit measures are, on average, a takeaway from lower-income families with children, and a giveaway to those in the middle and top of income distribution," said IFS researcher Robert Joyce. "It's a slightly regressive Autumn Statement on top of what was already regressive across most of the income distribution."
Those with an annual income of £15,600 will lose an average of £44.75 in the year 2012-13. Those earning £18,200 will be worse off by about £36 in the same year. By contrast, those with an annual income of £76,100 will benefit by about £105, thanks to Mr Osborne's most recent tax changes. Those with an yearly salary of £45,300 will get £98 more. As a result of all the tax and benefit measures by Mr Osborne since he became Chancellor in May 2010, the IFS calculates that those in the bottom 10 per cent of earners will see their annual incomes decline by £168 in 2012-13. Those in the second to last 10 per cent of earners will see their incomes go down by £265.
The incomes of the top 10 per cent of earners will decline by £300 and those of the second-highest 10 per cent will fall by £102. Although similar in cash terms to the sums lost by those at the bottom end of the income distribution, these losses represent a much smaller share of the total incomes of the wealthy.
Researchers at the IFS have also calculated that average incomes of people in the UK will drop by 7.4 per cent in the three years between 2009 and 2013. It estimates that average household incomes will be no higher in 2015-16 than they were in 2002-03.
The IFS's calculations on incomes are based on the growth forecasts of the Office for Budget Responsibility – which in turn are based on the assumption that European leaders will "struggle through" the eurozone debt crisis.
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