The poorest people in Britain have borne the brunt of austerity over the past five years – and by 2020 will have lost more than a 10th of their income compared to 2010, with the biggest cuts to their taxes and benefits still to come.
George Osborne’s changes to tax and benefits are unpicking all of the gains for poorer families made by during the Labour government’s "big increase in tax credits”, according to analysis by the Institute of Fiscal Studies.
The IFS is among the most authoritative think tanks and inspired the Government to set-up the Office of Budget Responsibility.
Their verdict on Mr Osborne’s latest Budget is stark, their experts concluding: “We expect much of the recent fall in inequality to be undone over the next five years.”
Analysis of their data conducted by The Independent suggests the poorest in Britain are paying for the richest.
George Osborne 2016 budget at a glance
George Osborne 2016 budget at a glance
1/8 Debt forecasts up, growth forecasts down
The OBR’s new forecasts have downgraded growth in all of the next five years to 2020. The watchdog says the economy will only grow by 2 per cent in 2016, as opposed to the anticipated 2.4 per cent. Borrowing and productivity growth are also down – with forecast borrowing in 2018-198 £16 billion higher
2/8 New tax on sugary drinks
The Chancellor announced a new tax on sugary soft drinks, which is projected to raise £520 million. At least some of the money will be spent on doubling funding for school sport, the Chancellor says. Labour leader Jeremy Corbyn welcomed the levy
3/8 Tax cut for higher earners paying the 40p rate
The Chancellor has raised the threshold for paying the higher rate of income tax to £45,000. The higher rate is paid by roughly the richest 15 per cent, currently people earning over £42,386
4/8 Increase in tax-free income tax threshold
The tax-free allowance increase to £11,500 in April 2017 – up from £10,600 now. The Chancellor previously raised the allowance from £6,475 in coalition with the Liberal Democrats. The Conservative manifesto pledges to put the allowance up to £12,500 by the end of the Parliament
5/8 New devolution for counties and powers for London and Manchester
The West of England, the East of England and Greater Lincolnshire will all get elected mayor-led combined authorities with new powers. The Chancellor says they are backed by £1 billion new funding. Greater Manchester will get new powers of criminal justice while London will keep its business rates – giving whoever is elected Mayor a lot more spending power
6/8 Fuel duty frozen for sixth year running
The Chancellor had planned to end the fuel duty freeze he had put in place for the whole previous parliament. In the event, he has announced a freeze for another year
7/8 All schools to become academies
As reported yesterday the Chancellor unveiled legislation to turn all schools into academies. He said all schools would either be academies or on their way to being academies by 2020, and that funding had been set aside to fund the change
8/8 Lifetime ISA
The Chancellor announced a new savings account to encourage under-40s to save for retirement – for every £4 saved, the Government will top this up by £1 up to the value of £4,000 a year. Tax-free ISAs will also be increased from £15,000 to £20,000
Changes to taxes and benefits mean the incomes of the wealthier half of the country are being cut by just one per cent over the decade, averaging across the five richest deciles (or groups of 10 per cent).
In contrast, the poorest half of the country are losing eight per cent of their income, with the two very poorest groups losing between 11 and 12 per cent.
The IFS put it plainly.
“The direct effect of government tax and benefit policy has been to take money from those working-age benefit recipients towards the bottom of the income distribution," they say.
“Those in the middle and upper parts of the income distribution – including most pensioners and people on average earnings and above – have been remarkably well protected.”
Pensioners are the exception to the general fact that the poor are paying for the rich.
Whether rich or poor, they have been - and look likely to continue to be - largely protected by this Government, thanks to the triple lock on the state pension and relatively little change to their benefits otherwise.
Few voters would begrudge the elderly the state pension, which is just £6,029 for a single person.
But it means the poorest working-age parents are the ones paying down the deficit, while the rich of all stripes – the working age or pensioners, parents or the childless – are left unscathed.
The poorest working-age parents will lose up to 18 per cent of their income after Mr Osborne’s decade-long changes to taxes and benefits take full effect.
The IFS notes that none of this should come as a surprise.
More inequality was always expected to follow from the Tories’ election pledges to a) cut £12bn in working age welfare benefits, b) protect pensioners, and c) increase the income tax-free allowance and higher rate tax thresholds.
The former is widely perceived a tax giveaway to the richest disguised as a giveaway to the poorest; raising the threshold has long since taken the poorest out of tax, and always helped richer taxpayers the most.
The statistics suggest today's Conservative Party has run government in a way that benefits the older and the richer: groups far more likely to vote than the poorer and the young.
While inequality is, by some definitions, at its lowest level for 25 years, it appears to have fallen in spite of Mr Osborne’s changes to taxes and benefits.
But the equalising effect of the financial crash is being unwound by a Chancellor whose focus has been not just to take benefits from the poor and protect the rich, but to take from the disabled and give a tax cut to the richest 0.3 per cent.Reuse content