Two weeks ago, I wrote about the figures showing that UK child poverty had failed to increase as expected. Contrary to what is widely assumed, the gap between those on high and low incomes actually narrowed a little under the coalition. I warned against crying “wolf” about rising inequality before there was evidence to back it up. Well... “wolf!”
The first thing I do after any Budget is to download the document called Impact on Households: Distributional Analysis from the Treasury website, scroll to the back and look for what I call “the chart of everything”. This shows in a simple bar chart the effects of the Budget on all households in Britain, grouped by income into fifths. After the March Budget, the chart showed that the richest fifth lost the most over the previous five years, a little more than the poorest fifth, while the middle three fifths fared better.
Thus George Osborne was able to say in his Budget speech on Wednesday that “those with the broadest shoulders are bearing the greatest burden”. But where was the “chart of everything” this time? I scrolled to the back of the Impact on Households document and it wasn’t there. It seemed obvious that, if you cut tax credits for the working poor, the gap between rich and poor would widen, but the figures were missing.
This was not immediately obvious to everyone reporting on the Budget. A lot of people were so taken aback by the counter-intuitive shock of the “national living wage” that they bought Osborne’s confidence in repeating his old slogan: “We are all in this together.” As a result, the Budget coverage was a two-stage process, with some burning rubber in between.
On day one, it was an audacious raid on Labour territory, raising the minimum wage, scrapping permanent non-dom tax status, and postponing the closing of the deficit. On day two, after the independent Institute for Fiscal Studies (IFS) published its version of the “chart of everything”, the Budget was a hard-faced attack on the working poor that would bring misery to millions and cut inheritance tax for the better-off.
Of course, both stories can be true. But for people like me who worry about inequality, the day-two story is more true than the one on day one. Poverty will increase after 2017, which is when the main measures will take effect. The IFS figures show the poorest fifth losing 7 per cent of their income between now and 2019, compared with 0 per cent for the highest-income fifth. The higher minimum wage will offset only a small part of the tax-credit cuts – although it is hard to predict how behaviour might change. The effect on child poverty is likely to be greater because tax credits and universal credit will not be available to third and subsequent children born after April 2017.
The trouble for people like me is that most people do not think about inequality in the abstract. They think that David Cameron and George Osborne are on to something when they argue for higher wages and less support from other taxpayers in the form of the “merry-go-round” of tax credits. The most startling figure in the Budget speech was that tax credits were available to nine out of 10 families in 2010. Even after the cuts announced last week, they will support five out of 10 families – half the families in the country – which most people will think is still far too many.
When the Prime Minister first floated the idea of cutting tax credits and raising the minimum wage with the Chancellor two years ago (note the subtle attempt by Cameron’s people to claim credit for the plan), he thought of it as a way to make work pay and to fix a bloated tax-credit system that was out of control. Actually, the change reduces incentives to work, because the point of tax credits is to top up wages, but Cameron had a point that the system had gone too far, and too far from the original intent, which was to top up the very lowest wages. Of course Cameron and Osborne are concerned about the low-paid losing out, I was told, “but their view is that we’ve gone from a situation where tax credits were £1bn to where they’re now £30bn, and unless you’re ready to look at these things you are going to make the merry-go-round worse”.
So, if you are a strict egalitarian, the Budget was bad news. The cut in sickness benefit was, I think, inexcusable. The effect of the change will be to classify people who are certified unfit for work now, but who might be able to work in future, as unemployed, eligible only for the lowest benefit.
In the end, though, we egalitarians have to bow to democracy. The Prime Minister’s spokeswoman, pressed on whether the Budget would take more from the poor than the rich, said on Thursday: “This government has delivered on a manifesto commitment on which they were elected, which was to cut benefits.” In other words: that’s what the country voted for.Reuse content