U.K. Government Budget Cuts Are `Regressive,' Hit Poor Hardest, IFS Says

The U.K. coalition government’s assertion that its budget cuts will hit the richest households more than the poorest is challenged by research published today.

An analysis of all benefit cuts announced in the June 22 budget shows the measures to be “regressive,” with the poorest households hit hardest, the Institute for Fiscal Studies said.

“The distributional effect of all tax and benefit reforms due to be implemented by 2014-15 is clearly regressive within the bottom nine decile groups of the income distribution when losses are expressed as a percentage of net income,” the London-based IFS said in a report. Families with children in the bottom decile lose 5 percent of net income, the IFS said, compared with 1 percent for the richest decile.

The study stokes the political debate over the government’s plans to all but eliminate a record deficit of 11 percent of gross domestic product by stepping up the pace of cuts.

“It is a progressive budget. We stand by the analysis that we did in June,” Treasury minister Mark Hoban told BBC Radio 4’s “Today” program. “We had to take action to tackle the budget deficit left by Labour. We’ve gone though the most detailed and rigorous assessment of the distributional impact of this budget on families.”

The opposition Labour Party, which lost power in May elections, backed the IFS’s analysis.

‘Economic Vandalism’

“The government’s ideological assault on our welfare state and public services is not simply economic vandalism,” Ed Balls, Labour’s education spokesman and a party leadership candidate, said in a statement. “I fear it will damage the very fabric of our society too.”

The Equality and Human Rights Commission, set up when Labour’s Tony Blair was prime minister in 2006, said today the government has a legal duty to “consider the effect of budget cuts on vulnerable groups.”

“It is for the Treasury to demonstrate that it has complied with the legislation and assessed the impact of its decisions on vulnerable groups,” the independent body said in an e-mailed statement. “If it cannot do so, then the commission will have to consider appropriate enforcement action.”

The commission has the power to open official inquiries and formal investigations, according to its website.

The IFS said the biggest change to benefit policy in the budget was the decision to link payments to the consumer-price index rather than the retail-price index from April next year. In July, consumer prices rose 3.1 percent from a year earlier, while retail prices increased 4.8 percent.

The government’s argument that consumer prices better reflect the inflation experience of households receiving benefits was “questionable,” the IFS said. Only 23 percent of claimants are unaffected by increases in mortgage-interest payments and local-authority taxes, the main items that are excluded from the CPI but included in the RPI, it said.

To contact the reporter on this story: Andrew Atkinson in London at a.atkinson@bloomberg.net.

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