The Government’s austerity programme is significantly more regressive than previously stated, taking a bigger chunk out of poorer households’ incomes than suspected, according to documents released alongside yesterday’s Spending Round.
By 2015/16 the poorest fifth of UK households will have seen their incomes shrink by 3.9% as a direct result of the Government’s austerity plan. This is greater than the near-3.5% reduction forecast at the time of the Budget only a few months ago.
By contrast, the extent to which the richest fifth of the population will lose out from the austerity programme is smaller than previously thought, at just below 4%, rather than around 4.2%.
Although this means the Government is still able to point to the fact that the richest lose out most from its policies, the extent to which they do so is now marginal.
The figures were contained within a so-called distributive analysis released alongside the Spending Round. Treasury insiders said the change in the income forecasts were partly down to changes in the way it calculates the table, and partly down to the fact that they reflect the state of the nation in 2015/14, after the Spending Round’s cuts happen, whereas the Budget documents calculated incomes in 2014/15.
Jonathan Portes, director of the National Institute for Economic and Social Research, said the analysis “does make it look as though overall the impact of the programme has been very regressive. So in contrast to the previous picture of broadly even burden sharing, this does look very much like overall the poorer you are the worse it is, except possibly at the very top.” Comparing the new, improved analysis to the figures published in the Budget, the poorest fifth of households are the only section of the population for whom austerity is biting deeper. The new figures show that, for the average household, the impact of austerity on their incomes will be 2.5%, rather than the 2.8% previously calculated.
In his speech in the Commons yesterday, the Chancellor said: “The Treasury distributional analysis shows that the top fifth of the population lose the most after this Spending Round. And the independent Institute for Fiscal Studies are unequivocal that the richest ten per cent have paid the most.”
However, he did not mention that the Treasury’s own calculations about which sections of the population would lose out the most had changed significantly.