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IFS Report - rebutting the rebuttal

The Institute of Fiscal Studies (IFS) has denounced the UK Government's budget as being, "regressive" and hitting the poorest hardest - at least, as a percentage of income.

The Treasury does not accept the findings in the IFS report. It claims that the report ignores, "the pro-growth and employment effects of Budget measures - such as helping households move from benefits into work, and reductions in corporation tax."

The problem with the Treasury's position is that, taking it at face value, people have to be in work to be better off. Even in a booming economy - something that is clearly not the current state of affairs - history shows us that there is never a time of 100% employment. Those that are left behind will be worse off.

There is also a problem with the Government's claim that cutting corporation tax is progressive. The hope is that this will stimulate job creation. But only one thing does that; demand from the market for a company's product or services. Without that, cuts in tax are likely to be recycled as profits and dividend payouts, neither of which benefit low income workers.

But lets play along for a minute. The IFS report also shows that people in poorly paid jobs will be worse off. This should come as no surprise as this was flagged up by the Joseph Rowntree Foundation (JRF) back in July.

Whilst raising the level of personal tax allowance is welcomed, making workers 320 a year better off, this will be negated in some households by cuts in tax credits, freezing child benefit and the VAT increase to 20%.

Even before all of these changes kick in, the gap between the minimum wage and the JRF's estimate of a living wage is about a third.

It isn't enough for the government to just to say you are better off working than being on benefits, and cutting support without doing anything about job creation and the minimum wage. At this time, there is nothing progressive about this tough love until that balance is addressed.

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