Policy ‘shifts money to better off’

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Published: Sunday 16th November 2014 by The News Editor

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The Government’s tax and welfare policies have shifted money from the poorest to the better off, an academic study has found.

The research shows reductions in benefits financed cuts in taxes, with an income transfer from the poorer half of households to “most of the richer half”, although the wealthiest were also hit.

The study, by academics at the London School of Economics and Essex University’s Institute for Social and Economic Research (ISER) found that the “clear losers” include lone-parent families, large families, children and middle-aged people.

According to The Observer, the report’s authors, Dr Paola De Agostini and Professor Holly Sutherland at the ISER and Professor John Hills at the LSE, wrote: ” Whether we have all been ‘in it together’, making equivalent sacrifices through the period of austerity, is a central question in understanding the record of the coalition Government.

“It is clear that the changes did not lead to uniform changes in people’s incomes.

“The reforms had the effect of making an income transfer from the poorer half of households (and some of the very richest) to most of the richer half, with no net effect on the public finances.

“In effect, the reductions in benefits and tax credits financed the cuts in taxes. Some groups were clear losers on average – including lone-parent families, large families, children and middle-aged people (at the age when many are parents). Others were gainers, including two-earner couples and those in their 50s and early 60s.”

According to the research seen by the newspaper, t he poorest 5% in the country in terms of income lost nearly 3% of what they would have earned if Britain’s tax and welfare system of May 2010 had been retained.

With the exception of the top 5%, who lost 1% of their potential income, the better-off half of the country saw an increase of between 1.2% and 2% in their disposable income.

The changes brought in by the Government, including a cut in the top rate of income tax from 50p to 45p meant that the 1% earning the most also had a small net gain.

The Treasury insisted the changes implemented since 2010 had ensured the richest households had made the biggest contribution to reducing the deficit.

“The Government has published groundbreaking, cumulative distributional analysis with every budget and autumn statement of this parliament,” a spokesman said.

“This has clearly shown that it is the richest households are making the biggest contribution to reducing the deficit.

“This result is also supported by the analysis of the independent Institute for Fiscal Studies. We will go on working through the plan that is securing a resilient economy and a brighter future.”

But shadow chancellor Ed Balls said: ” This is a damning analysis of David Cameron and George Osborne’s record. It demolishes any last pretence that we are somehow all in this together.

“People on middle and low incomes have been made worse off by this Government, while a few at the very top have been given a £3 billion a year tax cut.

“Now the Tories want to cut tax credits again for working families and won’t rule out giving millionaires another huge tax cut. Working people can’t afford another five years of this same old Tory economics.

“Ed Miliband and I are determined that Labour’s economic plan will deliver a recovery for the many, not just a few. And our plan to balance the books in a fairer way will start by reversing David Cameron’s tax cut for the top 1% of earners.”

The Treasury’s assertion that the rich were making a greater contribution to balancing the books appeared to be supported by figures showing the highest paid 3,000 people in the UK paid more income tax than the bottom nine million.

The figures, reported by the Sunday Telegraph, showed that the very highest earners – just under 3,000 people with a declared income above £2.7 million – will contribute 4.2% the total Government revenue from income tax in the current financial year.

The nine million lowest paid contribute less than 4% of the total income tax take, according to HM Revenue and Customs figures obtained through a Freedom of Information Act request.

Published: Sunday 16th November 2014 by The News Editor

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