Poorest ‘worst hit by reforms’


Published: Tuesday 27th January 2015 by The News Editor

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A major academic study has found that the poorest in society have been worst affected by the Government’s tax and benefits changes.

The report found that the Government’s intentions that the rich should contribute proportionately more to repairing the nation’s finances “have not been realised”.

The social policy study by academics from the London School of Economics (LSE), Manchester and York universities also predicted that poverty will increase in future years.

The academics accepted that in May 2010 the coalition ” faced m ajor social policy challenges: a very high debt and current budget deficit; a recession; and some substantial unresolved challenges, not least the structure of the economy and the rapidly growing numbers of older people”.

The study said the Government had pushed ahead with major reforms towards its goals of a “smaller state and a stronger society, lowering public spending in the long run”.

Programme leader, Professor Ruth Lupton of the University of Manchester, said: “There is more to the coalition than cuts. Its major legacy may turn out to be its rapid reforms of the schools system, the NHS, and welfare benefits.

“But its decisions on where to cut and where to spend have limited its scope either to reduce the debt or protect the poor.”

The report said the savings from a squeeze on welfare payments had been cancelled out by tax cuts for wealthier households.

“Our analysis shows that it is poorer population groups who have been most affected by direct tax and benefit changes and in fact that savings made from changes to benefits have been offset by expenditure on direct tax reductions further up the income distribution, meaning that in combination, these changes have made no contribution to reducing the deficit or paying down the debt.”

Taking changes to personal direct taxes, such as income tax, and cash benefits together, but not allowing for indirect taxes such as VAT, the report said: “T he effects of the coalition’s reforms were, in the main, the opposite of what they claimed – on average the poorer groups paid more than the richer ones as a percentage of their income.”

The poorest twentieth of the population lost nearly 3% of their incomes on average, and the next five-twentieths lost nearly 2%.

Income groups in the top half were net gainers from the changes, with the exception of the richest twentieth.

“The overall effect was largely regressive because the impact of benefit reductions was greater for those in the bottom half of the income distribution than any gains from the higher income tax allowance,” the report said.

“However, at the top of the distribution, the net effect was a loss as a result of other changes, such as a lower threshold for higher rate tax and withdrawal of child benefit. Yet even here, the topmost 1% remained narrow gainers thanks to the cut in the highest tax rate from 50% to 45%.”

The study found that families with children aged under five saw significant cuts to services, with real spending per child on early education, childcare and Sure Start services falling by a quarter between 2009-10 and 2012-13.

Since 2010 there has been a 10% rise in the population aged over 65, but the number of adult social care users fell by 7% per year, with community-based services hit particularly hard.

But the study found pensioners had been “protected from austerity” more than working-age people or children in terms of tax and benefits changes.

The report, made up of eight separate papers, said: “The coalition pledged to pay down the country’s debts, something it has not managed to do in this parliament, and to reduce the current budget deficit, which it has done.

“In actual fact, because it decided to make over three quarters of its fiscal adjustments through budget savings (rather than increased taxes), but at the same time protecting the NHS and schools spending, and increasing spending on pensions, it gave itself very little manoeuvre to cut spending.

“Very substantial cuts of a third or more have been made in unprotected areas, largely in services that are delivered at local level, such as housing, adult social care and children’s services, but the overall reduction in public expenditure has been less than 3%.

“One effect of these choices is that pensioners have been protected from austerity more than working age people or young children, as far as taxes and benefits are concerned. Older people have, however, been negatively impacted by reductions in local social care spending, especially if at lower levels of care need.”

The study predicted poverty would increase: “Modelled estimates suggest that poverty is higher in 2014-15 and will rise further, and there are signs of increasing material deprivation and hardship arising from a combination of rising costs of living, reductions in the value of benefits and eligibility and short-term benefit sanctions.”

The report said as low-income families with young children had been “among the worst affected” by benefits changes ” it now appears impossible that the statutory target of eradicating child poverty by 2020 can be met”.

Professor John Hills, director of the LSE’s Centre for Analysis of Social Exclusion, said: “Protection of some of the core parts of the welfare state from the greatest cuts, and initial protection of the value of benefits, meant that those at the bottom and important services were initially shielded from the worst effects of the recession.

“But in the second part of the coalition’s period, selective cuts to benefits and to unprotected services have begun to take their toll, leaving the next government, of whatever kind, with much greater social policy challenges than the coalition inherited.”

Published: Tuesday 27th January 2015 by The News Editor

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