THIRTEEN million families will lose an average of £260 a year because of George Osborne’s Budget, according to the Institute for Fiscal Studies (IFS).
In a searing analysis of Wednesday’s Budget the highly respected economic research company warned that families in work would be “unequivocally” worse off because of the Tory Budget.
The IFS also dismissed the Chancellor’s claim that was he delivering a “lower-tax” society, pointing out the Treasury’s own documents show tax increases totalling £6.5 billion a year by 2020.
Delivering his report, IFS director Paul Johnson said: “Given the array of benefit cuts it is not surprising that the changes overall are regressive – taking much more from poorer households than richer ones.
“Looking over the period of the consolidation as a whole, poorer households have done worse than those in the middle and upper-middle parts of the income distribution though it remains the case that the some of the biggest losers have been those right at the very top of the income distribution.”
Johnson also said the plans to replace the minimum wage with a national living wage would have a negative benefit due to the cuts in tax credits.
“The key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients. That is just arithmetically impossible.”
Johnson continued: “Welfare spending as a whole is due to fall by £12bn and, even excluding the effects of the four-year freeze tax credit, spending is due to be cut by getting on for £6bn. And of course many of the recipients of the higher minimum wage will not be tax credit recipients. Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.”
The biggest impact will come from the four-year freeze imposed on working-age benefits. The IFS believes this will affect 13 million families. To give that context, in 2012 the Office for National Statistics reported there were 18.2 million families in the UK.
This freeze, the IFS claims, will see national benefit rates fall below their 2008 levels by 2017.
Damningly, the reduction in the level of earnings workers can receive before losing entitlement to universal credit and tax credits could cost about three million families an average of £1,000 a year.
The body also criticised the one per cent pay rise for public-sector workers, claiming it would leave their pay “well below” the average in the private sector.
Oxfam said the IFS findings were concerning. The charity’s head of UK policy and campaigns, Nick Bryer, said: “The Government’s decision to raise wages for the lowest paid is a significant and welcome step. But, at a time when the Government is cutting taxes for the better-off, there can be no justification for giving to low-income families with one hand but taking more away with the other.”
SPEAKING in the Budget debate in the House of Commons yesterday afternoon, Dr Eilidh Whiteford MP was highly critical of Osborne’s plans: “In-work poverty is the scandal of our time – and it’s a scandal that was ignored by yesterday’s Tory budget.
“In Scotland, tax credits are overwhelmingly paid to working people. And in Scotland 95 per cent of tax credits are paid to families with children. So we should make no mistake about where the cuts are being targeted.
“We can’t kid ourselves that rebranding the minimum wage as a Living Wage will actually make it a living wage. There is already a living wage – calculated by the Living Wage Foundation, already used by employers in the public, private and third sectors, including the Scottish Government. It’s already £7.85 an hour outside London, and it’s due to go up again in November. The UK Government proposal of £7.20 an hour is not a living wage, and it won’t offset the cuts in tax credits as the IFS has confirmed. At the moment, a family with two parents and two children, with both parents working full-time on minimum wage and paying an average rent, will be a family below the breadline. The changes announced yesterday won’t actually change that very much – they will still be struggling to keep their heads above water, and their children will still be growing up disadvantaged.
“George Osborne has repeatedly said the best route out of poverty is work, but for millions of low-paid workers, poverty will persist no matter how hard they work, or for how many hours.”
Downing Street defended the Budget, with the Prime Minister’s official spokesperson saying it would “keep us on the path to stronger economic security”.
The spokesperson said: “The Chancellor has been clear today that with the welfare savings, the tax cuts, the introduction of the national living wage, a typical family where someone is working full-time on the minimum wage, will be better off in 2020.
“The point I would make about the IFS is they themselves have said they cannot quantify how many will lose from the changes to tax credits but not gain from the national living wage as a result of the summer Budget.”
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