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New analysis published
Poor lose, and rich gain from direct tax and benefit changes since May 2010 – without cutting the deficit

New analysis from Essex University and the LSE analyses the impact of benefit and direct tax changes since the election in detail. This shows that the poorest income groups lost the biggest share of their incomes on average, and those in the bottom half of incomes lost overall.

  • In contrast those in the top half of incomes gained from direct tax cuts, with the exception of most of the top 5 per cent – although within this 5 percent group those at the very top gained, because of the cut in the top rate of income tax.

  • In total, the changes have not contributed to cutting the deficit.  Rather, the savings from reducing benefits and tax credits have been spent on raising the tax-free income tax allowance.
  • The analysis challenges the idea that those with incomes in the top tenth have lost as great a share of their incomes as those with the lowest incomes

The full paper can be downloaded here (pdf)

The research, by Paola De Agostini, John Hills and Holly Sutherland suggests that who has gained or lost most as a result of the Coalition’s policy changes depends critically on when reforms are measured from.

  • Treasury analysis, suggesting that those at the top have lost proportionately most starts from January 2010 and therefore includes the effects of income tax changes at the top announced by Labour in 2009 and taking effect in April 2010, before the election. 
  • But if the Coalition’s impacts are measured comparing the system in 2014-15 with what would have happened if the system inherited in May 2010, they have more clearly regressive effect.
  • This resulted from the combination of: changes to benefits and tax credits making them less generous for the bottom and middle of the distribution; changes to Council Tax and benefits from which those in the bottom half lost but the top half gained; higher personal income tax allowances which meant the largest gains for those in the middle, but with some income tax increases for the top 5 per cent; and the ‘triple lock’ on state pensions which were most valuable as a proportion of their incomes for the bottom half.
  • 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), while others were gainers, including two-earner couples, and those in their 50s and early 60s.

Prof Sutherland, Director of EUROMOD at the Institute for Social and Economic Research (ISER) at the University of Essex commented: “It is striking how seemingly technical issues or minor differences in assumptions like which tax system is taken as the starting point for Coalition reforms, or whether to assume 100% take-up of benefits have very big implications for what we conclude about whether the rich or the poor were harder hit.”  

Prof Hills, Director of the Centre for Analysis of Social Exclusion at LSE, commented: “What is most remarkable about these results is that the overall effect of direct tax and benefit changes under the Coalition have not contributed to cutting the deficit.  The savings from benefit reforms have been offset by the cost of raising the tax-free income tax allowance.  But those with incomes in the bottom half have lost more on average from benefit and tax credit changes than they have gained from the higher tax allowance.”

Paola De Agostini is Senior Research Officer at the Institute for Social and Economic Research (ISER) at the University of Essex.

John Hills is Professor of Social Policy and Director of the Centre for Analysis of Social Exclusion (CASE) at the London School of Economics.    

Holly Sutherland is Research Professor and Director of EUROMOD at the Institute for Social and Economic Research (ISER) at the University of Essex. 

The paper was prepared as part of CASE’s Social Policy in a Cold Climate programme, which is funded by the Joseph Rowntree Foundation, Nuffield Foundation, and with London-specific analysis funded by the Trust for London.  The views expressed are those of the authors and not necessarily those of the funders.  The analysis uses the tax-benefit model, EUROMOD, based at the University of Essex.


News Posted: 16 November 2014      [Back to the Top]

Department of Social Policy public lecture
Good Times Bad Times: the welfare myth of them and us

Date: Wednesday 12 November 2014 
Time: 6.30-8pm 
Venue: Sheikh Zayed Theatre, New Academic Building
Speaker: Professor Sir John Hills
Respondents: Polly Toynbee and  Professor Holly Sutherland
Chair: Professor Julian Le Grand 

This ground-breaking book Good Times Bad Times: the welfare myth of them and us by John Hills, challenges the idea of a divide in the UK population between those who benefit from the welfare state and those who pay into it.

Click here for the audio recording and presentation slides from this event

John Hills is Director of the Centre for Analysis of Social Exclusion (CASE) at LSE

Polly Toynbee is a political and social commentator for the Guardian.


Julian Le Grand is the Richard Titmuss Professor of Social Policy at LSE. 

Holly Sutherland is a Director of EUROMOD at the Institute for Social and Economic Research (ISER) at the University of Essex.


Suggested hashtag for this event for Twitter users:  
#LSEwelfaremyth

 


News Posted: 12 November 2014      [Back to the Top]

New blog post
The cuts in local government funding have had a significant impact on London's most deprived communities

How has the significant cuts to local authority funding affected front-line services? There had undoubtedly been enormous strain on services and front-line staff, with councils have argued that the limits to efficiency have been reached. Amanda Fitzgerald presents findings from a new report for the Trust for London into the most deprived communities in London. Read the blog at LSE British Politics and Policy
News Posted: 23 October 2014      [Back to the Top]

Disabled people are worth the National Minimum Wage:
Lord Freud's widely-reported recent remark that some disabled people are not ‘worth' the National Minimum Wage (NMW) is not supported by CASE research

By Abigail McKnight and Tania Burchardt

Just before the minimum wage was introduced back in April 1999, disabled people were disproportionately employed in jobs paying less that the NMW rate: 8.5% of disabled men compared to 5.3% of non-disabled men, and 20% of disabled women compared to 13.2% of non-disabled women. This meant that they stood to gain from significant wage increases – but they were also most at risk of lay-offs, if employers responded to the introduction of the minimum wage by reducing the number of their employees.  

At the time, there were a number of calls for disabled people to be made exempt from the NMW for this reason. But our research found that both disabled and non-disabled men and women actually increased their chances of remaining in work over the period that the NMW was introduced.  This was no doubt due to the buoyant labour market at that time.  We also found no evidence among disabled men or among disabled women that changes in their chances of remaining in work were significantly lower than for non-disabled men or non-disabled women respectively.

We concluded that exempting disabled employees from the NMW would be likely to increase discrimination against disabled people by giving a clear signal to employers and others that disabled workers could be treated less favourably. This is in direct opposition to the Equality Act. The vast majority of disabled employees earning less than the NMW before it was introduced did not lose their jobs following its introduction. The introduction of the NMW therefore led to an increase in the wage of these low-paid disabled employees, and, although it was not covered in our original research, one would expect that subsequent increases in the minimum wage have similarly benefitted disabled people in the labour market. 

We suggest that a much better approach would be to continue to keep disabled employees under the scope of the NMW legislation, improve the enforcement of the Equality Act and to support disabled employees with very low intrinsic levels of productivity through supported employment services. Furthermore policy would be better targeted at addressing the low levels of skill and education among parts of the disabled population, which is most often the root cause of low wages and high rates of non-employment.

In the light of the recent comments made by Lord Freud that some disabled people are not worth the National Minimum Wage we would like to suggest that our research findings are just as relevant today as they were when first produced in 2003. Disabled people have been major net gainers from the NMW and there is no evidence to support the case that they should be exempt.

Research paper: Disability and the National Minimum Wage: A Special CASE?


News Posted: 20 October 2014      [Back to the Top]