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.
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.
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
full paper can
be downloaded here (pdf)
by Paola De Agostini,
John Hills and
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
- 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
- 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.
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.
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
the University of Essex.
is Professor of Social Policy and Director of the
Centre for Analysis of
Social Exclusion (CASE)
at the London School of Economics.
is Research Professor and Director of
at the Institute for Social and
Economic Research (ISER) at the University of Essex.
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
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