The distributional effect of tax and benefit reforms to be introduced between June 2010 and April 2014: a revised assessment
Institute for Fiscal Studies Briefing Note
25 August 2010
In this Briefing Note, the Institute for Fiscal Studies attempts to model the full impact of tax and benefit changes in the Emergency Budget, on different income and expenditure groups. Section 4 shows the impact of the Budget on different sorts of households.
The Briefing Note’s main conclusions are:
That the Budget is not a ‘progressive Budget’ as claimed when the measures announced are analysed in isolation, or if their effects were considered over the longer term. The overall effect of the new reforms announced is regressive compared to those announced by the previous Government which are progressive.
Low-income households of working age lose the most from the June 2010 Budget reforms because of the cuts to welfare spending. Those who lose the least are households of working age without children in the upper half of the income distribution.
The decision to link benefits with the Consumer Price Index (CPI) rather than the Retail Prices Index (RPI) or Rossi index from April 2011 is very likely to mean less generous benefits in the years ahead. The savings from linking to a lower index are predicted to be £1.2 billion in 2011–12 rising to £5.8 billion in 2014–15. Seventy seven per cent of benefit claimants will be affected by increases in mortgage interest payments and council tax, as these are the main items that are excluded from the CPI but included in the RPI.
You can download the Briefing Note from the Institute for Fiscal Studies website.
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