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Thursday, 26 August 2010

Regressive intellects

Just when you think you have got rid of all the truth-manglers who have been ruining this country for the last 13 years, we suddenly get a reminder with the accusations that the government is running a regressive budget, although nothing could be further from the truth.

First of all, let us cast our minds back a few months when the government was accused of planning large cuts in government spending. Well actually what they were doing was cutting the previous plans for spending increases that hadn't actually happened yet. Government spending is set to increase at a rate of around 2.5% for the next 5 years rather than the unaffordable annual 6-8% of the previous years. But this was of course framed as a cut by the left and their compliant media, who seemed to think that ther spending plans would be set in stone and outlast their government. The electorate thought otherwise.

Now we have an argument in a similar vein regarding the progressiveness or regressiveness of the coalition budget measures. Now let's not kid ourselves, we are in a fiscal mess and everyone will have to pay for the years of Labour waste. But let us not kid ourselves about the progressiveness of the measures being introduced. The richest 10% will be hit on average with more than 10 times as much extra costs or loss of benefits as the poorest 10% with a progressive sliding scale in between.

So where does this talk of regression come from? Simply from the fact that at the lower end of the scale the caoilition plans are not as favourable to the poorest 10% as the pre-election Labour plans. In fact the highest earners are very much worse off under the Conservatives. What the coalition have done in part is to reverse a pre-election bribe/promise that the Labour government knew it would never have to honour.

Chart A1 of the Budget red Book shows that applying the current budget measures on top of the Labour plans the bottom 30% by income will be less than £200 worse off this year than next year. The top 10% will be £1600 worse off, and the second 10% by income will be more than £600 worse off. It is hard to call that change in actual cash outcomes anything other than progressive.

Table A2 of the Budget Red Book shows the same result as a proportion of net income, with the top 10% losing 2% of their incomes next year compared with last year, and the bottom 30% losing only 1%. How is that not progressive.

The change in VAT is also progressive. The top 10% by income will lose £850 in extra VAT compared to around £50 for the bottom 10% by income, because VAT is zero rated on many everyday items such as food and children's clothing. So the rich and poor will both lose, but the rich will lose 17 times as much.

The other measures that the IFS factors into the equation, such as the tightening of benefits qualification and loss of benefits by moving people into employment are neither regressive or progressive taxation, they are simply outcomes achieved by changing peoples' status.

It is a shame that government ministers are still too obsessed with spin to be able to point out this simple truth.

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