This report from Essex University and the LSE analyses the impact of benefit and direct tax changes since the election in detail.
- 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 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.
The research was jointly funded by Trust for London, Joseph Rowntree Foundation and Nuffield Foundation.