Don’t forget the spending cuts! The real impact of Budget 2010

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There’s stunning analysis from the TUC and UNISON in a report by Tim Horton and Howard reed out today with the above title.

As they say:

This report reveals the true impact on households of last week’s budget.

To date, assessments of budget’s impact, and how fair or unfair it might be, have centred on the impact of the tax and benefit changes announced, while ignoring the impact of spending cuts.

Using a new model of how public spending is allocated across households in the UK, this report estimates the distributional impact of the spending cuts announced in the budget. Then, by combining this with government data on the impact of the budget’s tax and benefit changes, the report calculates the budget’s overall impact.

In summary, the report finds that:

‚Ä¢ Excluding benefit cuts, the budget committed to £34 billion of spending cuts by 2012-13.

• The impact of these cuts will be deeply regressive. All households are hit considerably, but the poorest households are hit the hardest.

‚Ä¢ Assuming these cuts fall evenly across non-ringfenced departments, the average annual cut in public spending on the poorest tenth of households is £1,344, equivalent to 20.5% of their household income, whereas the average annual cut in public spending on the richest tenth of households is £1,135, equivalent to just 1.6% of their household income.

‚Ä¢ When the impact of these spending cuts is combined with the Government’s own analysis of the impact of the budget’s tax and benefit changes – in order to generate a picture of the budget’s overall impact – the result is, once again, deeply regressive. In particular, the magnitude of the impact of spending cuts on households dwarfs the impact of the tax and benefit changes.

‚Ä¢ Overall, the combined average annual loss in income and services for the poorest tenth of households is £1,514, equivalent to 21.7% of their household income. For the richest tenth of households, the annual loss in income and services is £2,685, equivalent to just 3.6% of their household income.

These results are illustrated in the graph below.

As the authors have said on Left Foot Forward:

The Government had previously claimed that the impact of the budget is “fair” and “progressive” on the basis of the distributional impact of the budget’s tax and benefit changes alone – in particular, making a great play of one graph in the Budget report (Chart A2, p.67), showing the impact of tax and benefit changes by 2012-13 (these are the red bars in the graph above).

But this completely ignores the impact of cuts in public spending on households. What really counts for fairness is not how families are affected by tax and benefit changes in isolation, but how they are affected by the whole package – spending cuts included. And, as TUC General Secretary Brendan Barber, commenting on our analysis in today’s Observer, puts it, when you consider the impact of spending cuts too, it “destroys” any claim that the budget was progressive.

While it is likely there would have been significant spending cuts whoever had been in government, this analysis of the impact of spending cuts raises real questions about the coalition government’s decision to rely much more heavily on spending cuts for reducing the deficit than other parties had planned to. Far from being ‚Äòunavoidable’, this was a discretionary decision – and one that has clearly hit low-income households much harder than they otherwise would have been.

Full marks to all involved for a great piece of work and for moving the debate onwards.

The myth that this budget was fair is shattered for good.

The challenge for the Left now is to suggest how this issue can be solved. I do, of course, start with taxation – which by itself could prevent the need for any cuts.