The post-Budget briefing at the Institute for Fiscal Studies is one of those rites of passage for economics reporters. 24 hours on from the Budget itself, the reporting press (and much of the economic intelligentsia) crushes into a small underground briefing room near Goodge Street and attempts to retain concentrate as the country’s most highly-regarded boffins explain what really went on in the Budget.
Often the effort proves too much for the audience. On more than one occasion the proceedings have been interrupted by loud snoring from one or other part of the room. The IFS experts themselves are just as exhausted, having stayed up the night before to run the numbers through their spreadsheets.
The somnolent atmosphere is unfortunate because all too often what emerges from the IFS post-Budget briefing is highly significant — sometimes it’s a revelation that the numbers don’t add up; sometimes it’s an insight that a certain policy might be on the way. Today there was a revelation that is perhaps even more significant. The IFS delivered its verdict on which income groups had been most affected by coalition policies. The final word:
Looking only at changes implemented by the coalition the poorest have seen the biggest proportionate losses.
When the head of the IFS, Paul Johnson, said this, I was a little taken aback. After all, it seemed to stand in stark contrast to most of the analysis both they and the Government had produced thus far. Consider the following chart, from the Budget:
It shows you how each fifth of the population has seen their incomes change as a direct result of coalition policies. As you can see, the top quintile (eg fifth) has experienced the biggest fall in incomes between 2010 and 2015/16.
It was a similar story when the IFS looked at the distributional impact of Government policies after the Autumn Statement in December (though this chart looks at deciles — tenths — rather than quintiles):
Again, the richest tenth of the population (by income) suffer the biggest fall in incomes as a result of tax and benefit reforms. So far so simple — though in stark contrast to what Johnson was saying today.
But wait a moment. Note the starting date in the chart above: January 2010 — just before the coalition government came into power — and before Alistair Darling’s 50p tax for the highest earners kicked in. In other words, the charts above include the impact of the 50p tax on the highest earners.
What do these charts look like if you exclude the impact of the 50p tax and just include policies designed and introduced by the coalition government? That’s what the IFS showed us today:
The yellow line shows you what the distribution profile looks like if you include the reforms from January 2010, including the 50p tax. You can see it’s roughly similar to those other charts above.
Now look at the blue line. It shows you the impact of tax and benefit reforms purely between April 2010 and April 2015 — in other words the period when the coalition was actually in government. The policies introduced in that period clearly weighed most (as a percentage) on the poorest 20% of the population. The poorest 10% faced a 4% fall, the next poorest a 3.5% fall. The richest, by contrast, faced a 2.5% fall in their incomes.
This is significant — for one thing, as far as I can tell, this is the first time the IFS has pointed this out. For another, now that Budget 2015 is done, we have the full range of coalition policies: we can make a pretty final determination of how they have impacted the economy.
Of course, when you measure income in cash terms, the wealthiest faced the biggest falls (see the pink bars below). But the bigger picture is one George Osborne will find awkward. He has said, time and time again throughout his time in Number 11, that his policies weighed heaviest on the wealthiest. Today the IFS has said that’s not right.
On the other hand, the IFS also spiked the guns of Labour. Ed Miliband has been saying repeatedly that average families remain worse off today than they were in 2010. The IFS said that based on most measures, Britons are just about getting better off, in real terms, than in 2010 (though you need to make a few predictions for 2015, a year for which data hasn’t arrived).
However it’s the distribution of wages — whether between the richest and poorest, as above, or indeed the oldest and youngest which might prove most uncomfortable for the Chancellor. Now we know definitively: the coalition’s policies in its first term in office hit the poorest hardest.
You can see all the slides, and a recording of the IFS presentation, here.
