John Hemming's Web Log John's Reference Website
Wednesday, August 25, 2010
  The Emergency Budget and the IFS report
The "new" IFS report repeats substantially what they said at the time of the Emergency Budget.

Firstly from a tax perspective the budget is progressive. It in fact is more progressive than Labour because of the CGT increases.

Where the debate exists is on the treatment of benefits. The biggest factor is whether the change from RPI to CPI should be considered to be regressive or not.



The above chart shows that recently CPI inflation has often been higher than RPI inflation.

The biggest distinction currently arises from using a geometric mean rather than an artithmetic mean for averaging price increases. Then come various housing issues some of which are encountered by some claimant households.

My view is that we should have a measure to monitor inflation for claimant households. I raised this in the house and the government have agreed to look at this.

Some things such as energy costs hit claimant households harder than other households. That is why this needs to be looked at.

However, I do not think it is reasonable for the IFS to analyse these changes as regressive because they may result in lower benefits for some people than would otherwise be the case. That would imply that anything that puts up benefits is progressive.

What we actually need to do is to deal with the poverty trap. That cannot be done by simply increasing benefits which deepens the trap.

We need to protect those people who are prevented from working through disability. We also need to protect those people who have retired (and the triple lock on the state pension does that).

However, we need to encourage those who can work to work. To me that is the progressive way out of poverty. Reducing the poverty trap does have oosts, but it is a better route for people than simply increasing benefits beyond what household costs are increased by.
 
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better brent chart

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