The Emergency Budget was Progressive

I spent some time looking at the IFS analysis published about a week and a half ago about the budget.

Their analysis is now on their website via the news release which is here. The report itself is available via this page.

I wrote an article for the Guardian's Comment is free section which is here

I think a lot of the coverage of the IFS report was additionally misleading. I think the IFS could have been a lot clearer about their analysis when interviewed. For example there was this today interview.

I transcribed part of this interview which follows:

Presenter: "If you had to focus on one measure that was if you like impacting the poor more than the rich I think your analysis shows it is the rather subtle one that sounds very innocuous that we are going to update benefits by the CPI rather than the RPI.

IFS: "yes that's the largest welfare cut that's coming in over the next few years. That's forecast to save the government about 5.8 bn pounds by 2014 But it will keep That amount will keep on increasing every year in the future because the CPI tends to go up less quickly than the RPI and that is firstly because of a technical change in the way it is calculated that is quite justified because the RPI does not account for the fact that people can change what they buy when prices go up to keep their level of welfare the same and also because mortgage interest and council tax that have tended to go up faster than general inflation are excluded from the CPI. Now the government said that that might be justified because people who claim benefits are not exposed to these things because they generally rent or council tax benefit covers their council tax. However, we find that only 23% of benefit claimants are in fact unaffected by increases in these items

Presenter: it is one of these things that is quite technical but makes an enormous difference and bigger every year as it accumulates.

IFS: yes

This interview failed to get to the truth in a relatively simple manner. The figure of 23.1% of benefit claimants referred to in the interview includes myself (a multi-millionaire businessman who is also an MP) as a “benefit claimant”.

The interviewee from the IFS failed to explain that those benefits that the poorer households are particularly dependent upon (Job Seekers Allowance, Incapacity Benefit, Employment Support Allowance, Income Support etc) are not currently uprated by the RPI, but are in fact uprated by the ROSSI index (which already excludes Mortgage Interest and Council Tax).

Hence the IFS spokeman was not referring in his answer to the really poor households although the interviewer was.

There were also other errors in the report.

However, the misrepresentation of the RPI-CPI shift was the worst aspect of the coverage that I think that, given the interview transcribed above, the IFS need to accept it was their responsibility.

For example in The Guardian (25th August) we have this:

No minister can read this report and attempt to describe their measures as fair. They are anything but. Nor is it the case that these regressive measures are a one-off. Far from it: the biggest reason the chancellor's emergency budget is so unfair is because he has permanently pegged benefits to the lower consumer price index (CPI) rather than the old retail prices index (RPI). That may sound technical, but consider this: CPI is currently just above 3%, while RPI is nearly 5%. Now imagine your disability benefits inching up by 3% a year every year rather than 5%: within just a few years that leaves you with a big shortfall. This one fact puts in perspective the recent speculation about how Iain Duncan Smith is fighting for more generous welfare provision – a couple of billion extra does not offset the many billions being taken from society's support for the poorest. With full access to all the Treasury models, Mr Osborne will have known how much poorer he was about to make some of the most vulnerable members of society – yet he went ahead and did it anyway.

Basically the above analysis is not true. The benefits that households receive that are dependent upon benefits overwhelmingly are currently updated by the ROSSI index not RPI - furthermore the use of a geometric mean is something endorsed by the IFS. (that is the main difference between ROSSI and CPI).

Additional points are in the CiF article.