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IFS takes aim at Osborne’s ‘arithmetically impossible’ sleight of hand

9 July 2015

4:38 PM

9 July 2015

4:38 PM

George Osborne may have – politically – sweetened the bitter pill of his Budget by ending it with a surprise announcement about the National Living Wage. But the Institute for Fiscal Studies still wasn’t that keen to swallow it today.

As well as revealing that 13 million families will lose £260 a year on average as a result of the freeze to most working age benefits (with 7.4 million of those in work, losing £280), the IFS’s analysts also pointed out that the increase in the minimum wage did not make up for the cuts to tax credits.


Paul Johnson said:

‘The key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients. That is just arithmetically impossible.

‘The gross increase in employment income from the higher minimum wage is about £4 billion. Welfare spending as a whole is due to fall by £12 billion and, even excluding the effects of the four year freeze tax credit spending is due to be cut by getting on for £6 billion. And of course many of the recipients of the higher minimum wage will not be tax credit recipients. Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.’

The IFS also produced a distributional analysis which showed that the poorest will be hit hardest as a result of the changes announced in the Budget for 2015-2019, and I suspect it is this first graph, rather than second one below which shows the distributional analysis for 2010-2019, which Labour will wave as it responds to the Budget.

Screen Shot 2015-07-09 at 16.24.33Screen Shot 2015-07-09 at 16.25.19

For Labour, this briefing is very helpful in gaining a foothold in the debate as Osborne tries to occupy the centre of British politics. But given this was the ‘maximum pain’ Budget in which the Tories were preparing to upset a lot of voters with cuts that they believe to be necessary and ultimately right, they won’t be too unsettled by that 13 million figure, even if it makes headlines and causes a row for some weeks. Their perspective when presenting this Budget is of 2020, when they figure all the upset will have died down.


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