No equality of sacrifice

A report by economists at the London School of Economics and the Institute for Social and Economic Research at the University of Essex finds that:

■ Sweeping changes to benefits and income tax have had the effect of switching income from the poorer half of households to most of the richer half, with the poorest 5% in the country in terms of income losing nearly 3% of what they would have earned if Britain’s tax and welfare system of May 2010 had been retained.

■ With the exception of the top 5%, who lost 1% of their potential income, it is the better-off half of the country that has gained financially from the changes, with an increase of between 1.2% and 2% in their disposable income.

■ The top 1% in terms of income have also been small net gainers from the changes brought in by David Cameron’s government since May 2010, which include a cut in the top rate of income tax.

■ Two-earner households, and those with elderly family members, were the most favourably treated, as a result of direct tax changes and state pensions respectively.

■ Lone-parent families did worst, losing much more through cuts in benefits and tax credits and higher council tax than they gained through higher income tax allowances. Families with children in general, and large families in particular, also did much worse than the average.

■ A quarter of the lowest paid 10% have shouldered a particularly heavy burden, losing more than 5% of what would have been their income without the coalition’s reforms.

Its authors, Paola De Agostini and Professor Holly Sutherland at the university of Essex, and Professor John Hills at the LSE, write: “Whether we have all been ‘in it together’, making equivalent sacrifices through the period of austerity, is a central question in understanding the record of the coalition government … It is clear that the changes did not lead to uniform changes in people’s incomes. The reforms had the effect of making an income transfer from the poorer half of households (and some of the very richest) to most of the richer half, with no net effect on the public finances. In effect, the reductions in benefits and tax credits financed the cuts in taxes. Some groups were clear losers on average – including lone-parent families, large families, children, and middle-aged people (at the age when many are parents). The transfer of income from the poor to the affluent was partly due to changes to benefits and tax credits which make them less generous for the bottom and middle of the income scale. ”

Matthew Reed, chief executive of the Children’s Society, said: “This important analysis offers further evidence that children in low-income families are among the groups losing the most as a result of cuts to benefits and tax credits.”

On Saturday night Chris Mould, chairman of the Trussell Trust, which helped more than 900,000 people with its emergency food banks in 2013/14, and which is forecasting a further increase in attendance in the next few months, told the Observer: “It is not true to say that we have all been in this together. It is time we were honest about that and made a decision about whether we are happy with that.”