The Coalition’s welfare plans in 2013-14 – Are the richest taking the biggest hit?

Now the dust has settled somewhat on George Osborne’s Autumn Statement, the precursor to the ‘main event’ on March 20th 2013, I thought I might offer you some welfare and benefits related New Year respite, in the form of some brief analysis of the oft used Coalition idiom that the ‘rich are taking the brunt’ in terms of the spending cuts and tax increases announced by the Government. Just how accurate is this assertion? Whilst this isn’t the place to attempt a full audit of the Coalition’s Welfare policy, a graph (see below), produced by HM Treasury was brought to my attention which looks at how each decile (or 10% of the population based on income) in the year 2013-14 will fare under the Governments tax and benefit spending plans.

Whilst on first sight the graph below might look a bit like some interesting flavour of Neapolitan ice cream (don’t try licking it, it doesn’t work), this intriguing graphic takes the cumulative effect (or in other words, the combined effect) of direct tax, indirect tax and tax and benefits income gains and losses for 2013-14 for different income deciles of the UK population in terms of net (after deductions) income. It therefore shows that for most groups there will be benefits and losses to their income, the benefits accruing to direct taxes and the losses to indirect tax and benefits.

The thing that is probably of most interest to us here is the black line, which averages out all the gains and losses or each decile of the population, thus revealing overall how much better or worse off each group will be in 2013/14.

The bottom decile of the population for instance will lose out by about 1.8% (approximately +1.1% direct taxes, -1.1% in indirect taxes and -1.8% in Tax Credit and Benefits) in terms of net income, with  losses gradually decreasing until the 9th decile, with the 10th decile bucking the trend somewhat and seeing the biggest percentage losses of all.

As such, whilst it may be true that those in the highest decile take the greatest hit, the handy black dotted line demonstrates that it’s hardly a uniform pattern. Those in the nest highest deciles actually end up losing less than many of those at the bottom. Hence, if we rank the deciles in terms of who actually loses out the most, after the highest decile (the 10th), a rather odd picture emerges. It is not those in the 9th, 8th, or even 7th deciles that are hit the next hardest, but some of the very poorest in the 2nd, 3rd and 4th.

What is more, due to this rather odd impact design, if we take the overall losses of 1-5 and compare them with those experienced by those in deciles 6-10 we see that in actual that, the average loss associated with deciles 1-5 is about 1.2% whilst in deciles 6-10, the loss is only approximately 0.3%, despite the relatively large loss of those in the highest decile. In addition, those in deciles 6, 7 and 8 will actually see a slight gain from Mr Osborne’s latest announcements.

So, returning to the analysis of the repeated statement of Mousier Osborne et al, ‘the rich are taking the biggest hit’ it appears to be the case that as with most things in Politics, a certain degree of creative interpretation (or ‘spin’) is in play. Hence, whilst the 10th and highest decile of the population does take the greatest hit, it is highly debatable as to whether those just below take a proportionately hit. Indeed, whilst it remains the case that those in the 9th decile receive significantly less of a cut than those in the poorest decile, George Osborne and the Coalition Government will continue to face questions about whether the rich really are paying their fair share.

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