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Budget 2015: The £12bn question - where will the next cuts come from? Budget 2015: The £12bn question - where will the next cuts come from?
(about 2 hours later)
George Osborne’s claim that households are already £900 a year better off than when the Coalition came to power has been called into question by independent experts.George Osborne’s claim that households are already £900 a year better off than when the Coalition came to power has been called into question by independent experts.
The respected Institute for Fiscal Studies (IFS) admitted that average household incomes are finally rising and will probably be higher this year than they were in 2010. But it dampened the Chancellor’s hopes of generating a pre-election “feelgood factor” by warning: “Having household incomes crawl back above pre-recession levels six or seven years after the recession hit is no cause for celebration.”The respected Institute for Fiscal Studies (IFS) admitted that average household incomes are finally rising and will probably be higher this year than they were in 2010. But it dampened the Chancellor’s hopes of generating a pre-election “feelgood factor” by warning: “Having household incomes crawl back above pre-recession levels six or seven years after the recession hit is no cause for celebration.”
At the same time, politicians came under pressure to spell out in detail how they would achieve about £30bn of spending cuts by 2018. All parties were accused of deliberately keeping voters in the dark and focusing on their spending proposals rather than cuts.At the same time, politicians came under pressure to spell out in detail how they would achieve about £30bn of spending cuts by 2018. All parties were accused of deliberately keeping voters in the dark and focusing on their spending proposals rather than cuts.
Living standards will be a crucial battleground at the May general election. Since the economy has returned to growth, Labour has made the “cost of living crisis” its main line of attack. But Mr Osborne took the fight to Labour in his Budget on Wednesday, saying the answer to whether people were better off at the end of the five-year parliament than the start was a resounding yes. Ed Miliband claimed that people were £1,600 a year worse off.Living standards will be a crucial battleground at the May general election. Since the economy has returned to growth, Labour has made the “cost of living crisis” its main line of attack. But Mr Osborne took the fight to Labour in his Budget on Wednesday, saying the answer to whether people were better off at the end of the five-year parliament than the start was a resounding yes. Ed Miliband claimed that people were £1,600 a year worse off.
The IFS analysis of the  Budget did not dispute either claim but pointed out that the two main parties used different measures. It said Mr Osborne’s was based on a forecast because the latest official figures only covered the period up to 2012-13, and his favoured measure was “not ideal” because it included pensioners, whose incomes have risen. The IFS believed it would be a “close-run thing” whether the incomes of non-pensioners had risen. The Chancellor’s measure also included the income of universities and charities. He had set “a low bar” and the recovery in incomes was “very slow”. But the IFS pointed out that Mr Miliband’s chosen measure was based on gross earnings before tax rather than take home pay.The IFS analysis of the  Budget did not dispute either claim but pointed out that the two main parties used different measures. It said Mr Osborne’s was based on a forecast because the latest official figures only covered the period up to 2012-13, and his favoured measure was “not ideal” because it included pensioners, whose incomes have risen. The IFS believed it would be a “close-run thing” whether the incomes of non-pensioners had risen. The Chancellor’s measure also included the income of universities and charities. He had set “a low bar” and the recovery in incomes was “very slow”. But the IFS pointed out that Mr Miliband’s chosen measure was based on gross earnings before tax rather than take home pay.
Paul Johnson, director of the IFS, said: “There is no actual increase [in incomes] in the data we have so far. Real earnings have fallen, as Mr Miliband says. Real incomes should be above their 2010 level as Mr Osborne says.”Paul Johnson, director of the IFS, said: “There is no actual increase [in incomes] in the data we have so far. Real earnings have fallen, as Mr Miliband says. Real incomes should be above their 2010 level as Mr Osborne says.”
But he suggested that the Chancellor was trumpeting the trend on incomes too loudly.But he suggested that the Chancellor was trumpeting the trend on incomes too loudly.
“There is nothing to boast about or write home about,” he said. “We are for sure much worse off on average than we could reasonably have expected to be back in 2007 or indeed back in 2010.”“There is nothing to boast about or write home about,” he said. “We are for sure much worse off on average than we could reasonably have expected to be back in 2007 or indeed back in 2010.”
Ed Balls, the shadow Chancellor, said: “If the Tories want to spend the election campaign telling people they've never had it so good, they're even more out of touch than I thought.”Ed Balls, the shadow Chancellor, said: “If the Tories want to spend the election campaign telling people they've never had it so good, they're even more out of touch than I thought.”
But Mr Osborne welcomed the IFS verdict, saying it had confirmed the Office for Budget Responsibility’s forecast that living standards are set to be higher in 2015 than in 2010. He said: “This is more evidence that our plan is delivering for Britain’s families, and it demolishes Ed Miliband’s central claim in this election. I’m the first to say that the job of repairing our economy isn’t done, because the British people are still paying a huge price for Labour’s Great Recession, but Britain is on the right track and we must not turn back.” Chancellor George Osborne holds the Budget Box outside 11 Downing Street before unveiling the annual budget (Getty Images) But Mr Osborne welcomed the IFS verdict, saying it had confirmed the Office for Budget Responsibility’s forecast that living standards are set to be higher in 2015 than in 2010. He said: “This is more evidence that our plan is delivering for Britain’s families, and it demolishes Ed Miliband’s central claim in this election. I’m the first to say that the job of repairing our economy isn’t done, because the British people are still paying a huge price for Labour’s Great Recession, but Britain is on the right track and we must not turn back.”
The IFS also cast doubt on the Chancellor’s “we’re all in it together” mantra. His figures showed that the richest 10 per cent had been hit hardest by the tax and benefit changes since 2010. But the IFS found that this was only because of tax changes introduced in the dying days of the previous Labour government – including a new 50p top rate of income tax. The IFS said the biggest losers from the Coalition’s policies were two groups - the bottom half of the income ladder, due to benefit cuts hitting low income people of working age, and the top 10 per cent hit by tax increases. People on middle and upper middle incomes had been “barely affected” and “remarkably insulated” by the Coalition. Mr Johnson said that was “astonishing”.The IFS also cast doubt on the Chancellor’s “we’re all in it together” mantra. His figures showed that the richest 10 per cent had been hit hardest by the tax and benefit changes since 2010. But the IFS found that this was only because of tax changes introduced in the dying days of the previous Labour government – including a new 50p top rate of income tax. The IFS said the biggest losers from the Coalition’s policies were two groups - the bottom half of the income ladder, due to benefit cuts hitting low income people of working age, and the top 10 per cent hit by tax increases. People on middle and upper middle incomes had been “barely affected” and “remarkably insulated” by the Coalition. Mr Johnson said that was “astonishing”.
The think tank urged all parties to come clean on how they would clear the nation’s deficit after the election. Mr Johnson said: “We are being told what they want to protect. We are not being told what they actually want to chop. It’s always good for all of the parties to be open with voters before the election."The think tank urged all parties to come clean on how they would clear the nation’s deficit after the election. Mr Johnson said: “We are being told what they want to protect. We are not being told what they actually want to chop. It’s always good for all of the parties to be open with voters before the election."
The IFS director said Mr Osborne had identified only £2bn of his planned £12bn welfare cuts – by freezing most working age benefits for two years from April 2016. “It really is time we knew more about what they might actually involve,” he said. But David Gauke, a Treasury minister, told the BBC the Tories would set out the details “after the election”. Ed Miliband responds to George Osborne’s Budget (PA) The IFS director said Mr Osborne had identified only £2bn of his planned £12bn welfare cuts – by freezing most working age benefits for two years from April 2016. “It really is time we knew more about what they might actually involve,” he said. But David Gauke, a Treasury minister, told the BBC the Tories would set out the details “after the election”.
Labour seized on the IFS’s finding that the cuts of more than five per cent in 2016-17 and 2017-18 implied by the Tories’ plans would be twice the size of any year’s cuts in the current five-year parliament.Labour seized on the IFS’s finding that the cuts of more than five per cent in 2016-17 and 2017-18 implied by the Tories’ plans would be twice the size of any year’s cuts in the current five-year parliament.
But Mr Osborne insisted that this estimate did not take account of his planned welfare cuts or the £5bn he would raise by curbing tax avoidance and evasion. He insisted the cuts would be “at the same pace” as over the past couple of years.But Mr Osborne insisted that this estimate did not take account of his planned welfare cuts or the £5bn he would raise by curbing tax avoidance and evasion. He insisted the cuts would be “at the same pace” as over the past couple of years.
The Resolution Foundation think tank also said it was time for the parties to spell out their cuts. Adam Corlett, an economic analyst, said: “Seven weeks from election day we have still have scant detail of how the parties plan to meet their targets, and what it would mean for welfare, taxes and the shape of our public services.”The Resolution Foundation think tank also said it was time for the parties to spell out their cuts. Adam Corlett, an economic analyst, said: “Seven weeks from election day we have still have scant detail of how the parties plan to meet their targets, and what it would mean for welfare, taxes and the shape of our public services.”
George Osborne: “Living standards will be higher in 2015 than in 2010.”
Institute for Fiscal Studies (IFS): Probably. But no data yet. The Chancellor’s claim is based on a forecast and he uses a measure which is “not ideal.” It includes pensioners, who have done well, but it is unclear whether incomes of non-pensioners have risen over the period.
Osborne: “We are all in this together.”
IFS: Top 10 per cent on income ladder only emerge as the biggest losers when tax rises introduced by the previous Labour government in 2010 are taken into account. On tax and benefit changes under the Coalition, the bottom half of the income scale do as badly as the top 10 per cent due to cuts in working age benefits.
Osborne: “New Personal Savings Allowance will take 95 per cent of taxpayers out of savings tax altogether… 17 million people will see the tax on their savings not just cut, but abolished.”
IFS: Will be “regressive”, giving the most benefit to the top 20 per cent on the income scale.
Osborne: “Help to Buy ISA” will help first-time buyers raise their deposit. “A 10 per cent deposit on the average first home costs £15,000, so if you put in up to £12,000 – we’ll put in up to £3,000 more.”
IFS: Likely to “inflate” house prices because it will raise demand without improving the supply of new homes. May encourage some people to delay buying to get maximum top-up from the Government.
Osborne: “Inequality is lower.”
IFS: When the figures are adjusted for inflation, inequality is very similar to its 2007-08 level. Average incomes of pensioners have risen but those of working-age people have fallen.
Osborne: From 2018-19, the Government has set a neutral fiscal assumption.
IFS: Chancellor needs a new dictionary. Public spending could rise by £20bn in 2019-20 financial year.
Andrew Grice