LibLink: John Hemming – How the IFS got it wrong in calling the budget regressive

Over at The Guardian’s Comment is Free website, Lib Dem MP for Birmingham Yardley John Hemming argues that the Institute for Fiscal Studies made a number of mistakes in its analysis of the Coalition’s budget plans. Here’s an excerpt:

Labour politicians seized on an Institute for Fiscal Studies report last month which described the emergency budget as “clearly regressive”. Unfortunately, some of the IFS’s conclusions and the reporting of them were misleading and inaccurate. … the IFS has made a number of important errors in its report, which tends to exaggerate the effect of the cuts on the poorest households. In my conversations with the IFS I have asked to see the background calculations for its report, but it has not provided them.

When I refer to claimant households I mean those dependent upon benefits who are unemployed. I am not including millionaires who claim child benefit as “benefit claimants”, as the IFS does. I mean the poorer households, whom we need to protect. The job of the coalition is not to protect millionaires who happen to receive universal benefits.

… Why [the IFS] would consider millionaires in its assessment of the budget’s effect on the poor is unclear. On this underlying question, it is clear that there are many households dependent upon benefits (not millionaire benefit claimants) in my constituency who are solely affected by the switch from Rossi indexation to CPI-based uprating. For those people the budget is progressive, because they lose a lower proportion of their income by 2014 than other, richer households.

Sadly, the truth has been trampled underfoot by the rush to create a story that fits the narrative of an attack on the poor.

You can read John’s article in full here.

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33 Comments

  • Andrew Suffield 4th Sep '10 - 5:16pm

    (As usual, anything from “Red Rag” is probably fictional. Pretty much all of the comments attached to the article are from labour trolls who have nothing more to say than “he’s a Lib Dem so he must be lying – I don’t know how or where but THIS MUST BE WRONG”)

  • Save the party – quit the coaltion – no more Liberal Nationals!!!

  • *Yawn*

  • Last comment was in response to comments #1 and #3

  • Trying to pick apart IFS report now is worse than pointless.

    It’s reinforcing the public perception that the Liberal Democrats are not only happy but suicidally keen to be the fall guys for the worst excesses of Osborne and the Conservative rights attack on the poor.

    There was a time when a sitting Liberal Democrat MP wouldn’t have to be told that when Lib Dem’s values of fairness are on the line the last thing you do is blame the messenger and parrot the Conservative rights arguments.

    A sad example of exactly why the Liberal Democrats are sinking relentlessly in the polls and why those on the ground in constituencies up and down the country keep hearing the “you’re just yellow tories” attacks.

  • Mike(The Labour one) 4th Sep '10 - 6:04pm

    “When I refer to claimant households I mean those dependent upon benefits who are unemployed. I am not including millionaires who claim child benefit as “benefit claimants”, as the IFS does. I mean the poorer households, whom we need to protect. The job of the coalition is not to protect millionaires who happen to receive universal benefits.”

    This makes no sense. The IFS laid it out in terms of income decile, not “claimant or not”. Is this just a feat of contortion to avoid having to judge the non-unemployed who recieve benefits?

    “Why [the IFS] would consider millionaires in its assessment of the budget’s effect on the poor is unclear. On this underlying question, it is clear that there are many households dependent upon benefits (not millionaire benefit claimants) in my constituency who are solely affected by the switch from Rossi indexation to CPI-based uprating. For those people the budget is progressive, because they lose a lower proportion of their income by 2014 than other, richer households.”

    There are many are there? How many? Enough to offset the regressive effect on the rest of them?

    This whole thing is a mess.

  • Mike(The Labour one) 4th Sep '10 - 6:29pm

    @Andrew Suffield: I like your attitude- it can only help Labour.

    “All criticism is by Labour trolls, just ignore, we and our Tory friends are perfect” will hopefully lead to “all votes for non-Lib Dems are by Labour trolls, they don’t count, no one could possibly disagree with us just keep acting the same alienating old way”.

  • Mark Inskip 4th Sep '10 - 7:34pm

    @Red Rag
    Having looked through the accompanying comments, you are right that there are a lot of abusive and insulting comments posted about John Hemming’s analysis. However there’s a dearth of coherent arguments pointing to flaws or inconsistencies in his arguments. Where those posting comments have attempted to understand his analysis then to his credit Mr Hemming has engaged and responded. I couldn’t find any comment that successfully demonstrated that Mr Hemmings analysis was incorrect.

  • Strange how the IFS has changed, isn’t it? When it was publishing reports critical of Gordon Brown and Labour prior to the election, its views were quoted almost as Holy Writ by Nick Clegg and his colleagues. Now that it dares to criticise the coalition, suddenly the poor old IFS is guilty of being “misleading and inaccurate”.

  • One of the most vulnerable groups in our society are the disabled.Many disabled people do not work and need state help.Housing benefit is going to be cut,VAT increase and changes in the way DLA is awarded.The disabled will suffer under this budget.

  • “So where is the regression?”

    Unbelievable. Almost literally unbelievable. Do you live in the same country as the rest of us? You cannot see how VAT is regressive? You don’t understand that VAT is on basic household goods, tampons, repairs etc?

  • David P – Regressiveness (not “regression” btw) is measured by its effect on the distribution of net income – the Poll Tax was profoundly regressive because it charged rich and poor the same amount for services, as opposed to say Local Income Tax, which takes more from those on higher incomes, or Rates / Council Tax, which discriminates on a significant contributor to wealth, ie property values owned / rented. Of course you wouldn’t buy an expensive car if your income was very low, but regressiveness cannot be calculated by assuming people on different incomes will make different purchases! Take the case of a low mid – range item of consumer electronics. A person on high income will be paying significantly less proportion of earnings than someone on low income. But I think you understand all that, and don’t want to acknowledge / agree with it! By definition, most “indirect” taxes are regressive.

    The standard Thatcherite and post-Thatcherite approach has been to move tax from progressive (direct taxes, income tax etc) on to regressive (indirect taxation). One of the key reasons that many in the Lib Dems are unhappy with the Govt approach is that we have been fighting the Thatcher consensus on this, and for us, our continual emphasis on “fairness” (which I know can be defined in different ways) hasmeant putting some of the taxes back towards income tax, as with our local income tax policy. We see the Orange Book tendency reneging on that commitment.

  • @ David Pollard: VAT is considered to be a regressive tax because as a proportion of their income, poorer people spend more than the rich, even though in absolute terms the rich obviously spend more. You are however correct to point out that, again speaking as a proportion of income, things that are actually VAT free will make up a greater part of a household spend for the least well off.

  • VAT is regressive because the burden as a percentage of income decreases the more you earn. The bottom quintile in earnings pay 10.8% of their income on VAT. The top quintile pay 4.5% of their income on VAT. The burden clearly decreases as income increases.

    In contrast, Income Tax is progressive, with bottom quintile earners paying 3.2% of their income and top quartile earners paying 18.4% of their income. NI is similarly broadly progressive, although the top quartile pay less than the 4th quartile for some reason.

    Citation: Office of National Statistics – The effects of taxes and benefits on household income, 2007/2008 – Table 3, page 5.

  • PrincessPerfect 5th Sep '10 - 3:42am

    @Tim13
    Have you even read the Orange Book?

  • toryboysnevergrowup 5th Sep '10 - 8:56am

    John Hemming

    “The budget was not regressive on a tax basis, nor is it regressive when you look at the effects on benefits.”

    The budget was only not regressive on a tax basis because of the changes previously introduced by the Labour Government. If you look at what happened on benefits alone that part clearly was regressive, Just look at the Government’s own figures rather than those of the IFS.

    As for the likely impact of the Spending Review can we presume that you will now be pronouncing on whether they are progressive or regressive, and if the latter you will not support the Government???

  • toryboysnevergrowup 5th Sep '10 - 9:07am

    John Hemming may have some valid criticisms of the IFSs methodology – but what his analysis doesn’t demonstrate is that the extent of those weaknesses was sufficient to undermine the IFS’s conclusion that the budget was regressive. Where are his alternative figures demonstrating that the budget was not regressive – until then his overall conclusion is only an assertion.

    I await the IFS’s response – if they adjust their analysis will John Hemming do the same to his own???

  • Where I used “quartile” in my previous post it should read “quintile”. Force of habit, apologies for any confusion.

  • @John Hemming MP

    “The job of the coalition is not to protect millionaires who happen to receive universal benefits.”

    A typical Blue and Orange Tory sleight of hand. Millions who are not millionaires receive universal benefits and rely on them. By emphasising the relatively few number of extremely rich who receive universal benefits the Blue and Orange gang seek to discredit the concept of universal benefits and deny them to anyone except a stigmatized underclass.

    The way that the Orange and Blue Tories are now discounting the IFS is truly Orwellian.

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