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
I wouls also ask for people to read the comments that accompanied the said article……they were not exactly complementary of Mr Hemmings grasp of economics.
Hey ho…..keep living the coalition dream.
(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.
“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.
@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”.
@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.
Only a die-hard LibDem groupie who – like Wile E Coyote running over an empty chasm before he remembers about gravity – doesn’t see the howling oblivion in the polls could dismiss any contrary view as “fictional” and then BLEEDIN’ WELL ADMIT IT’S TRUE. It doesn’t matter if they are “Labour trolls” (I’d love to know how AS divines this); the responses were predominately negative.
John 11:35.
~alec
It is important that we not only get things right in government, but also explain the details of what is being done. The budget was not regressive on a tax basis, nor is it regressive when you look at the effects on benefits. However, what has been reported differs from this.
I will continue responding on the CiF thread until it gets closed and if it looks like people have any more appetite for debate I will continue that on my weblog.
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.
One thing I don’t understand is why VAT is regressive and affects oorer people the most. Clearly someone who buys a £300,000 Rolls Royce is going to contribute more in tax than someone who buys a £2000 banger. Did IFS assume that rich and poor spend the same amount on an item? As food is VAT free and fuel tax remains at 5%, anyone who buys food and cooks it at home is unaffected by the VAT increase. So where is the regression?
“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.
@Tim13
Have you even read the Orange Book?
@Mike80 (and @Oliver)
“Almost literally unbelievable. Do you live in the same country as the rest of us? You cannot see how VAT is regressive?”
While some experts agree with you, the IFS doesn’t. Here’s what they say:
“it is sensible to express gains and losses from VAT as a proportion of expenditure, and doing this the current VAT system is seen to be mildly progressive.”
http://www.ifs.org.uk/budgets/gb2009/09chap10.pdf
If the IFS have calculated the VAT increase to be mildly progressive, then the question of whether the overall budget is, or is not, regressive must be a lot more complex than it would otherwise seem. I’ve read John Hemming’s article in detail, but I don’t have the detailed knowledge to know if he’s right. I hope the IFS welcome his thoughtful comments, and in due time give a detailed response.
From what I’ve read of IFS materials, these sorts of studies are extremely complicated, and there’s a great deal of subjective assumptions that are necessary to come to any conclusion. John Hemming may be right, or he may not be, but his comments are a useful part of the debate.
@John Hemming
If the IFS give a response to your critique, could you do another post here to let us know? I’d be very interested in what they say.
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???
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???
I thought John Hemming’s article was interesting and most of the comments underneath were pretty mindless – as is often the case on CiF. I for one do not have the detailed knowledge to comment on John’s article, like virtually everyone commenting on CiF.
There is however one thing that does not add up. When Nick Clegg defended the emergency budget and claimed the IFS was wrong, he did not use the same arguments that John Hemmings uses.
The arguments he used alarmed me. He claimed that the budget was not regressive because people are more likely to get jobs. Why? Because the decrease in corporation tax will stimulate the private sector. That is a big assumption and it will be no surprise if it proves to be wrong for a variety of reasons, some of which our out of our control. It relies on people being out of work for shorter time periods. However if you are long term unemployed there is really little incentive for any employer to recruit you. Then you get your housing benefit reduced, which in many cases will surely lead you to becoming homeless, or will cause landlords to discriminate against the unemployed.
The long term unemployed are in a vicious circle of benefit cuts and no job opportunities because they have been unemployed for so long. Under this government they are condemned to live in poverty.
Where I used “quartile” in my previous post it should read “quintile”. Force of habit, apologies for any confusion.
I sent a draft of the article to the IFS before publication and with their permission have posted their response in the comments at CiF.
Otherwise the points above have been dealt with in the comments section at CiF.
@John Hemming MP
Thanks. I’ve just read the IFS response you posted. It essentially says, our aim is to follow the methodology of the OBR about whether the budget is progressive, not to try to use a better methodology to estimate whether it is progressive.
That makes a lot of sense, and means that both of you could be right. If the OBR methodology is imperfect, you may be right in your points. But as they are deliberately following that methodology, the IFS may also be right.
I have a lot of respect for the IFS, and I can understand why they framed their study the way they did. But I think your article is very useful as well.
And, frankly, I am full of admiration for the work you and your researcher have put into answering criticisms of your article. I support the coalition, but am unhappy with aspects of the budget – in particular the 10% cut in housing benefit for the long-term unemployed. And it’s been a bit frustrating to read about all these measures, and worry that you guys haven’t really thought them through. It’s good to see a Lib Dem MP engage in the detail of the issue and respond to the specific concerns of their critics, rather than defending them in evasive sound-bites.
My personal niggle isn’t with the IFS report itself, but with part of the press release, http://www.ifs.org.uk/pr/progressive_budget.pdf :
“The distributional effect of all tax and benefit reforms due to be implemented by 2014–15 is clearly regressive within the bottom nine decile groups of the income distribution when losses are expressed as a percentage of net income, although it is less clear cut when losses are expressed as a proportion of expenditure.”
In another of their publications ( http://www.ifs.org.uk/budgets/gb2009/09chap10.pdf ), they say:
“For the reasons explained above, it is sensible to express gains and losses from VAT as a proportion of expenditure”
If they think, and they give good reasons for it, that the proportion of expenditure is the best way of measuring whether a measure is progressive or not, then they should have explicitly said so in the press release. Moreover, by their logic, they should have presented a graphic based on expenditure deciles, and not income deciles.
As most journalists will have based their reporting on the press release, and not the report, politically, the press release is the more important document.
I tend to agree. I think the press releases and interviews were more misleading than the report.
I don’t think they have followed the methodology of the OBR. What they have not done is to look at typical households in the deciles and see what happens with them.
For me the jury is out on the 10% HB cut for people on JSA. I think we need to look at the issue of long term unemployment and perhaps look at situations where some jobs are tailored for people rather than people fitted to jobs.
Incidentally I do all my own research on these issues. My researcher has not been involved although the article was edited and checked for accuracy by others before publication.
@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.
@MacK try reading all the comments on CiF and here before commenting.
I am not opposed to universal benefits. I think it is a good idea to have some for social cohesion. However, to use the argument that only 23% of benefit claimants are isolated from Mortgages and Council Tax as an argument to criticise using the CPI for the RPI linked benefits is misleading if you are talking about poor people, but include wealthy people in your denominator.
Oliver: thanks for your contribution. now I understand.
“For me the jury is out on the 10% HB cut for people on JSA. I think we need to look at the issue of long term unemployment and perhaps look at situations where some jobs are tailored for people rather than people fitted to jobs.”
If you really think that the “jury is still out” on the HB cut, then you should read an excellent article by Patrick Murray on Lib Dem Voice, which explains what the consequences of these policies will be:
“The complex arrangements governing the calculation of housing benefit have been changed, leaving many people with less benefit to pay the rent in the private sector homes that councils have placed them in, in an effort to cut expensive temporary accomodation. Many will become homeless as a result.
What happens then? Well, they come back through the council’s doors, and are put in even more expensive temporary accommodation, immediately negating any potential savings from this move…
…The result of the current Coalition policies will be more over-crowding, more misery, and more people sleeping on our streets. And that should not sit easy on the conscience of any Liberal Democrat.”
https://www.libdemvoice.org/opinion-housing-the-45-million-elephant-in-the-room-20682.html
The first thing is that the rules have not yet changed, but are proposed to be changed in the future. The second thing is that Discretionary Housing Payments have been tripled.
It is clear that the current LHA rules underpin the rental market driving up rents. Hence the question is to what extent reducing LHA also reduces rents.
On the issue of reducing the HB for people who have been on JSA for a year. The objective is that of encouraging people to get a job. This also needs a bit of consideration, but it is not necessarily a wrongful thing to do.