Fact Check: are those with the broadest shoulders bearing the greatest burden?

Michael Barrow, University of Sussex

Those with the broadest shoulders are bearing the greatest burden.

George Osborne, chancellor of the exchequer, in his budget speech on July 8.

The chancellor’s claim is a difficult one to test. First, we might argue over what is meant by “burden” and how we should measure it. Second, the budget included a huge number of measures, some of them shifting the burden one way, others shifting it back (such as changes to working tax credits). This makes it difficult to come up with an overall assessment.

It might help to look at Osborne’s supporting claims immediately before and after the statement above:

The analysis produced today shows that the richest are paying a greater share of tax than they were at the start of the last parliament. And more than that, we are continuing to devote a greater share of state support to the most vulnerable. As I said they would – those with the broadest shoulders are bearing the greatest burden. For we are all in this together. And, in the last fortnight we’ve seen independent statistics showing that since 2010, child poverty is down and so is inequality.

In order to see whether Osborne is right, let’s examine these three statements and then discuss how they relate to “the burden”.

The rich paying a greater share of tax

This is technically true as shown in the chart below, taken from the Treasury’s analysis accompanying the budget.

The chart shows a prediction for 2017-18, under the 2010-11 tax/benefit rules and the anticipated 2017-18 rules. It thus shows the cumulative effect of policy changes since the election of 2010.
HM Treasury

The bars below the axis show that the richest top income quintile (on the right hand side) pays well over its “fair share” of 20% of the tax burden. In fact it is around 50% and higher under the 2017-18 tax and benefit rules than the 2010-11 rules. However, this is a curious measure of fairness, which implies households should pay the same amount of taxes and receive the same benefits regardless of their level of income.

A better baseline of fairness might be that all people pay tax in proportion to their income. The top quintile earns approximately 50% of the original income so the burden might be said to be shared roughly equally, rather than on the broadest shoulders.

Some might argue that the small change between the 2010-11 and 2017-18 systems suggests that policy has become more redistributive. However, this is not accurate, since it shows how a given tax burden is shared, when that burden might be changing. For example, we could envisage a situation where the top quintile pays 100% of all taxes but, if those taxes were small enough, the amount of redistribution would be small.

Greater share of support to the most vulnerable

Here, the clever use of words creates a claim which is possibly technically correct but is misleading. The claim is that the most vulnerable (we interpret this as the poorest) obtain a larger share of the pie of state support. However, if the pie is shrinking the claim is quite consistent with the poorest becoming worse off.

With £12 billion of benefit cuts the pie is certainly shrinking – but the impact of that reduction is slightly mitigated for the very poorest. Cuts implemented through lowering the income threshold (from £6,420 to £3,850) above which people start to lose tax credits mean that the very poorest are to some extent protected; but credits are going to be withdrawn earlier and more quickly as income rises. Over the threshold, you lose 48p of credit for every £1 earned, compared to 41p before the budget.

The government’s own analysis suggests that this focusing effect on the poorest is relatively small, as the following chart reveals:

Where the cuts bite.
HM Treasury

Welfare spending in the bottom quintiles does not change significantly using the 2017-18 rules, which is perhaps curious, given the tax credit reforms.

Child poverty and inequality

The Department for Work and Pension’s (DWP) most recent report on households living below average income summarises the latest information in the following chart:

UK child poverty, main measures, 1998-99 to 2013-14.
Department for Work and Pensions

From this it is difficult to see much change since 2010-11, indeed there appears to be a slowing from the earlier downward trend. One of the key messages in the report is that “the percentage of children in relative low income BHC [before housing costs], remained flat at 17% in 2013-14 compared to the previous year. This follows a decrease between 2008-9 and 2010-11 and a period of stability from then onwards”.

It is difficult to see from the chart, and from other tables in the report, how Osborne’s claim for child poverty can be justified. A similar story can be told about inequality in general (using the DWP’s data).

Verdict

The chancellor’s claim about the broadest shoulders appears to rest on the slim foundations of selective and misleading statistics. A budget briefing by the Institute of Fiscal Studies has presented a more representative picture:

IFS analysis of tax and benefit reforms.
Institute of Fiscal Studies

This clearly shows the poorest deciles of the population suffering the biggest income falls in relative terms since 2010 (the blue line) as well as being hit the hardest in this latest budget (the yellow bars). However, the very top decile also suffers significant losses due to various changes such as the tax treatment of pension contributions.

Perhaps we should not be surprised at all this. We expect our politicians to put a positive spin on what they do but the extent of it in this case is quite breathtaking. What this reveals is the importance of having institutions such as the Office of Budget Responsibility and the IFS which are relatively autonomous or independent of government. It is quite striking how the IFS in particular is now so central to our understanding of the public finances.

Review

Eoin Flaherty, Queen’s University Belfast

As this fact check makes clear, George Osborne’s budget is beyond spin: it is an assault on public welfare, and on the public understanding of government.

The real issue here is that the source of exchequer income is more varied than income tax. Direct income taxation is only one piece of exchequer receipts, the rest is made up through items such as indirect consumption taxes, levies on capital and import duties. Although the richest may spend and consume more in real terms, this represents a smaller proportion of their total income. In this respect, indirect taxes such as VAT (although not an issue here) are typically regressive, as they extract a greater proportional share of income from the poor. This is also the case with welfare cuts and caps, however, where the proportional reduction in disposable income among the poor will be highest.

The idea of a tax burden and how it is changing is the real issue, and the real hypocrisy in Osborne’s statement is that it doesn’t matter an iota whether the rich pay a higher share of tax or not. Further, since a good chunk of top incomes are made up of capital gains, rents, yields, dividends, they – quite literally – earn money doing nothing, compared to the work intensity of wage-dependent households.

The ConversationMichael Barrow is Senior Lecturer in Economics at University of Sussex.

This article was originally published on The Conversation.
Read the original article.

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Labour discusses electoral reform

labelectoralreformPosted for @Labour4PR

 

 

 

 

 

 

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Ad-hoc Meeting this Friday 26th after all!

Friday 26th June, 7:30pm, Unity House, Fennel Street, Loughborough

Although the intended formal meeting on PR and the Labour party could not be arranged in time, a number of people thought it important to meet anyway to discuss our future activities.

Ray will report on the austerity protest.

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was “No Meeting this Friday 26th”, now see next post!

The intention had been to get someone from the Labour Campaign for Electoral Reform to introduce a discussion but we were not able to arrange this in time.

We will be meeting instead to discuss the next season’s meetings.

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Where now for progressive politics after election?

what choice is right?

Which way?

Friday 22nd May, 7:30pm, Unity House, Fennel Street, Loughborough

Ray Sutton will introduce the discussion with a survey of what is being talked about in the newspapers.

Can the Labour Party reinvent itself? Will the Lib Dems arise from the ashes? Has electoral reform come back on the agenda?

Can there ever be an alliance of progressive that could stand together in the face of the sort of relentless scaremongering campaign we have just fallen victim of?

Themes that have come up before in the Friday Room are still relevant:

Reframing the issues, for example, “The 99% versus the 1%” where “the 1% rule for the benefit of the 1%” and “Economic rules are controlled by the 1% to be in their favour”. This may be more acceptable for many because the words are simple and carry no baggage.

The 99% are developing a voice in the shape of the social media and online campaigns, such as 38 degrees. So far this voice is ephemeral and sometimes childish. Can this voice evolve to the point that it can challenge the 1%?

There are also economic developments like Crowd sourcing and peer to peer lending that enables economic action without depending on the 1%. This continues a rich history of the mutual societies and cooperatives.

Consumerism is an ideology that is counter to the values of compassion and respect, central to any vision of a better society and a foundation of all the great faiths. It is also addictive.

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Vote Swap

Ruth Allen brings this cunning scheme to our attention:

http://www.voteswap.org/about/how

How it works

The idea is simple. We want to let Green and Labour supporters swap votes in ways that boost both of their parties and gives the best possible chance of stopping the Conservatives from winning the election.

Only some Labour and Green supporters live in seats where their vote is likely to make a difference to which MP will win in their constituency. In others everyone knows which party will win. First-past-the-post elections mean that votes only make a difference in a few battleground seats.

This is particularly tough for new parties. Even a significant share of the national vote does not translate into seats. And what’s worse, those who live in battleground seats face the dilemma of voting for the party they most want to support or casting the most effective vote against the big party they dislike the most.

In this close election, even the results in a few seats could make the difference between David Cameron continuing as prime minister or not. In many key battleground seats this gives Green voters a dilemma. Do they vote for the party they most support and help build its national vote – or vote in a way most likely to stop the Conservatives returning to government?

But what if a Green supporter in a Labour battleground swaps their vote with a Labour supporter in a safe seat? The Green supporter in a Labour battleground helps Labour win to keep out the Conservatives. The Labour supporter in a safe seat votes Green to boost the Green national vote share across the country. It’s win-win. This is where VoteSwap comes in.

http://www.voteswap.org/about/how

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The Great War Centenary Debate: “Haig – has history been fair?”

Charnwood Great War Centenary Project

Presents

The Great War Centenary Debate:

Haig – has history been fair?”

Thursday 7th May 2015, 7.30

Loughborough Library,

Granby Street, LE11 3DZ

Tickets: £3 under 18’s free

from

Loughborough Library

or

LoughboroughLibrary@leics.gov.uk

0116 3052420

Chair: Bill Brookman

Proposer: Dr. Neil Faulkner

Proposer-seconder: Dr. Ray Sutton MA, PhD

Opposer: Dr. Matthew S. Seligmann MA, DPhil,

Opposer-seconder: Michael Woods MA

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