Nick Clegg responds to the IFS: another new definition of fairness
Today’s FT features an opinion piece from Nick Clegg, where he sets out his refutation of the IFS’s analysis. The Government line seems to have changed from yesterday (when the Financial Secretary to the Treasury equated fairness with growth), as the Deputy Prime Minister is now arguing that fairness is about more than a ‘purely numerical’ view, and that distributional analysis only tells part of the fairness story.
But, as with previous attempts, this argument does not stack up – as I set out below.
Nick Clegg’s first criticism of the IFS analysis is that its statistics are misleading. This is an incredible claim. In fact, it was the Budget’s own distributional analysis that missed out one third of its benefit and tax credit changes.
The DPM also claims that the IFS make ‘impossible’ assumptions on DLA and on Tax Credits. Again, this is wrong. The Government’s own analysis shows that they presume 20 per cent of DLA claimants will lose their benefits as a result of the Budget, and IFS have simply used a random allocation method to remove benefit from the number of claimants required to reach the Government’s savings. On Tax Credits, the assumptions are also sound. To model the impact, IFS have reduced all Tax Credit awards by the percentage amount needed to reach the savings the Budget identifies. If anything this method undercounts the impacts on the worst off – the policy detail already indicates to us that specific Tax Credit changes will hit the poorest more than those who are better off (for example, the £2,500 disregard for falls in in-year income, which by definition will only impact on those who see a reduction in their in-year earnings).
Finally, Nick Clegg asserts that by leaving out the Capital Gains Tax the IFS’s distributional analysis is flawed – but the IFS have demonstrated that the value of these changes is minimal compared to the benefit changes it documents. Including the CGT change would not alter the fact that the poorest lose significantly more than the Budget’s analysis indicated.
Nick Clegg them moves on to criticise the very idea of distributional analysis – surprising given that the Budget and the announcements surrounding it gave such prominence to this method of assessing fairness. He argues that fairness is about social mobility and policies such as a simpler welfare system and a pupil premium that will help the worst off.
The implication is that poverty and income inequality aren’t a problem as long as poor people who work hard are able to achieve improved outcomes. This is a contentious view, and the argument that social mobility can be achieved without reference to income levels is misleading. As we showed last week, the evidence on social mobility is clear – numbers do matter. If you don’t reduce income inequality, social mobility will continue to get worse.
In addition, concerningly for Nick Clegg, his more limited aspiration of increasing public spending on the worst off is also unlikely to be achieved. The cuts that the Government plan to intoduce in the CSR will have a disproportionate impact on the poorest, who will lose public services worth around 20 per cent of their household incomes. Whatever additional spending is targed to the worst off families, it will be impossible to protect them from cuts of this scale. International evidence shows us that spending cuts are made, those who have the least feel the most pain.
The claim the that Budget is progressive was always far fetched – this latest attempt to defend the Budget’s progressive credentials only serves to further illustrate its flaws.