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Contradictory tangle
George Osborne’s emergency summer Budget was released with much fanfare on Wednesday (July 8), with the announcement of a compulsory “Living Wage” being hailed as the chancellor’s “master stroke”.
But after the dust settled a day later, an analysis by the Institute of Fiscal Studies (IFS) has shown that the Tories’ Budget pledges are a contradictory tangle of inconsistencies which will hit the working poor the hardest.
The introduction of a national living wage, in which employers must pay over-25s at least ÂŁ7.20 per hour starting in 2016 and rising to ÂŁ9 per hour, proves to be a slight of hand that obscures just how much millions of families will lose out on after the slashing of tax credits and the freezing of working-age benefits.
According to the IFS, 3m households will be ÂŁ1,000 worse off every year as a result of cuts in tax credits, while 13m households will lose ÂŁ260 a year after taking into account the freeze in benefits and local housing allowance over the next five years.
“The key fact is that the increase in the minimum wage simply cannot provide full compensation for the majority of losses that will be experienced by tax credit recipients,” IFS director Paul Johnson said.
The think tank highlighted that many individuals on the national minimum wage are in families with higher annual incomes – one partner on the minimum wage is a second earner, while the primary earning partner will be working a higher paid job. In this case, the household may not be eligible for tax credits.
On the other hand, tax credits are targeted to support those on low overall family incomes, meaning that a higher National Minimum Wage will do nothing to help these families.
The Office for Budget Responsibility agreed with this in its own analysis, estimating that a whopping half of the cash gains in household income made by Osborne’s hike in the National Minimum Wage will go to the top half of the household income distribution.
Gift for the rich
  What appears to be a leg-up for the poorest is, in reality, yet another gift for the rich.
And gifts for the rich in the latest Budget are plentiful – a cut in the corporation tax; doing away with the bank levy, which taxed all revenue, in favour of a tax only affecting profits; and a cut in the inheritance tax that will allow those owning £1m homes to pass them on to their children tax free.
As the Budget helping the already wealthy disguises itself as a win for the “aspirational” poor, it is actually this very group – working households in poverty – who stand to lose the most over the next five years.
An IFS distributional analysis found that those hardest hit by the new budget measures planned for the next five years will be those in the 2nd poorest decile – or those on incomes between £11,000 and £13,000 a year.
Tax expert Richard Murphy emphasised this fact on his blog, highlighting how the Budget will fail to deliver for the hardest working and lowest paid.
“George Osborne imposed a 10 per cent net pay cut on some of the hardest up people in the country in this budget,” he said, adding that this amounts to seeing five weeks’ worth of income disappear overnight.
“Could you live with losing five weeks income when you were already at your financial limits? I doubt it,” Murphy noted. “So why do we expect this whole group to do so?”
Unite general secretary Len McCluskey condemned the latest budget, asserting that it was yet another swing at the nation’s poorest, who have already suffered so much under the previous coalition government and a financial crash wrought by the ultra-rich.
“Cutting help with low incomes and high housing costs will punish millions of households who have already seen their incomes fall by £40 per week since the financial crash,” he said.
“The slower pace to the pain of austerity will be no comfort to people just about surviving. The last Tory government left us a less equal, divided country. I fear once again we have a Tory party ready to take this nation backwards.”
