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Poor Hit More by Spending Review Cuts, Says IFS

The Institute for Fiscal Studies reveals the half-truths, "stealth cuts" and real victims of the Chancellor's Spending Review, writes our Economics Editor, Faisal Islam.

The IFS said that families with children would be the biggest losers from the Review.

"The tax and benefit changes are regressive rather than progressive across most of the income distribution. And when we add in the new measures announced yesterday this finding is, unsurprisingly, reinforced," said the acting IFS director Carl Emmerson.

IFS analyst James Browne added: "Overall families with children seem to be the biggest losers."

Even with the flagship Pupil Premium…60 per cent of primary school children and 87 per cent of secondary school pupils will be in schools where real funding falls. IFS report

Mr Emmerson said that while the richest two per cent were hardest hit, this was due to tax increases already announced by the previous Chancellor Alistair Darling. But even then the Treasury analysis "excludes some measures that we think it is possible to make a rough estimate for", including housing benefit and council tax benefit, which are likely to affect the poor more.

The IFS analysis found that overall the cuts in public service spending would be the deepest since the six years starting in April 1976.

A pot pourri of stealth cuts?
It is rather difficult to escape the notion that in an almost crazed desire to be seen as "fair", the Coalition has made a bit of a dog's dinner of the spending review, writes Faisal Islam.

Even if you support the extent and pace of deficit reduction mapped out by George Osborne (which it should be said has undoubtedly taken Britain out of credit rating danger zone), a litany of half-truths, dodgy claims, and policy inconsistencies was today exposed by the IFS.

And rarely can there have been such a direct Downing Street intervention in to the heart of the "post match" IFS briefing that has become a fixture of Budgets and Spending Reviews in the last decade.

Read more from Faisal Islam's blog

School funding
While the schools budget was one of the winners of yesterday's Spending Review – getting a 0.1 per cent increase each year for the next four years – school spending per pupil will go down by around 0.6 per cent a year, or a total of 2.25 per cent over the next four years.

Even with the flagship Pupil Premium boosting the budget, the IFS says that 60 per cent of primary school children and 87 per cent of secondary school pupils will be in schools where real funding falls.

They also raised concerns over the plans to scrap the Educational Maintenance Allowance – given to poorer 16-19 year olds who stay on in education – in favour of retaining child benefit for 16-19 year olds.

Biggest winner
The department that was the biggest winner was International Development, the IFS said, as the government looks to meet the target of spending 0.7 per cent of national income on aid by 2013.

But the department that lost out the most was the Communities and Local Government Department, which will lose two thirds of its budget.

The IFS also warned of replacing Council Tax Benefit with grant to local authorities which will then decide how to use that money to rebate council tax bills – saying that the grants are lower than the current spending on Council Tax Benefit, and create a "postcode lottery" where local authorities may use the benefit to "persuade low-income households to live elsewhere".

Spending shift
Overall, the changes show a shift in benefits spending away from families with children and towards pensioners, the IFS analysis found.

It also questioned the Government's claim that the changes would provide an incentive to work, saying the changes have a "mixed effect".

The analysis also disputed George Osborne's claim that the cuts to unprotected departments would be less than under Labour's plans. The Chancellor failed to take into account the £6bn of cuts the government has made this year, the IFS said.

They added that the cuts planned by Labour in the March 2010 Budget amounted to 16 per cent – rather than the 20 per cent Mr Osborne claimed – and so less than the 19 per cent of cuts that his measures will bring about.

The IFS also criticised the proposed benefit cap of £500 per week – reducing to £350 per week if the person is single with no children – calling it a "lazy way to make policy".

"I have made some decisions to help people on low incomes, particularly families and children in those families, but I have paid for this by trying to curb the cost of the welfare state and reform the welfare state." Chancellor George Osborne

Chancellor's defence
Earlier, the Chancellor defended the review, saying the measures were "necessary".

"I have made some decisions to help people on low incomes, particularly families and children in those families, but I have paid for this by trying to curb the cost of the welfare state and reform the welfare state.

"People are angry when they see some of their money that they earn being abused in the welfare system. We are trying to reform the welfare system, curb the benefits bill, so we can go on paying for the healthcare system, education, and indeed the investment in our economy that we need.

"The country knows there was a huge debt problem and if we didn't deal with it it would lead to economic disaster."

Q&A session
Accused during a question-and answer session in Nottingham of "picking on the weakest people in society", the Prime Minister and his deputy – the Lib Dem leader Nick Clegg – also argued that the review was "fair".

"I honestly would not have advocated this if I didn't feel that, notwithstanding all the difficulties, we tried to do this as fairly as possible," said Mr Clegg.

"Of course I understand people are very, very fearful, and fear is a very powerful emotion and it kind of sweeps everything else aside.

"But I would ask people to have a little bit of perspective: if you look at some of the announcements we made yesterday, and add that to some of the announcements we made in the Budget, I think the picture is a little bit more balanced than people are saying.

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