CUTS HURT FAMILIES WITH CHILDREN MOST

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Spending review 2010: cuts hurt families with children most

Families with children are the biggest losers from the Coalition’s spending cuts and tax rises, leading economists disclosed.

By James Kirkup, Political Correspondent 

21 Oct 2010

Parents with school age children will lose more than single people, childless couples and pensioners, according to the IFS 

Middle-class parents will lose child benefit, while poorer families will have their tax credit payments cut Photo: GETTY

In every income group, from the richest to the poorest, parents with school age children will lose more than single people, childless couples and pensioners, according to the Institute for Fiscal Studies (IFS).

The IFS – the country’s most respected economic forecaster – picked a row with ministers by calculating that the burden of spending cuts and tax rises would fall disproportionately on the poorest families, contradicting government claims. 

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George Osborne has outlined £81 billion of spending cuts, which he says will combine with £29 billion of tax rises to eliminate the structural deficit in the public finances in five years’ time. Despite David Cameron’s promise to make Britain “the most family-friendly country in Europe”, many of the Chancellor’s measures affect families with children.

Middle-class parents will lose child benefit, while poorer families will have their tax credit payments cut. Benefits for pensioners, by contrast, were largely protected, with the winter fuel allowance, free television licence and free bus pass left intact.

The IFS calculated that the average family with children will be losing £1,964 of its £29,242 net income a year by 2014-15, when the spending cuts and tax rises announced by this Government and the last have taken effect.

That loss will be equal to a 6.7 per cent drop in income, the IFS said. By contrast, the average pensioner will lose 2.9 per cent, and childless adults will lose 2.7 per cent.

Carl Emmerson, of the IFS, said the Coalition had started to reverse Labour’s agenda of favouring parents, instead prioritising spending on pensioners.

“The cuts to welfare spending mean that benefits will be focused more on pensioners and less on families with children,” he said. “Across every income group, families with children are the biggest losers.”

The IFS calculated the impact of planned tax rises, spending cuts and benefits changes on different households according to their position on the income scale. In every group – each representing one tenth of the population – parents will lose more than others by 2014-15.

In the second wealthiest group of families with children – who are better off than 80 per cent of the country – a household with a total net income of £58,000 will be £2,875 worse off, a loss equivalent to 5 per cent of their income. By contrast, the second wealthiest group of pensioners – with a net income of £35,500 – will lose £826, equivalent to 2.3 per cent of their income.

The second wealthiest group of childless adults lose £719 of their £41,953 net income, or 1.7 per cent.

In the poorest group, the six million people on the lowest income, the figures show a similar pattern.

Here, a family with children has a net income of £15,900 and will lose £1,112, or 7 per cent.

Pensioners in the bottom group will lose £252 from their £8,636 income, a 2.9 per cent loss. And a childless adult in the bottom group will lose £492 from their £8,178 net income, a 6 per cent loss.

Government sources insisted the Coalition had taken action to protect low-income families from the impact of the Comprehensive Spending Review and Budget changes.

“The spending review maintains free early learning for three and four year-olds implemented by this Coalition, and creates a new entitlement to 15 hours a week of free early education and care for all disadvantaged two year-olds from 2012-13,” said a source. “We are increasing the child element of tax credits by an additional £30 next year and a further £50 the year after, in addition to the increases announced at Budget.”

Ministers have said that the richest will pay the most for the deficit reduction package, and Treasury projections published this week showed that households with a net income of £48,000 a year could lose as much as £2,500 a year over the next four years.

However, the IFS said that, as a share of their income, poorer people would pay more than the better-off.

The total impact of tax rises and spending cuts is “regressive”, where the poor are harder hit than the Continued from Page 1

wealthy, rather than “progressive”, where the rich bear more of the burden, “across most of the income distribution,” Mr Emmerson said. The cuts announced on Wednesday “reinforced that”.

The IFS analysis – which includes cuts to benefits excluded from the Treasury’s models – also showed that the losses of those in the very highest income group were up to twice as much as the Government had suggested.

Downing Street questioned the IFS analysis, pointing out that the institute had excluded the richest two per cent of people from some of its calculations.

Yesterday Nick Clegg, the Deputy Prime Minister, appeared to accuse the IFS of deliberately distorting the figures. “People who are trying to take only one bit of the equation and say ‘Ah, that shows it is all very unfair’ – they are not being very straight with people and frankly they are frightening people and that is not right, frightening people and claiming we are doing unfair things when we are not,” he said

But Mike Brewer of the IFS insisted the institute had no agenda.

On a visit to the East Midlands yesterday, Mr Cameron and Mr Clegg were confronted by members of the public who accused them of unfairly targeting the poor and vulnerable.

Labour, backed by some economists, has argued that the speed and depth of the Coalition’s cuts risks pushing the economy back into recession.

However, Mr Osborne’s measures were yesterday endorsed by the Organisation of Economic Co-Operation and Development, which described them as “tough, necessary and courageous”.

See: www.telegraph.co.uk

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