A budget that hits people in poverty?

The IFS's analysis of the Budget seems pretty unequivocal: once you look across a number of years and take all the changes into account, the poor lose more.

The Treasury's defence seems to be:

• Measures such as reducing corporation tax will promote growth.
• The budget 'encouraged' more people into work.
• Pensioners will benefit from rises in the state pension of 2.5%, prices or earnings, whichever is higher.

Unfortunately, these arguments don't really stack up to a progressive Budget.

Growth

Economists will no doubt continue to argue about whether the Budget will promote growth. However, growth in itself does not guarantee fairness. A country can have strong economic growth and steeply rising poverty. Think back to the UK in the 1980s.

Growth can contribute to fairness in a number of ways including:

• Providing jobs that genuinely lift people out of poverty (decently paid, secure, allowing progression and enabling people to balance work and caring).
• Facilitating government and charity spending on programmes benefiting those on low incomes.

However, neither of these is guaranteed. Nor do they necessarily wipe out the damage that could be done by increasing poverty in the meantime.

Moving people into work

One way the Budget aimed to do this was by cutting various benefits, such as housing benefit for long-term Job Seeker's Allowance (JSA) claimants. However, this will only move people into work if they are able to get jobs. And moving people into work does not necessarily take them out of poverty. Too many families find that getting a job leaves them on a low income, with little prospect of moving up. Our research suggests that the nature of the UK labour market is a major barrier to tackling poverty.

Raising the Income Tax Personal Allowance also aims to encourage work. This was one of the 'big ideas' of the budget, and a major achievement for the Lib Dems. It undoubtedly benefits people working on low incomes. The extent to which people on higher incomes also benefit from it was limited by the freezing of the higher tax rate. However, the IFS today claims that people in the top half of the income distribution still benefit more than those in the bottom half.

The reforms to the welfare system being considered by Iain Duncan Smith hold out some hope. Simplifying the benefits system and creating smoother transitions for people moving in and out of work would be very helpful. IDS’s long-held goal of letting people keep more of their earnings before they lose benefits would make an enormous difference. However, it would be expensive, and would either require more money from the Treasury or even greater cuts to other benefits. The new Work Programme is also looking positive, in particular the move to making jobs of at least a year the key target for providers. But there are still questions about how tailored and effective the support will be for the many more vulnerable people now being moved on to JSA.

Pensions

Pensioners will undoubtedly benefit from the improvement to the state pension. This is a change that JRF supports in the long term. One of the big achievements of the Labour government was a major reduction in pensioner poverty. Even before the Budget, pensioners who claimed everything they were entitled to could reach a minimum decent standard of living. This compared very positively with childless working-age adults, who could only reach 40% of their minimum income standard.

Children

Finally, it was claimed that the Budget would not raise child poverty, due to the rise in Child Tax Credit (which balances out the cuts in Child Benefit, for the first two years at least). However, the IFS suggests that this may not turn out to be the case, once cuts to Housing Benefit and Disability Allowance are taken into account. In addition, the public spending cuts that are coming in October may well have a disproportionate effect on both services and jobs for people in poverty. New research the JRF has commissioned from the IFS will assess this in the Autumn – sign up to our email alerts if you'd like to be notified.