Austerity consequences
by digby
It looks as though the English lucky duckies are getting even luckier:
George Osborne's austerity programme will cut the living standards of Britain's families by more than 10% over the next three years as those on the lowest incomes suffer most from the tax increases and spending cuts designed to reduce the budget deficit.
A study from the Institute for Fiscal Studies, the UK's leading experts on the public finances, concludes that the chancellor's strategy will result in greater inequality and rising child poverty, throwing into reverse progress made in the final years of the last Labour government.
The bleak picture painted by the IFS will be used by opponents of the chancellor's austerity measures to call for a plan B to generate faster economic growth. There is likely to be further pressure on Osborne on Monday as the head of his independent commission on banking, Sir John Vickers, outlines measures for banking reform.
The IFS analysis, included in a new international study into the impact of the "Great Recession" of 2008-09 on 21 wealthy countries, says the most severe downturn since the interwar years will "cast a very long shadow in the UK", with the poorest 30% of households especially hard hit.
"Declines in living standards look set to continue until at least 2013-14. If realised, this would mean that average living standards had not grown in well over 10 years, making it one of the worst decades for changes in living standards since at least the second world war."
According to the IFS, the squeeze on living standards will be the result of earnings failing to keep pace with prices, as well as the tax and benefit changes announced by the government to tackle the UK's record peacetime budget deficit.
"Welfare cuts and tax rises will act to reduce household incomes, and those with the lowest incomes are clearly set to lose the most from these reforms as a percentage of income (with the important exception of those with the very highest incomes). This is likely to increase poverty, other things being equal, offsetting some of the falls in poverty over the past decade."
The IFS work divides households up into 10 groups ("deciles") in order to assess the impact of tax changes and benefit reductions. "Taking all family types together, within the bottom nine income decile groups, those with the lowest incomes are set to lose the most from these reforms as a percentage of income … Given that the annual welfare budget is being cut by £18bn, this is perhaps not a surprise."
The IFS said the poorest families also lose more as a result of the squeeze on public spending. "Losses as a percentage of net income (plus the value of benefits in kind) are between 5% and 6% at the bottom of the distribution, which is similar to the magnitude of the losses for those on the lowest incomes from tax and benefit reforms."
Osborne has said that the pain caused by deficit reduction will be shared, but the IFS study found that the richest 10% of households will see income cut by just over 4% on average between 2011 and 2014 by tax and benefit changes.
Right it's "shared sacrifice" for a millionaire to lose 4% of his income and the poorest lose 4% of theirs. Well, actually the poor will lose double that, but what's the problem? if you're that poor, what difference does a few buck make, eh? It's when you're so wealthy that 4% of your income is more than six figures that it really hurts.
The IFS analysis is included in The Great Recession and the Distribution of Income, published on Monday by the London School of Economics. Professor Stephen Jenkins of the LSE said: "We were surprised at how little household incomes changed in the years immediately after the Great Recession began. This has been the worst macroeconomic downturn in most OECD countries since the Great Depression of the 1930s when there were substantial increases in poverty rates and other significant changes to the income distribution."
Jenkins added that the outlook now was "more worrying", and that big differences in income distribution would emerge across countries. "We're moving from the Great Recession era with relatively broad consensus about what to do to a new era of sharp distributional conflicts between, for example, rich and poor, old and young."
Warning that pain had been delayed but not avoided, the IFS said families with children would be hit harder by Osborne's tax and benefit changes than other family types on average, with the poorest 10th of households suffering income losses of more than 8% over the next three years. "Recent IFS modelling predicted that child poverty will rise in each of the three years between 2010-11 and 2013-14, and that it will be about two percentage points higher in 2013-14 as a result of the tax and benefit reforms planned by the current government."
I'm sure we'll have a similar result. Unfortunately, we can't raise taxes on the wealthy, so our lucky duckies are going to shoulder an even bigger part of the burden. But then that's the way it should be. Here in America we don't have a nasty class system like they have in Britain.