Supplementary written evidence submitted
by the Institute for Fiscal Studies
NOTE ON THE SCOPE OF THE HM TREASURY'S AND
INSTITUTE FOR FISCAL STUDIES' DISTRIBUTIONAL ANALYSIS OF CHANGES
TO WELFARE BENEFITS IN THE JUNE 2010 BUDGET AND OCTOBER 2010 SPENDING
REVIEW
1. This note assesses the scope of the HM
Treasury's and Institute for Fiscal Studies' distributional analysis
of changes to welfare benefits announced in the June 2010 Budget
and October 2010 Spending Review. It does not consider the coverage
of the distributional analysis of the personal and indirect tax
changes announced in the June 2010 Budget. It also does not consider
the coverage of the distributional analysis of the public spending
cuts announced in the Spending Review. It is therefore concerned
with the HMT analysis published in Chart B.4 and Chart B.5 of
the October 2010 Spending Review document, and the earlier analysis
in Chart A.1 and A.2 in the June 2010 Budget, and the IFS analysis
contained in James Browne's presentation after the October 2010
Spending Review (http://www.ifs.org.uk/publications/5313), and
of the earlier analysis in IFS Briefing Note 108 (http://www.ifs.org.uk/publications/5246).
We discuss at the end the limited assessment of changes by 2014-15
provided by Chart B.6 of the October 2010 Spending Review document.
2. The tables below show the Treasury's
costings of the welfare changes announced in the June 2010 Budget
and October 2010 Spending Review. Additional columns indicate
which measures were included in the HM Treasury's (HMT) (Tables
1-2) and Institute for Fiscal Studies' (IFS) (Tables 3-4) distributional
analysis.
3. Table 1 shows that the net saving from
the welfare changes announced in the June 2010 Budget in 2012-13
is £4,710 million. The package of changes included in the
HMT distributional analysis for 2012-13 (in Chart B.4 and Chart
B.5 of the October 2010 Spending Review document ) would produce
a saving of £2,000 million in that year.[9]
The net saving produced by the package of changes included in
the HMT distributional analysis is, therefore, 42% of the net
saving in 2012-13. If we consider the absolute size of the welfare
changes, then the package modelled by HMT reflects 72% of the
changes in 2012-13. Table 2 repeats this analysis for the HMT
distributional analysis of the October 2010 Spending Review. The
package of changes included in the HMT distributional analysis
(in Chart B.4 and Chart B.5 of the October 2010 Spending Review
document) would produce a saving of £1,410 million out of
actual savings of £2,555 million in 2012-13. The net saving
produced by the package of changes included in the HMT distributional
analysis is, therefore, 55% of the net saving in 2012-13. If we
consider the absolute size of the welfare changes, then the package
modelled by HMT reflects 65% of the changes in 2012-13.[10]
Together, the net saving produced by the package of changes in
the June 2010 Budget and Spending Review included in the HMT distributional
analysis for 2012-13 is 47% of the actual net saving estimated
for 2012-13, and captures 70% of the measures if measured by their
absolute size.
4. The incomplete coverage in 2012-13 arise
because the HMT analysis excludes some of the welfare changes
(which is fully documented in the supporting material to the June
2010 Budget and October 2010 Spending Review). Paragraphs B.34
of the Spending Review explains that HMT includes measures within
its distributional analysis "where there is sufficiently
robust data available to attribute changes in tax, tax credits
or benefits to individuals". However, it should be noted
that IFS researchers felt able to include some of these omitted
measures in their distributional analysis, principally the changes
to LHA, DLA and ESA; details of the first two of which are explained
in IFS Briefing Note 108 (http://www.ifs.org.uk/publications/5246).
5. The Tables also make clear that the net
savings from the welfare changes are considerably higher in 2014-15
than in 2012-13, with the savings from the June 2010 Budget measures
reaching £11,040 million by 2014-15, and those from the October
2010 Spending Review reaching £7,040 million in 2014-15.
Net savings from the June 2010 Budget changes in 2012-13 are 42%
of the savings due by 2014-15, and net savings from the October
2010 Spending Review changes in 2012-13 are 36% of the savings
due by 2014-15. This is because many of the welfare cuts (such
as the switch to the use of the CPI to index benefits, some of
the LHA reforms, and the removal of child benefit from families
with a higher-rate taxpayer, which is only partially effective
in 2012-13) increase in magnitude over the Spending Review period.
Unsurprisingly, then, the HMT distributional analysis is not a
good guide to the extent to which households will lose from the
welfare changes by the end of the Parliament. Table 1 shows that
the net saving produced by the package of changes included in
the HMT distributional analysis is 18% of the total net saving
by 2014-15, and the package modelled by HMT reflects 42% of the
changes due by 2014-15. Similarly Table 2 shows that the net saving
produced by the package of October 2010 Spending Review changes
included in the HMT distributional analysis in Chart B.4 and Chart
B.5 of the of October 2010 Spending Review is 20% of the total
net saving by 2014-15, and reflects 29% of the absolute size of
the welfare changes due in 2014-15.[11]
Together, the net saving produced by the package of changes in
the June 2010 Budget and Spending Review included in the HMT distributional
analysis for 2012-13 is 19% of the actual net saving estimated
for 2014-15, and captures 47% of the measures if measured by their
absolute size. However, paragraphs B.31 and B.32 of the Spending
Review make it clear that HMT was not attempting to model the
long-run impact of the tax and benefit measures announced in the
Budget and the Spending Review in the analysis presented in Charts
B.4 and B.5.
6. Tables 3 and 4 repeat this for the IFS
distributional analysis of the Budget and Spending Review. The
net saving produced by the package of changes in the June 2010
Budget included in the IFS distributional analysis for 2012-13
is 84% of the actual net saving estimated for 2012-13, and the
IFS distributional analysis captures 91% of the measures if measured
by their absolute size. The net saving produced by the package
of changes in the June 2010 Budget included in the IFS distributional
analysis for 2014-15 is 91% of the actual net saving estimated
for 2014-15, and the IFS distributional analysis captures 94%
of the measures if measured by their absolute size. The net saving
produced by the package of changes in the October 2010 Spending
Review included in the IFS distributional analysis for 2012-13
is 100% of the actual net saving estimated for 2012-13, and the
IFS distributional analysis captures 97% of the measures if measured
by their absolute size. The net saving produced by the package
of changes in the Spending Review included in the IFS distributional
analysis for 2014-15 is 95% of the actual net saving estimated
for 2014-15, and the IFS distributional analysis captures 94%
of the measures if measured by their absolute size.
7. Together, the net saving produced by
the package of changes in the June 2010 Budget and Spending Review
included in the IFS distributional analysis for 2012-13 is 90%
of the actual net saving estimated for 2012-13, and captures 93%
of the measures if measured by their absolute size. Together,
the net saving produced by the package of changes in the June
2010 Budget and Spending Review included in the IFS distributional
analysis for 2014-15 is 92% of the actual net saving estimated
for 2012-13, and captures 94% of the measures if measured by their
absolute size.
8. Chart B.6 of the October 2010 Spending
Review presents an analysis of the impact of change to departmental
expenditure and changes to taxes, tax credits and benefits due
in 2014-15. Compared with Charts B.4 and B.5, the Treasury additionally
included an assessment of the impact of the changes to DLA and
ESA in Chart B.6 (as well as adding their assessment of the changes
to departmental expenditure, which we do not discuss here). However,
it is not clear why even this assessment of the impacts in 2014-15
omits the changes to LHA. We are also unclear why HMT did not
additionally publish the distributional impact of the tax and
benefit changes due by 2014-15 in the same form as the analysis
in Charts B.4 and B.5.[12]
November 2010
Table 1
HMT DISTRIBUTIONAL ANALYSIS OF JUNE 2010
BUDGET
| Net saving
| Absolute change
| Modelled by HMT? |
Size of net cut modelled
| Absolute size of change modelled
|
| 2012 | 2014
| 2012 | 2014 |
| | |
| CPI indexation | 2,240 | 5,840
| 2,240 | 5,840 | Yes
| 2,240 | 2,240 |
| DLA | 0 | 1,075
| 0 | 1,075 | Yes
| 0 | 0 |
| Conditionality for lone parents | 50
| 180 | 50 | 180
| | 0 | 0 |
| Pregancy | 150 | 150
| 150 | 150 | |
0 | 0 |
| SSMG | 75 | 75
| 75 | 75 | Yes
| 0 | 0 |
| SMI | -10 | 65
| 10 | 65 | |
0 | 0 |
| Saving Gateway | 75 | 115
| 75 | 115 | |
0 | 0 |
| Set LHA at 30th centile | 365
| 425 | 365 | 415
| | 0 | 0 |
| NDDs | 225 | 340
| 225 | 320 | |
0 | 0 |
| Underoccupation of social housing | 0
| 490 | 0 | 490
| | 0 | 0 |
| Link LHA to CPI | 0 | 390
| 0 | 300 | |
0 | 0 |
| Cut HB for long-term unemployed | 0
| 110 | 0 | 100
| | 0 | 0 |
| Extra bedroom for carers | -15
| -15 | 15 | 15
| | 0 | 0 |
| National caps and 4-bedroom limit | 65
| 65 | 65 | 70 |
| 0 | 0 |
| Discretionary payments | -40
| -40 | 40 | 40
| | 0 | 0 |
| Lower 2nd threshold in CTC | 145
| 145 | 145 | 145
| Yes | 145 | 145
|
| Increase taper in TCs | 710 |
765 | 710 | 765 |
Yes | 710 | 710 |
| Scrap family element of CTC | 510
| 480 | 510 | 480
| Yes | 510 | 510
|
| Scrap baby element of CTC | 275
| 275 | 275 | 275
| Yes | 275 | 275
|
| Scrap 50+ element of WTC | 35
| 40 | 35 | 40 |
Yes | 0 | 0 |
| Scrap toddler tax credit | 180
| 180 | 180 | 180
| Yes | 0 | 0 |
| Lower £25,000 disregard to £5,000
| 140 | 420 | 140
| 420 | Yes | 0
| 0 |
| New disregard of £2,500 when incomes fall
| 550 | 585 | 550
| 585 | Yes | 0
| 0 |
| New backdating rules | 315 |
330 | 315 | 330 |
Yes | 0 | 0 |
| Higher per child element of CTC | -1,845
| -1,995 | 1,845 | 1,995
| Yes | -1,845 | 1,845
|
| Freeze CB | 695 | 975
| 695 | 975 | Yes
| 695 | 695 |
| Earnings-index BSP | -195 |
-450 | 195 | 450 |
Yes | -195 | 195 |
| Increase PC | -535 | -535
| 535 | 535 | Yes
| -535 | 535 |
| Scrap Child Trust Fund | 550
| 560 | 550 | 560
| | 0 | 0 |
| Total | 4,710 |
11,040 | 9,990 |
16,985 | | 2,000
| 7,150 |
| HMT modelled as % change in 2012-13 |
| | |
| | 42% | 72%
|
| HMT modelled as % change in 2014-15 |
| | |
| | 18% | 42%
|
Table 2
HMT DISTRIBUTIONAL ANALYSIS OF OCTOBER 2010 SPENDING REVIEW
| Net saving
| Absolute change
| Modelled by HMT? |
Size of net cut modelled
| Absolute size of change modelled
|
| 2012 | 2014
| 2012 | 2014 |
| | |
| Time-limit contributory ESA | 1,025
| 1,025 | 2,010 | 2,010
| | | |
| SRR change | 130 | 130
| 215 | 215 | |
| |
| Family cap | 0 | 0
| 270 | 270 | |
| |
| DLA | 60 | 60
| 135 | 135 | |
| |
| Freeze maximum savings credit | 215
| 215 | 330 | 330
| Yes | 215 | 215
|
| SMI | -20 | 20
| 0 | 0 | |
0 | |
| Cold weather | -50 | 50
| -50 | 50 | |
0 | |
| Reform CTB | 0 | 0
| 490 | 490 | |
0 | |
| Taper CB from HRTaxpayers | 590
| 590 | 2,500 | 2,500
| Yes | 590 | 590
|
| Freeze WTC | 415 | 415
| 625 | 625 | Yes
| 415 | 415 |
| Lower childcare tax credit | 320
| 320 | 385 | 385
| Yes | 320 | 320
|
| Higher per child element of CTC | -510
| 510 | -560 | 560
| Yes | -510 | 510
|
| Lower WTC hours requirement for couples |
380 | 380 | 390 |
390 | Yes | 380 |
380 |
| Better earnings data in TCs | 0
| 0 | 300 | 300
| | | |
| Total | 2,555 |
3,715 | 7,040 | 8,260
| | 1,410 | 2,430
|
| HMT modelled as % change in 2012-13 |
| | |
| | 55% | 65%
|
| HMT modelled as % change in 2014-15 |
| | |
| | 20% | 29%
|
Table 3
IFS DISTRIBUTIONAL ANALYSIS OF JUNE 2010 BUDGET
| Net saving
| Absolute change
| Modelled by IFS? |
2010 | 2014
|
| 2012 | 2014
| 2012 | 2014 |
| Size of net cut modelled
| Absolute size of change modelled |
Size of net cut modelled | Absolute size of change modelled
|
| CPI indexation | 2,240 | 5,840
| 2,240 | 5,840 | Yes
| 2,240 | 2,240 | 5,840
| 5,840 |
| DLA | 0 | 1,075
| 0 | 1,075 | Yes
| 0 | 0 | 1,075
| 1,075 |
| Conditionality for lone parents | 50
| 180 | 50 | 180
| | 0 | 0 |
0 | 0 |
| Pregancy | 150 | 150
| 150 | 150 | |
0 | 0 | 0 | 0
|
| SSMG | 75 | 75
| 75 | 75 | Yes
| 75 | 75 | 75 |
75 |
| SMI | -10 | 65
| 10 | 65 | |
0 | 0 | 0 | 0
|
| Saving Gateway | 75 | 115
| 75 | 115 | |
0 | 0 | 0 | 0
|
| Set LHA at 30th centile | 365
| 425 | 365 | 415
| Yes | 365 | 365
| 425 | 425 |
| NDDs | 225 | 340
| 225 | 320 | Yes
| 225 | 225 | 340
| 340 |
| Underoccupation of social housing | 0
| 490 | 0 | 490
| Yes | 0 | 0 |
490 | 490 |
| Link LHA to CPI | 0 | 390
| 0 | 300 | Yes
| 0 | 0 | 390 |
390 |
| Cut HB for long-term unemployed | 0
| 110 | 0 | 100
| Yes | 0 | 0 |
110 | 110 |
| Extra bedroom for carers | -15
| -15 | 15 | 15
| | 0 | 0 |
0 | 0 |
| National caps and 4-bedroom limit | 65
| 65 | 65 | 70 |
Yes | 65 | 65 |
65 | 65 |
| Discretionary payments | -40
| -40 | 40 | 40
| | 0 | 0 |
0 | 0 |
| Lower 2nd threshold in CTC | 145
| 145 | 145 | 145
| Yes | 145 | 145
| 145 | 145 |
| Increase taper in TCs | 710 |
765 | 710 | 765 |
Yes | 710 | 710 |
765 | 765 |
| Scrap family element of CTC | 510
| 480 | 510 | 480
| Yes | 510 | 510
| 480 | 480 |
| Scrap baby element of CTC | 275
| 275 | 275 | 275
| Yes | 275 | 275
| 275 | 275 |
| Scrap 50+ element of WTC | 35
| 40 | 35 | 40 |
Yes | 35 | 35 |
40 | 40 |
| Scrap toddler tax credit | 180
| 180 | 180 | 180
| Yes | 180 | 180
| 180 | 180 |
| Lower £25,000 disregard to £5,000
| 140 | 420 | 140
| 420 | Yes | 140
| 140 | 420 | 420
|
| New disregard of £2,500 when incomes fall
| 550 | 585 | 550
| 585 | Yes | 550
| 550 | 585 | 585
|
| New backdating rules | 315 |
330 | 315 | 330 |
Yes | 315 | 315 |
330 | 330 |
| Higher per child element of CTC | -1,845
| -1,995 | 1,845 | 1,995
| Yes | -1,845 | 1,845
| -1,995 | 1,995 |
| Freeze CB | 695 | 975
| 695 | 975 | Yes
| 695 | 695 | 975
| 975 |
| Earnings-index BSP | -195 |
-450 | 195 | 450 |
Yes | -195 | 195 |
-450 | 450 |
| Increase PC | -535 | -535
| 535 | 535 | Yes
| -535 | 535 | -535
| 535 |
| Scrap Child Trust Fund | 550
| 560 | 550 | 560
| Yes | 0 | 0 |
0 | 0 |
| Total | 4,710 |
11,040 | 9,990 |
16,985 | | 3,895
| 9,045 | 9,970 |
15,930 |
| IFS modelled as % change in 2012-13 |
| | |
| | 84% | 91%
| | |
| IFS modelled as % change in 2014-15 |
| | |
| | 36% | 54%
| 91% | 94% |
Table 4
IFS DISTRIBUTIONAL ANALYSIS OF OCTOBER 2010 SPENDING REVIEW
| Net saving
| Absolute change
| Modelled by IFS? |
2012 | 2014
|
| 2012 | 2014
| 2012 | 2014 |
| Size of net cut modelled
| Absolute size of change modelled |
Size of net cut modelled | Absolute size of change modelled
|
| Time-limit contributory ESA | 1,025
| 1,025 | 2,010 | 2,010
| Yes | 1,025 | 1,025
| 2,010 | 2,010 |
| SRR change | 130 | 130
| 215 | 215 | Yes
| 130 | 130 | 215
| 215 |
| Family cap | 0 | 0
| 270 | 270 | Yes
| 0 | 0 | 270 |
270 |
| DLA | 60 | 60
| 135 | 135 | |
0 | 0 | 0 | 0
|
| Freeze maximum savings credit | 215
| 215 | 330 | 330
| Yes | 215 | 215
| 330 | 330 |
| SMI | -20 | 20
| 0 | 0 | |
0 | 0 | 0 | 0
|
| Cold weather | -50 | 50
| -50 | 50 | |
0 | 0 | 0 | 0
|
| Reform CTB | 0 | 0
| 490 | 490 | Yes
| 0 | 0 | 490 |
490 |
| Taper CB from HRTaxpayers | 590
| 590 | 2,500 | 2,500
| Yes | 590 | 590
| 2,500 | 2,500 |
| Freeze WTC | 415 | 415
| 625 | 625 | Yes
| 415 | 415 | 625
| 625 |
| Lower childcare tax credit | 320
| 320 | 385 | 385
| Yes | 320 | 320
| 385 | 385 |
| Higher per child element of CTC | -510
| 510 | -560 | 560
| Yes | -510 | 510
| -560 | 560 |
| Lower WTC hours requirement for couples |
380 | 380 | 390 |
390 | Yes | 380 |
380 | 390 | 390 |
| Better earnings data in TCs | 0
| 0 | 300 | 300
| | | |
| |
| Total | 2,555 |
3,715 | 2,565 | 8,260
| | 2,565 | 3,585
| 6,655 | 7,775 |
| IFS modelled as % change in 2012-13 |
| | |
| | 100% | 97%
| | |
| IFS modelled as % change in 2014-15 |
| | |
| | 36% | 43%
| 95% | 94% |
9
This does not necessarily mean that the distributional analysis
in Charts A1 and A2 of the June 2010 Budget show a pattern of
losses which together amounts to £2 billion a year, as it
is possible that the HMT distributional analyses suggests that
reforms cost or raise different amounts from the figures given
in the Budget or Spending Review documents (the same is also true
for the IFS distributional analysis). Back
10
A coverage of 65% is line with paragraph B.35 of the Spending
Review document, and the remarks made on the opening slide of
James Browne's post-SR presentation. Back
11
A coverage of 65% is line with paragraph B.35 of the Spending
Review document, and the remarks made on the opening slide of
James Browne's post-SR presentation. Back
12
Chart B.6 shows the impact of changes as a percentage of net income
PLUS benefits in kind, but Charts B.4 & B.5 show changes as
a percentage of net income. Back
|
