6Distributional analysis
103.Starting with its first Budget in June 2010, the Coalition Government published a “distributional analysis” showing the impact of changes to tax and welfare spending on household incomes at different points in the income distribution.
104.By the end of the Coalition Government, this income-based distributional analysis had become part of the standard Budget documentation. In March 2015, it was described by the then Chancellor George Osborne as being “a step change in the transparency of policy making”, and “the most comprehensive and robust assessment available of [how] the decisions we have made […] have affected families”.98
105.The analysis was discontinued in the Summer Budget of July 2015, but was reinstated following pressure from the Treasury Committee in the Autumn Statement 2016.99,100
106.Since coming to office, the Chancellor has rebased the distributional analysis so that it reflects only measures announced since the Autumn Statement 2016. Consequentially the changes to Universal Credit announced in the Summer Budget 2015, are not included in the distributional analysis, even though these changes have not fully taken effect. The analysis shows that, other than the highest income decile, each income decile is better off as a result of measures announced since the Autumn Statement 2016.
107.Government distributional analysis only includes policies that have been confirmed and announced. Other policy measures that may have been publicised, but have not yet been confirmed, are not included in the analysis. An example of this is the Government’s aspiration to increase the income tax personal allowance to £12,500, and the higher rate income tax threshold to £50,000 by the end of this Parliament. These measures are not included in current distributional analyses because, while the policy is widely known and is referred to in the Budget,101 it has not yet been confirmed in the Government scorecard list of measures. The Chancellor has previously explained what its inclusion would mean for the distributional analysis:
We have been elected on a manifesto commitment to increase the thresholds for income tax at the basic rate and for income tax at the higher rate. As that manifesto commitment is delivered, every single member of this Committee understands that that will have an impact on the distributional analysis. Clearly, it will benefit those who are not at the bottom of the income distribution.102
108.The Committee welcomes the Chancellor’s decision to continue publishing distributional analysis showing the impact of fiscal policy decisions on households in different parts of the income distribution. However, there remains scope to make it still more transparent.
109.The analysis groups together all policy measures announced since the Autumn Statement 2016. Consequently, the distributional impacts of policies announced in a particular Budget cannot be ascertained, as they are amalgamated with those of previous fiscal events. In future, the Treasury should publish an analysis of the impact of the measures in each Budget in isolation, alongside the cumulative effects.
110.The decision by the Chancellor to reset the starting point for the analysis to the Autumn Statement 2016 means that decisions announced prior to this point are not included, even though their effects on households might not yet have been felt in full. For example, if the decision to freeze working-age benefits in cash terms and to reduce the scope and value of work allowances in Universal Credit were included, the analysis would appear materially worse for households at the bottom of the income distribution.
111.To address such concerns about the transparency of the distributional analysis, the Treasury should provide the raw data underpinning it, so that individual policies of the Government and their distributional impact can be analysed in more detail.
98 HM Treasury, Impact on households: distributional analysis to accompany Budget 2015, 18 March 2015, p3
99 Correspondence from Rt Hon. Andrew Tyrie MP to Chancellor of the Exchequer, Publication of distributional analysis, 22 August 2016.
100 Correspondence from Rachel Reeves MP and Wes Streeting MP to the Chancellor of the Exchequer, Distributional Analysis, 9 September 2016
102 Oral evidence taken on 12 December 2016, HC 837 (2016–17), Q296
19 January 2018