Research shows budget preserves income of wealthier households, while poorest could lose 12% of their income by 2019

This article is more than 4 years old

This article is more than 4 years old

Iain Duncan Smith’s warning that George Osborne’s budget will hit poorer families hardest while preserving the incomes of the better off and pensioners has been backed up by an influential thinktank.

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Sustained benefit cuts will result in many households in the bottom 20% of earners losing up to 12% of their income by 2019, according to a report published on Monday by the influential Institute for Fiscal Studies (IFS).

Meanwhile, households in the top half of income brackets will be no worse off and even the poorest pensioners will be 2% in the red at most.

The former work and pensions secretary resigned on Friday, accusing Osborne of delivering a “deeply unfair” budget that inflicted substantial reductions in disability benefits while offering tax cuts for the most affluent.

The report said the tax and benefit changes from April last year to 2019 would end a period when income distribution was squeezed, mainly as a result of top earners paying higher taxes and suffering the withdrawal of generous pension-saving subsidies.

Paul Johnson, the director of the IFS, said: “Raising the threshold for paying higher-rate tax is clearly helping people in the middle- and upper-income brackets, while the cuts to benefits reduce the incomes of families on lower incomes.”

He highlighted the switch from tax credits to universal credit as a major blow to working households at the bottom of the income scale. “Once universal credit is in place, the benefit system is much less generous,” he said.

Duncan Smith was responsible for introducing universal credit and unsuccessfully fought Treasury demands for it to be less generous than the current tax credit system.

In recent years, he has argued for some pensioner benefits such as the winter fuel allowance to be means tested so the government could show that all groups are sharing the pain of austerity.

A chart in the report illustrating the impact of tax and benefit changes until the end of the current parliament shows the lowest 10% of households with children losing almost 10% of their income, while the next band lose more than 12%.



The poorest 10% of pensioners lose 2% of their income; pensioners in the top 20% of earners gain or avoid losing any income at all.

The IFS report stated: “Pensioners are protected while poorer working-age households are hit hard, especially those with children. This is the result of the continued protection of pensioner benefits (including maintaining the ‘triple lock’ on the basic state pension) while making further deep cuts to working-age benefit spending.

“Households in the upper half of the income distribution (but below the very top) are likely to see little direct impact of tax and benefit changes on their incomes on average, as some benefits cuts and small tax rises are offset by further increases in the income tax personal allowance, and the raising of the higher-rate threshold.”