Tagged: IFS

“Big cuts to disability benefits” if conservatives win, warns IFS

The Institute for Fiscal Studies (IFS) is warning that cutting the benefits bill by £12 billion will lead to “radical changes” to housing benefits and “big cuts to disability benefits”, amongst others. They have challenged chancellor George Osborne to explain where the cuts will be made.

In an interview for the BBC today, Paul Johnston of the IFS pointed out that:

“The chancellor has been saying for nearly two years now that he wants to find £12 billion of welfare cuts by 2017.

“He’s told us maybe where he’ll find £2 billion of that £12 billion. If he really wants us to take seriously the idea that other spending will be protected, he needs to tell us something about where the additional £10 billion of welfare cuts will come from.

“They will not be easy to find.”

Johnston explained that a freeze on working age benefits, which would itself cause increasing hardship for working age claimants, would go nowhere near saving enough cash.

“He has told us he wants to freeze working age benefits. That will save up to about £2 billion. That’s something he has told us. It’s the other £10 billion we know nothing about.

“It’s of course possible to cut benefits by £10 billion or £12 billion, if that’s what you really want to do.

“But you need to recognise especially if you’re protecting pensioners which the conservatives have said they want to do, this will involve radical changes to, for example, the housing benefit system, big cuts to child benefit, big cuts to disability benefits.

“These are the big benefits. If you want to save £10 billion you have to find radical things to do to those big parts of the benefits system.”

For claimants, especially those who are sick and disabled, the result of the next election could well have a dramatic effect on the quality of their lives for decades to come.

You can see the full interview on the BBC website.

Source – Benefits & Work, 20 Mar 2015


300,000 More People In ‘Absolute Poverty’ Than Previously Thought

300,000 more people could be living in “absolute poverty” in the UK than previously thought, according to a shocking new report.

Research from the Institute for Fiscal Studies (IFS) found that poorer households have experienced larger increases in living costs than richer households, mainly due to rises in food and energy prices.

> Well – who’d have guessed ?

IFS say that taking into account “differential inflation” since 2010-11, the number of people recorded as being in absolute poverty would be 300,000 higher in 2013-14 than official figures suggest.

Between 2002-03 and 2013-14 the poorest 20% of households saw prices increase on the typical goods they purchase by 50%, compared to richest 20% who saw prices rise by 43%.

According to the IFS, poorer households devote more of their income on things like food and energy, whereas the richest 20% of British society spend more on areas such as motoring and mortgages.

On average, the prices of goods purchased by low-income households have risen more quickly than those more commonly purchased by more affluent households. This is particularly apparent in the ‘wake’ of the 2008 recession, say IFS.

Source: IFS Poverty Study

The government uses two different methods of measuring poverty in the UK. The first is ‘absolute poverty’, which is a measure of the number of people thought of as being below a poverty line, before housing costs, calculated using the Retail Price Index (RPI). Through this measure we can confidently say that 18.8% of individuals were living in absolute poverty in 2012-13, before housing costs.

Another method used by the government is relative poverty, which calculates the number of households earning less that 60% of the national median average. Using this method we can calculate that 15.4% of the UK population were living in ‘relative poverty’ (before housing costs) in 2012-13.

The IFS study also accounts for different inflation pressures felt by households depending on how they spend their income – a measurement not included in official poverty statistics. This new measurement found that absolute poverty is 0.5% higher in 2013/14 than standard poverty measures- the equivalent of 300,000 more households.

However, the IFS say this trend has not been consistent over earlier years, adding that “this new definition had been at times higher and at times lower”.

Peter Levell, a Research Economist at IFS said:

“In recent years, lower-income households have tended to see bigger increases in their cost of living than have better off households.

“Official poverty measures do not take this into account and hence have arguably understated recent increases in absolute poverty by a small but not insignificant margin.”

Rachel Reeves MP, Labour’s Shadow Work and Pensions Secretary, said:

“This report is further evidence of the huge pressures which families are facing as a result of David Cameron’s cost-of-living crisis.

“The Government’s failure to tackle soaring energy, childcare bills and low wages has led to millions struggling to get by. Earlier in the year the IFS said child poverty is set to rise 900,000 by 2020.

“A Labour Government will do more to help families who are struggling to make ends meet so that every child gets the best start in life. We will freeze energy prices, raise the minimum wage, extend free childcare provision, scrap the Bedroom Tax and introduce a Compulsory Jobs Guarantee to get people off benefits and into work.”

> But getting  people off benefits and into work  doesn’t mean those people will necesserily be any better off. Maybe Labour should really be thinking about capping rents, energy, public transport and food prices ? But of course they won’t really change anything much, they’ve bought into the system too far to do that.

Source – Welfare Weekly,  05 Nov 2014


Real incomes fall five per cent in the North East

Real income in the North East has fallen by 5% in recent years, a detailed new study has found.

Cuts in income have been offset by a fall in the cost of housing – but only for homeowners benefitting from low mortgage interest rates, according to the report by the Institute for Fiscal Studies.

People who rent in the North East have found their housing costs going up slightly.

Perhaps surprisingly, poverty levels have either fallen or risen by a small amount, depending on which measure of poverty is used.

But the think tank, which specialises in UK taxation and public policy, warns that this will change in future years as people on low incomes are hit by benefit cuts, leading to an increase in poverty.

The Institute for Fiscal Studies (IFS) has produced a detailed study of changes in income and living standards across the United Kingdom in the wake of the banking crisis.

We’ve grown used to incomes rising in recent decades. Since 1961, the income of the median household has grown by an annual average of 1.3% in real terms (ie adjusted for inflation) each year.

But since the banking crisis, incomes have fallen.

Median income in the North East, after housing costs, fell by just over 5% in the period between 2007-8 and 2012-13, according to the IFS. Across the UK as a whole, median incomes after housing costs fell by 6%.

This highlights the important role low mortgage rates have played in protecting some households from the worst effects of the economic slowdown.

First-time buyers may be struggling to afford a property in many parts of the country, but existing homeowners have enjoyed low mortgage rates – helping them cope with the impact of a 9.4% fall in the pre-tax earnings of households nationwide.

The report states: “This came about despite a rise in the proportion of people employed, because the pay of workers grew much less quickly than prices.”

This also, perhaps, highlights the shock to the system some households will receive if interest rates rise in future.

In the North East, average housing costs between 2007–08 and 2012–13 fell by 15%, although they actually rose by a single percentage point for people who rent.

The IFS also recorded an increase in absolute poverty in the North East.

It measured this by looking at households with an income which is 60% or less of the median household income in 2010-11, adjusted for inflation. This is a measure used by the Department for Work and Pensions.

In the North East, the proportion of households in absolute poverty after housing costs rose from 22% in 2007-8 to 2009-10, up to 22.8% in 2010-11 to 2012-13.

Another commonly used measure of poverty is relative poverty, which simply measures households with an income which is 60% or less of the median household income at any given moment.

This doesn’t necessarily tell us whether poorer households are getting richer or poorer. Instead, it tells us whether they are catching up with the rest of society, or getting left further behind.

The main argument for looking at relative poverty is that society’s view of what constitutes an acceptable living standard changes over time.

It turns out that relative poverty has actually fallen – but only because incomes for people in the middle have fallen, which has closed the gap between middle earners and those on the very lowest incomes.

And this is going to change – because of benefit cuts which mostly came into effect after April 2013, including a three-year policy of increasing most working-age benefits and tax credits by 1% in cash terms (ie by less than inflation).

The report states: “Absolute and relative income poverty are set to increase after 2012–13 among both families with children and working-age adults without children.”

The people set to be hit hardest are “low-income households with children,” the report said.

And the study produced another worrying finding – that the downturn has been much harder on the young than the old.

The employment rate of those in their twenties has fallen, while employment among older individuals has not; and real pay among young workers has fallen much faster than among older workers. As a result, young adults’ real incomes have fallen much more than any other age-group.

Jonathan Cribb, a Research Economist at the IFS and an author of the report, said: “Young adults have borne the brunt of the recession. Pay, employment and incomes have all been hit hardest for those in their twenties. A crucial question is whether this difficult start will do lasting damage to their employment and earnings prospects”.

Source – Newcastle Journal,  23 July 2014

Coalition drags out the pain with promise of many more cuts

Mike Sivier's blog


The BBC has reported findings by the Institute for Fiscal Studies, showing that the Coalition government will be less than halfway through its planned spending cuts by the end of the current financial year (March 31).

The organisation said 60 per cent of the cuts were still to come.

This raises a few urgent questions. Firstly: This government was formed on the promise that it would balance the books by 2015, which presupposes that its entire plan for doing so would be in place long before then. We know that this ambitious claim was dismissed after years of failure, but part of the reason for this failure was that George Osborne stopped a recovery that was already taking place, and which would have led to economic growth of 20 per cent by now, if it had been allowed to continue (according to Michael Meacher MP). My question, therefore…

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