New studies contradict Osborne’s claim the cuts can be “progressive”
A new study by John Hills shows that the last government’s spending held back rising inequality and that cutting it is likely to be regressive.
At the same time, an evaluation of the 1990s cuts in Sweden and Canada – often cited by the coalition as an inspiration – reveals that they led to significant increases in poverty and inequality.
The first is a report on new research by Prof John Hills of the LSE – so new that, as far as I can make out, it isn’t on the LSE website yet. It looks at the increase in public spending in the first decade of the last government’s existence.
Prof Hills found that this spending boosted the incomes of the poorest more than any other group. He added that a £1,000 a year cut in services would represent 10% of the income of the poorest and 1% of the income of the richest fifth.
Raising the same amount by tax increases, on the other hand, would reduce the final income of the poorest fifth by 3.4 per cent, compared to 3.7 per cent for the richest.
Possibly even more important is an article looking at the experience of cutting by Finland, Sweden and Canada. In all three countries cuts in the 1990s caused growing inequality.
Daniel Pimlott reports that:
At the same time, an evaluation of the 1990s cuts in Sweden and Canada – often cited by the coalition as an inspiration – reveals that they led to significant increases in poverty and inequality.
The first is a report on new research by Prof John Hills of the LSE – so new that, as far as I can make out, it isn’t on the LSE website yet. It looks at the increase in public spending in the first decade of the last government’s existence.
Prof Hills found that this spending boosted the incomes of the poorest more than any other group. He added that a £1,000 a year cut in services would represent 10% of the income of the poorest and 1% of the income of the richest fifth.
Raising the same amount by tax increases, on the other hand, would reduce the final income of the poorest fifth by 3.4 per cent, compared to 3.7 per cent for the richest.
Possibly even more important is an article looking at the experience of cutting by Finland, Sweden and Canada. In all three countries cuts in the 1990s caused growing inequality.
Daniel Pimlott reports that:
Sweden – alongside Finland – suffered the sharpest rise in income inequality among developed countries in the late 1990s, a period when both were also carrying out the most aggressive programmes to improve the state of their public finances. In both countries, income inequality rose more than 12 per cent between the mid-1990s and 2000, according to Growing Unequal, a recent study by the Organisation for Economic Co-operation and Development.He produces evidence for a similar story in Canada, and says the aim of carrying out “progressive” cuts in public spending will be hard to achieve. If you don’t have a subscription to the F.T. website it’s worth getting a copy of the paper for these two articles alone.
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Budget cuts were not the only factor to boost inequality. Tax changes benefited the rich, wage inequality rose, and much of the pain came through a squeeze on benefits, which hit poorer groups harder.
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