The Autumn Statement Creates a More Unequal UK

Yesterday we outlined our initial thoughts on the Chancellor’s Autumn Statement, but one thing was missing – an accurate distributional analysis of the effects of the Spending Review. In other words, we had no authoritative account of the real winners and losers.

Thanks to sterling work from the Institute for Fiscal Studies (IFS), we now do, and it makes grim reading. In short, the combined effects of announcements in the Summer Budget and Autumn Statement mean less pain today, but more tomorrow.

One big reason is that the apparent generosity of the Chancellor’s reversal on tax credits will be short lived. Tax credits are in the process of being phased out, with recipients moving onto Universal Credit (UC). The problem is, UC will provide far stingier payments for many of the poorest working families. The IFS estimated that 1.9 million families would be £1,400 better off as a result of moving on to UC. But 2.6 million families would be an average of £1,600 a year worse off under the new system than they would be under existing tax credits.

Scrapping plans to remove much needed support was a welcome move, but pushing this decision further down the line isn’t the answer. The result is that the poorest are better protected through 2016, but it is a short reprieve. By 2020 they are hit even harder than under the original plans outlined in the Summer Budget, due to the cuts to housing benefits outlined in yesterday’s blog.

As we outlined yesterday, not everything contained in yesterday’s Spending Review is regressive. Changes to stamp duty in particular will help to reduce inequality. But we have serious concerns about the overall effects of policy on the UK’s already extreme inequality.

The first item on the Government’s agenda must be a serious rethink of Universal Credit, both in terms of the level of payments and the rate of their withdrawal, which for many people will be extremely high. These payments are a lifeline to working families who are struggling to get by, despite for all intents and purposes ‘doing the right thing’, as we are often told they must. Without decent in-work support, we not only risk exacerbating inequality, we risk building a society where future generations are condemned to a worse set of circumstances in which to live, work and raise a family.

John Hood, Media and Communications Manager