Cuts will hit the poorest harder, claims think-tank

Coalition claims that the spending review was fair were dealt a heavy blow today when a leading economics think-tank insisted the cuts would hit the poorest harder than most of the better off.

The respected Institute for Fiscal Studies (IFS) warned that Chancellor George Osborne's £81 billion cuts package was "regressive" except for its impact on the richest 2%.

Families with children would be the biggest losers, it said.

The intervention came as David Cameron and Nick Clegg met voters together in a bid to sell the deficit reduction measures to the public.

Without naming the IFS in particular, Deputy Prime Minister Mr Clegg accused the Government's critics of "frightening people" with claims that they were "doing unfair things when we are not".

But he also appeared to acknowledge that the Government's claims that the rich would pay the most were based on tax changes introduced by the former Labour government.

In its analysis of the spending review, the IFS said the changes announced yesterday would reinforce the "regressive" nature of the Government's plans to tackle the deficit, including the £7 billion of welfare cuts.

"The tax and benefit changes are regressive rather than progressive across most of the income distribution. And when we add in the new measures announced yesterday this is, unsurprisingly, reinforced," said IFS acting director Carl Emmerson.

"Our analysis continues to show that, with the notable exception of the richest 2%, the tax and benefit components of the fiscal consolidation are, overall, being implemented in a regressive way."

IFS analyst James Browne added: "Overall, families with children seem to be the biggest losers."

He said that while the Treasury had claimed the overall package was "progressive" - as a result of measures previously announced by former chancellor Alistair Darling - it had ignored a third of the welfare changes.

"The poorest are losing more as a proportion of their income as a result of these changes," he said.

The IFS also challenged Mr Osborne's claim that the Government's cuts to those departments whose budgets were not protected averaged 19% compared with 20% implied by Labour's plans.

It said Mr Osborne's figures failed to take into account the £6 billion of cuts already announced by the Government this year, while the actual figure under Labour would have been 16%.

Mr Clegg accused critics of "frightening" the public by unfairly focusing only on the announcements - such as huge benefit cuts - unveiled in the spending review.

"People who are trying to take only one bit of the equation and say 'ah, that shows it is all very unfair' - they are not being very straight with people and frankly they are frightening people and that is not right, frightening people and claiming we are doing unfair things when we are not," he said.

But he accepted that Labour's higher tax rates for top earners were important to claims that the package was progressive.

"Put all our decisions together and yes, to be fair, some decisions taken by the previous government in the latter months, and very, very clearly, the richest pay the most and this is the fairest possible way of doing this difficult thing," he said.

Mr Clegg was speaking in Nottingham during a joint visit with the Prime Minister designed to promote yesterday's contentious package.

Mr Cameron also pointed to the contribution that higher earners were making thanks to the tax system that the Conservative-Liberal Democrat coalition has inherited from Labour.

He said better off people would pay more as a percentage of their income and that fairness was "about asking how much people give as well as how much people get".

"They pay most, not just as an amount of cash, they pay more as a percentage of their income, and that is what the definition of what being progressive is," he said.

"You are asking those, as you go up the income scale, not just to pay more in cash but to pay more as a percentage of your income. That is what the figures show."

Downing Street also questioned the IFS's findings, saying it was "strange" to exclude the richest 2%.

The Prime Minister's spokesman said: "I note that the IFS analysis is based on ignoring the people at the top and the fact that they are paying the most.

"They just say 'if we take out the people who are paying the most and contributing the most to this consolidation then you have a different picture'.

"Well of course you have a different picture but why would you ignore the people at the top? If we did the same and said 'let's ignore the people at the bottom' you would think that was quite strange."

But Angela Eagle, shadow chief secretary to the Treasury, said: "George Osborne's smoke and mirrors have well and truly unravelled. On any measure his plans hit the poorest hardest.

"And the IFS have all but called him a liar for his ridiculous claim that he is cutting less than Labour planned."