The claimGeorge Osborne, 02 April 2013
“Nine out of 10 working households will be better off as a result of the reforms we’re making this month.”
The background
George Osborne laid into critics of the government’s tax and benefits policy today, attacking unspecified “vested interests” who “complain, with depressingly predictable outrage, about every change to a system which is failing”.
The chancellor claimed that 90 per cent of working households will be net beneficiaries of measures that kick in this month.
These include cuts to housing benefit in the form of the so-called “bedroom tax”, a £26,000 annual cap on the total benefits couples and lone parents can receive, and tax cuts like the bigger than expected rise in the personal tax allowance.
Who are the big winners and losers?
The analysis
Mr Osborne’s claim is that the vast majority of working households – about 14 million families – will receive a windfall thanks to the various changes that come into force this month.
We’ve no reason to disbelieve this, although none of the usual heavyweight independent Treasury-watchers like the Office for Budget Responsibility and the Institute for Fiscal Studies (IFS) can check the government’s working out.
Of course the phrase “working households” covers a multitude of sins, from a lone parent on the minimum wage to David and Victoria Beckham. Is the government giving more help to richer or poorer workers?
The simple answer is that we don’t know, because the Treasury either haven’t done the analysis in that detail, or don’t want to give it to us.
They have given us a number of examples, which suggest that wealthier families will do better than poorer ones.
Take a family with two children. If both parents work and earn a typical joint income of £41,500, the windfall is over £400.
If both parents work but earn the minimum wage of £12,900 each the gain is smaller – around £360.
If just one parent works and earns the average wage of £26,000 the difference is only an extra £90 a year – or less than two pounds a week.
And the government admits that some workless households will suffer: an out of work couple with no children will lose about £150 a year.
The Treasury says the average gain for a working household is £300. There’s no official estimate for how much a family on benefits will lose.
Giving with one hand…?
The other big thing to remember is that this “extra” money has to be seen in the overall context of other austerity measures that have come into force since 2010.
If the government gives you £300 this year but has already taken £1,000, are you really getting a windfall?
We can track the impact of coalition policy on household income since 2010, but we can’t break it down into working and workless households.
All we can do is look at analysis of all households divided by income, and make the assumption that those at the bottom of the income scale are more likely to be reliant on benefits.
This is the Treasury’s latest assessment of how all the government’s reforms since 2010 have affected all households.
The very poorest and the richest lose the most, as a percentage of income, while middle and higher income households fare better.
These people have done best out of changes to the personal income tax allowance, but the IFS says it’s people in the middle to higher bracket who have also been squeezed the most by the fact that salaries have failed to grow in real terms in the last few years.
Government analysis says the average household, whether working or not, will lose about £500 in 2013-14, compared to an assumption of what the previous government would have done if they had won the election.
In attacking Mr Osborne this week, Labour went for a much higher figure: an average household loss of £891 this year, based on IFS research.
There’s nothing wrong with it mathematically but it’s based on what the government has done compared to doing nothing, an incredible scenario given that Labour would undoubtedly have had to introduce austerity measures too.
The verdict
Mr Osborne is probably right about the nine out of ten, although by choosing to frame the debate in terms of working households alone he has made it difficult for independent assessors to FactCheck him.
Clearly, the government is taking from benefits claimants and giving to working families.
As things stand, we don’t know which working families who will do best, but the small amount of information the Treasury has given us shows a pattern of the wealthier households getting the biggest giveaway.
We also asked the government, since they want to focus on working households, how workers have fared overall from all the measures introduced since the coalition came to power. There’s been no reply yet but we will update if we can.
By Patrick Worrall
