In previous Parliaments, it was the practice of the Treasury Committee to take evidence on the Budget and to report before the second reading of the Finance Bill.
Following the 2010 election however, the Committee was not formed until July 12, after this took place. The Committee has therefore produced a report as quickly as possible, in time for the third reading of the Bill.
Andrew Tyrie, Chairman of the Committee, said:
“We note that there are risks on either side of the Budget judgement and that the Chancellor has chosen a somewhat more radical path than his predecessor.
Furthermore, he has been explicit that his aim is not only to reduce debt, but to rebalance the economy away from the public and toward the private sector. This report examines some of the risks and uncertainties in this approach.”
Were the Budget measures progressive?
The Committee shares the Chancellor's desire to make sure that the measures are fair, both in absolute terms, and as a proportion of income. Taken together the effects of the measures in the March and June Budgets ensure that the least well off are less affected than the richest.
The Committee is concerned that the poorest fare slightly less well than middle income groups, as a result of the impact of all measures and when considered as a percentage of net income.
The Report acknowledges though that the June Budget is only the first part of a wider range of measures and there may be changes as a result of the current review of poverty, the Comprehensive Spending Review(CSR) and future Budgets.
Despite the limitations in the data they contain, the charts which show the distributional effects of the Budget measures, are an extremely welcome innovation. The Committee applauds the Chancellor for introducing them.
It also hopes that in future years such charts will use a greater range of data, and provide a fuller picture of Budget effects, including the national and regional effects.
The Report notes that the Treasury has cited data problems as a reason for its inability to give a more complete analysis. It recommends that Government’s data collection is improved to enable these sorts of analyses to be provided in future.
It is likely that the Comprehensive Spending Review (CSR) will also have different effects on different income groups. The report recommends that the Treasury builds on the approach taken in the Budget to give information about the impact of CSR changes on different households.
The Committee would like the analysis for both the CSR and future Budgets to take two forms: a narrowly drawn set of figures based on those measures most easily modelled and a wider analysis, using more assumptions, which would allow a fuller set of measures to be included.
Andrew Tyrie said:
“I warmly welcome the Chancellor’s decision to publish, and for the first time, tables setting out the distributional impact of tax and welfare changes made in the Budget on households. This is a refreshing change and demonstrates the Government’s commitment to openness and transparency.
There is much debate about whether the Chancellor’s budget measures are progressive.
Whilst those on the lowest incomes bear less of the strain than those on the highest incomes, I am concerned that those at the bottom appear to pay proportionately more than those in the middle of the income distribution.
The Chancellor’s analysis of the impact on households of Budget measures is a snapshot for the year 2012–13. The Treasury Committee will monitor developments to ensure that welfare and other spending cuts after 2012–13 will not hit poorer households disproportionately.”