I don’t propose to blog in detail today on George Osborne’s budget and its likely effects. There’ll be plenty of analysis and discussion going on elsewhere over the next few days.
But while all the discussion is going on, here’s a chart to keep in mind, from p.67 of the Red Book (PDF), showing the percentage impact on net income for different levels of income:
You’ll notice two things. First, those at the very bottom are hit harder than almost anyone else. Only the top two deciles – who can well afford it – suffer a bigger impact.
Second, even the Treasury is acknowledging that the VAT rise is deeply regressive. VAT makes up the bulk of the “indirect tax” impact shown in the chart, and the impact of such rises is -1.5% for those at the bottom of the income range and less than 1% for those at the top. And for those in the bottom deciles, 1.5% or 1.25% is a significant amount of money.
Talk of “lifting 880,000 people out of income tax” by raising personal allowances sounds good, and may mollify the consciences of some Lib Dem supporters, but in reality the benefits of this are far outweighed by the impact of the VAT rise.
In short, the Budget is as many predicted: a re-run of this celebrated Labour election poster from the 1930s:
The only differences are that the guy at the top is arguably being asked to step down two rungs – and the guy at the bottom to step down one and a half.