Spending review will hit the poorest 15 times harder than the rich, says TUC

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date: 22 October 2010

embargo: For immediate release

The poorest ten per cent of households will be hit 15 times harder than the richest ten per cent as a result of service cuts announced in the comprehensive spending review (CSR), according to a new analysis published today (Friday) by the TUC.

Using official figures to calculate how different groups benefit from different public services, the analysis - written by economists Howard Reed and Tim Horton - shows that the poorest ten per cent of households, with incomes below £10,200, will suffer reductions in spending on services equivalent to 29.5 per cent of their annual income on average, or £1,913 a year.

The second poorest group of households, with incomes between £10,200 and £12,900, will be hit hardest in cash terms - losing services worth £2,164 a year - and the TUC analysis confirms that the higher up the income scale people are, the less they lose from the cuts. The richest ten per cent will lose services worth just two per cent of their net income, the equivalent of £1,506 a year.

The analysis examines the impact of the CSR on different types of family and finds that lone parents will be hit the hardest, losing services worth 18.4 per cent of their income on average (£3,121 a year). Single pensioners are next, losing services worth 11.1 per cent of their income on average (£1,305 a year).

The analysis uses the same spending model behind the TUC report Where The Money Goes published last month on the eve of TUC Congress. This found that on average households benefit from £21,000 worth of services a year, and that those on low or modest incomes gain more than the better-off.

Where The Money Goes predicted that cuts of 25 per cent by 2012-13 (while ringfencing health expenditure and partially protecting education) would mean that the poorest ten per cent of households would lose around 20 per cent of their income.

But today's analysis, using data from the CSR, shows that overall cuts to public spending (excluding benefits and tax credits) of £48 billion (in today's prices) by 2014-15 will be even more regressive, partly because of deep cuts to services which are disproportionately used by the poorest households - such as social housing and social care.

The analysis examines the impact of the cuts on four typical families:

  • A family with two school age children on modest earnings will suffer service cuts equivalent to 13.2 per cent of their income, or £2,631 a year.
  • An affluent family with children at university will suffer service cuts equivalent to 19.4 per cent of their income, or £3,889 a year.
  • A working lone parent with two children will suffer service cuts equivalent to 15.7 per cent of their income, or £3,132 a year.
  • A pensioner couple will suffer service cuts equivalent to 16.2 per cent of their income, or £2,226 a year.

To coincide with these findings, the TUC is launching a new 'cuts calculator', which allows people to work out how much they are likely to lose from the spending review. The online 'cuts calculator' can be accessed at www.touchstoneblog.org.uk/2010/10/how-much-do-you-stand-to-lose-from-the-csr-cuts/

TUC General Secretary Brendan Barber said: 'Our analysis blows away any claim that the spending review was progressive. Even when the effects of benefit changes are taken out of the equation, cuts to services surgically target the poorest households and leave the rich relatively untouched.

'The big hits on social housing and social care are just two areas where the cuts will seek and destroy services used by the less well-off. And with more than a million due to lose their jobs as a direct or indirect result of the cuts, the numbers in poverty are set to grow.

'Two days ago coalition MPs cheered these deep cuts that will undoubtedly ruin lives. They queued up to tell us that the cuts were fair. Yet every independent analysis, including this new TUC study, shows that these claims are wrong.

'Add in the choice of VAT as the only significant tax rise and the pathetically small bank levy, and we can see that this government has fired a huge engine of inequality.'

The figures in the TUC analysis are more regressive than the government's own impact assessment of the CSR because the TUC analysis models the impact of allspending cuts, whereas the government only modelled a fraction of the total.

NOTES TO EDITORS:

Distributional impact of spending cuts in services set out in CSR by decile

Income decile

Impact of CSR (£/year)

Impact as a proportion of net income

1

-£1,913

-29.5%

2

-£2.164

-18.5%

3

-£2,124

-15%

4

-£2,019

-11.7%

5

-£1,914

-9.6%

6

-£1,865

-7.6%

7

-£1,727

-6.2%

8

-£1,627

-4.9%

9

-£1,560

-3.8%

10

£1,506

-2%

Distributional impact of spending cuts in services set out in CSR by household type

Household type

Impact of CSR (£/year)

Impact as a proportion of net income

single, no children

-£1,101

-6.6 %

lone parents

-£3,121

-18.5%

couple without children

-£1,254

-3.7%

couple with children

£2,778

-7.5%

single pensioner

-£1,305

-11.1%

pensioner couple

-£1,275

-5.9%

- The TUC analysis can be downloaded at www.tuc.org.uk/extras/csrspendinganalysis.xls

- The authors of the TUC analysis and Where the Money Goes are Tim Horton, Research Director at the Fabian Society, and Howard Reed, Director of Landman Economics.

- Howard Reed will present his analysis at a post-CSR briefing alongside TUC Senior Policy Officer Nicola Smith and Leader of Haringey Council Clare Kober between 12.30 and 2pm at TUC headquarters, Great Russell Street, London. Further information about the briefing is available here www.tuc.org.uk/events/detail.cfm?event=3235. If you would like to attend the briefing please contact the TUC press office.

- Where The Money Goes can be downloaded at www.tuc.org.uk/extras/wherethemoneygoes.pdf

- All TUC press releases can be found at www.tuc.org.uk

- Register for the TUC's press extranet: a service exclusive to journalists wanting to access pre-embargo releases and reports from the TUC. Visit www.tuc.org.uk/pressextranet

Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Gibson T: 020 7467 1337 M: 07900 910624 E: egibson@tuc.org.uk

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