Cathy Newman checks it out
Is the nasty party back? David Cameron’s tried very hard to put the compassion back into Conservatism, but he and George Osborne have made no attempt to disguise the brutality they say the economic situation demands. There was no end of pain in Budget 2010, particularly in the benefit cuts. FactCheck has been looking at who will suffer, and if the chancellor was right in his claims about the cushiness of housing benefit and child tax credits. And was he right to claim that the poorest – and the enterprising – will be spared the worst? Over to the team.

“We will for the first time introduce maximum limits on housing benefit – from £280 a week for a one-bedroom property to £400 a week for a four-bedroom or larger.”
George Osborne, Budget 2010 speech

The chancellor seems to have got his figures wrong on this. George Osborne said in his budget statement the cap for housing benefit would be £280 a week; but in the red book the figure was £30 lower. Before you accuse us of splitting hairs, that’s an extra cut of £1,560 a year – and it’ll no doubt be keenly felt.

This cut is certainly going to hurt, particularly as the Department for Work and Pensions confirmed today the new cap will apply nationally. Labour MPs warn of a housing crisis in London and the South East, where rents are higher. For example, in parts of Hackney, the maximum housing benefit is £1,000 a week for a four bedroom house. Losing £600 a week would mean families currently claiming housing benefit would have to move to cheaper parts of London. Anti-poverty campaigners say that will entrench the divide between the haves and the have nots.

“Today there are some families receiving £104,000 a year in housing benefit.”
George Osborne, Budget 2010 speech
There are – though not many. Latest figures from the Department for Work and Pensions reveal that just under 100 families got a payout of more than £100,000 a year. Families on housing benefit can claim up to half of the average cost of renting a private property in a local area. For a five-bedroom house in a swanky part of London, that weekly limit goes up to £2,000. But the average housing benefit payment is much lower – just under £84 a week.

“There are over 150,000 families with incomes over £50,000 receiving tax credits. Taking into account the various disregards means that families earning up to £83,000 are eligible for this means-tested benefit.
George Osborne, Budget 2010 speech

Families can get child tax credits so long as the joint income of the parents is less than £58,175 a year – something we looked at in detail during the election campaign. So surely Osborne is over-stating the government’s generosity by quoting £83,000 instead?

But no – his claim stacks up if you take an administrative loophole into account.To reduce the overpayment headaches which dogged the tax credit system in its early days, the taxman now allows families who earn up to £25,000 more than expected to keep any extra cash rather than paying back the difference.

So if a family earning £55,000 – just below the tax credit threshold – bagged a £20,000 pay rise they’d still carry on getting tax credit payments until the end of the financial year. After that their new higher income is taken into account and the payments dry up – so the £83,000 loophole lasts for one year only.

“We have given our country some of the most competitive business taxes in the world.”
George Osborne, Budget 2010 speech

The current 28p corporation tax rate (paid on business profits) is the 18th lowest of the 30 OECD industrialised countries. Osborne plans to start cutting this by a penny next year, until it falls to 24p in five years’ time.This will, according to Ernst and Young, make the UK’s corporation tax rate the 11th lowest in the OECD, and fifth lowest in the G20.

That puts us in the top quarter of the G20 league and just outside the top third of the OECD league table – assuming, of course, that our international partners don’t follow tax-cutting suit in the meantime. So that puts us in line to become one of the more competitive business tax countries – but not top dog.

This isn’t the whole picture. For example, today’s VAT increase affects businesses that buy materials or sell to consumers (i.e. pretty much all of them). Currently the UK’s VAT rate is 11th lowest in the OECD; the planned hike to 20 per cent means only 10 of the 30 OECD countries would have a higher rate of indirect tax.

“I can tell the House that the policies in this budget, taken together, will not increase measured child poverty over the next two years.”
George Osborne, Budget 2010 speech

The coalition government endorsed Labour’s target of ending child poverty in the UK by 2020. That was proving extremely tough for the previous administration – it failed to live up to its promise of halving child poverty by 2010. But has George Osborne just made life even harder for himself by increasing VAT – a tax traditionally seen as hitting the poorest hardest?

According to Mike Brewer, from the Institute for Fiscal Studies, it’s possible the chancellor may be right that his budget won’t lead to child poverty increasing for two years. That’s because of the rise in the child tax credit. However, to meet that 2020 target, the government would need to be cutting child poverty, not simply stopping it increase. And notice that the chancellor has made no promise beyond the next two years – suggesting child poverty could once again rise later this parliament. That leaves that 2020 goal looking as elusive as an England World Cup win.

The budget book also contains a chart showing who the austerity measures will hit (p67). The chart (look at the dotted line for the net impact) shows that although the richest are the worst hit, the poorest are a close second leaving middle England cushioned from the worst of the blow. It’s also worth pointing out the chart doesn’t go beyond 2012-13. And we know (from table 2.1, p40) that more than half of the £11bn welfare cuts kick in after that date. So the chances are the poorest have more pain to come.

- Update: we’ve looked at whether the budget will really hit the rich more than the poor here.

“[The budget's changes are the equivalent of] putting every working man and woman in the city of Coventry out of work.”
Harriet Harman, Budget 2010 response

Harriet Harman got a few cheers on the Labour benches when she claimed an entire city would be forced out of work by the coalition government.

Last week the independent Office for Budget Responsibility forecast 1.5 million people would claim unemployment benefit this year. That figure was forecast under Labour’s plans to drop to 1.4 million in 2011 – a reduction of 100,000. But today’s OBR forecast, which takes into account the effect of new budget decisions, is rather more pessimistic, suggesting 1.5 million will sign on in 2011 too.

Is this 100,000 differential the equivalent of turfing the whole of Coventry on to the dole? According to the ONS, there are 125,000 working people in the Coventry area.

Labour said it was guessing that around 25,000 workers lived in outlying areas, leaving 100,000 in the city itself. Harman was clearly using poetic licence but we’ll give her the benefit of the doubt. Perhaps what’s more surprising is how few working adults there are in Coventry.

Cathy Newman’s verdict
George Osborne was right to highlight the largesse afforded to some housing benefit recipients. And few would quibble with his decision, in the current economic climate, to rob the richer tax credit claimants to help the poor. But by capping housing benefit nationally, he’s sown the seeds of a Lib Dem rebellion in the capital and the South East. That, and the regressive nature of VAT, means the chancellor has got his work cut out over the next few days to persuade the British public he really is putting “fairness first”.

Read more:

Category: Conservatives, FactCheck, George Osborne
Tags: ,