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The twisting of evidence: the graph the left ignore

June 25th, 2010 Posted in Economics by

24-06-2010-cash-impact-of-the-budget

The above graph from the Appendix A of the Budget shows the actual material impact of all measures on each income decile by 2012/13. It has not appeared on the left-wing blogs currently claiming the Budget is highly regressive.

Instead they use this one from the Institute for Fiscal Studies.

Even in that graph though does not support their arguments. What we can clearly see is that from decile 2 to 9 the effect of changes are broadly progressive or proportional. From 9 to 10 highly progressive, and only from 1 to 2 slightly regressive. This one difference is from where all this week’s attacks on coalition ‘progressive’ claims have stemmed.

However as we can see from the first graph, the actual cash impact of the changes is about £25-50 a year between those on £14,000 and those on less. 

Does anyone, even in the Social Liberal forum, sincerely believe that this £25-50 a year represents a great injustice that condemns the entire Budget?

At the other end those on £50,000 or more will be paying an average of £1,000 a year more than those around £38,000, or £1,650 a year in total. This disproportionate assault on a minority apparently is ‘fair’ to the left, yet has gone largely unnoticed by Liberal Democrat malcontents. 

One response to that analysis has been that the Budget graph goes up to 2012/13 not 2014/15 where the IFS indicate more welfare reductions kick in. However actually looking at that analysis, the difference between 2012 and 2014 looks like a reduction of about 0.4% of income (-2.2% to -2.6%), or another £10-£20 for the bottom decile, with similar reductions across the board up to decile 9.

For the top decile the increase is a near doubling of their loss from -3.9% to -7.5% or around £3,000 on average, for many then considerably more.  That this goes unnoticed speaks to Tuesday’s point that the distributionalists are group who will never be satisfied.

The other point of attack is that to be progressive the Budget depends on previously introduced measures not yet implemented, for example the 50% tax rate. There is something in that, however it is the case that the Coalition could have reversed those measures. It is the Coalition, not Labour implementing the changes.

Broadly then the ‘regressive Budget’ narrative is not supported by the evidence bar in one small part of the distribution where there has been gross partisan exaggeration of a tiny difference. One more than made up at the other end of the income scale if that is your notion of fairness.

From bottom to top the facts show the impact of changes this Government will introduce are progressive, just not uniformly for every group. Liberal Democrats of any stripe should not find it difficult to rebutt this dishonest attack.

Or better still ignore it, most normal people don’t base their happiness or political decisions on the percentile differences between their loss and someoneelse. It’s the actual loss that matters and in that regard a lot more people on high incomes will have a reason to resent this government by 2015 than those on benefits.

24 Responses to “The twisting of evidence: the graph the left ignore”

  1. libertarian Says:

    I take it you are referring to vat increases? Sorry I couldn’t read the article I didn’t wish to lose the will to live.

    In the real world outside of party politics a vat rise isn’t too bad for lots of working people, it just means far more jobs get done “cash in hand”, of course that is why it’s a fairly stupid tax rise for the treasury


  2. Billy Blofeld Says:

    It is quite a liberating thing being an “evidence based blogger” – you can make the evidence seemingly fit what the damn hell you like.

    I’ve been having a go myself.


  3. Simon Gibbs Says:

    That they attack the rich is reprehensible at the moral level, accidental impact on the poor would be forgivable, for example, if they correct it later.

    It is quite clear that the intent of the coalition is an imoral attack on an unpopular majority – the rich – they showed that graph as evidence of that intent and there no evidence they knew the graph to be wrong.

    Their outward intent and inner intent are both aligned with their actions and all three are imoral, if you think otherwise, then your moral code is upside down.


  4. tory boys never grow up Says:

    The facts are whether you like it or not – Labour’s proposals to partly close the defict were progressive. The Condems budget proposals (i.e those announced this week) to close the remainder of the deficit were on their own regressive. The LibDems had no influence on the former, other than arguing for their continuing retention – which was probably not that difficult as the Tories had already said they would. While they should have had some influence on the regressive measures. You may wish to argue that this amounts to the LibDems having introduced a progressive and fair budget, but why does a vision from Animal Farm of the pigs walking on two legs suddenly come to mind.

    And can we expect a similarly progressive outcome from the Spending Review in the Autumn? Quite frankly given your definition of progressive perhaps we should be looking for a regressive outcome.


  5. tory boys never grow up Says:

    And even if you look at the combined impact of Labour’s and the government proposals – perhaps you should ask yourself which will cause most suffering a cut of£200 per year to the bottom decile or one of £1800 per year to the top decile. Absolute amounts do not measure fairness – perhaps it would have been more intellectually honest to compare the next table in the Budget Appendix with that of the IFS??


  6. Richard Laming Says:

    “Broadly then the ‘regressive Budget’ narrative is not supported by the evidence bar in one small part of the distribution where there has been gross partisan exaggeration of a tiny difference.”

    Andy, you could go further. The regressive Budget narrative does not apply to the poorest decile, either.

    The increase in the tax burden on the poorest decile, by income, arises from the increase in VAT. It is much higher than for the second poorest decile. But this surely provokes the question: how come apparently poorer people are much more affected by a consumption tax?

    When you look at the impact of VAT by decile by expenditure, not by income, you see the expected pattern that its impact increases as the proportion of spending that is VAT exempt (e.g. food) declines. Richer people, by income, pay less VAT as a proportion of their income because they save money rather than spend all of it and thus avoid VAT that way.

    There is a graph showing this here http://blogs.ft.com/westminster/files/2010/06/vat-progressive.jpg

    The crucial point is that the people with the lowest incomes spend more than they earn, which is why VAT falls relatively heavily on them, but does this make them the poorest people in society? They are made up of three groups: wealthy people living off the sales of their assets; students, who live off loans with the expectation of paying them off from higher earnings later on; and people in the cash economy who do not declare their incomes in order to avoid tax. Each of these groups needs special attention from tax and benefits policies, but to claim that they are the most vulnerable people in society around whom all policies should be designed is incorrect. The Budget, as announced so far, is not regressive.

    The next challenge, though, is the extent of the further cuts to departmental budgets and changes to the welfare system. There are many decisions waiting to be taken about how to spread the pain that these cuts and changes will bring. Liberal Democrats in the government need to maximise their influence over these decisions, if their experiment in coalition is to prove worthwhile.


  7. Tom Says:

    If you’re going to include the changes made by the last government which this government – in their generosity – didn’t reverse as a reason why this Budget is progressive, why not also include the entire income tax system? After all, the government didn’t implement a flat tax, so we should be grateful for that. Why not count all tax credits, as they could have scrapped the lot?

    I’ve seen a lot of impressive contortions from Lib Dems over the past few weeks, as they find themselves time after time having to support things which they are fundamentally opposed to. But this really takes the biscuit.


  8. Richard Laming Says:

    Tom, your argument works the other way. Why not denounce the government for not having introduced the secret ballot and universal suffrage?


  9. AndyN Says:

    @tory boys never grow up

    Labour’s proposals to partly close the defict were progressive

    Utterly meaningless statement. “Progressive” has absolutely no definition in modern political parlance, other than “that which I am largely in favour of”.

    This actually goes some way to explaining why Labour is so catastrophically useless whenever it is put in charge of anything – it spends most of its time arguing whether proposals are “progressive” or “regressive” rather than “does this represent value for money” or “does this actually accomplish anything”?


  10. Tom Says:

    Richard, because we’re not just talking comparisons and that the previous government’s Budget was *more* progressive: the previous government’s Budget was progressive, this Budget is regressive.

    AndyN: I usually agree that ‘progressive’ is a ridiculous and meaningless term in politics – but in tax and benefits systems it actually does have a specific meaning, that is that people with more wealth or income pay a greater proportion in tax, while those with the least pay lower proportions. Regressive means the reverse.


  11. Tom Says:

    Richard: Basically, if the government were to scrap all the hereditary peers in the Lords, I wouldn’t argue that that was insufficient because Labour had gotten rid of more of them. But if they were to reinstate, say, 40 of them, and then claim that it was a move towards democracy because there were still less than there used to be in 1997, then I wouldn’t accept that argument – and nor, I think, would anyone else.


  12. John Martin Says:

    already been pointed out. when the progressive changes already put into play are discounted the Budget changes are significantly regressive. Cannot this be accepted in this debate. When the likely distribution of public expenditure reductions, yet to be announced are taken into the measure, according to the IFS the poor will be four times more disadvantaged than the rich. This is a heavy cost for small government and a Big Society.


  13. John77 Says:

    The IFS graph is based on a highly misleading (and confessedly inaccurate) piece of research published by ONS at the behest of various government departments under Gordon Brown. The ONS start off by pointing out that the tax credit receipts recorded by the EFS are only two-thirds of the amount actually paid out by HMRC – so any figures expressed as a percentage of income of the bottom two or three deciles are bound to be wrong (significantly overstated). The left doesn’t care if it suits their argument.
    The bottom decile spend significant sums on *stamp duty* on house purchase, on Employer’s NI Contributions (on the wages they pay their servants), on Council Tax and Northern Ireland Rates that are rebated to anyone on income support, on air passenger duty, on customs duty (paid on taxable items above the personal allowance limit brought back from outside the EU). These are not items on which the poor* spend money – the data is distorted (deliberately one suspects) by including investment bankers on gardening leave and old Etonian undergraduates who have their own flats (but excluding their poorer colleagues who live in halls of residence). Anyone reading the data can see that the second decile scores higher (mostly significantly higher) on all poverty-related items in the analysis.
    What we need is an analysis of the impact on the poor – rather more of whom are in the second decile – and the rich – who are not the same as those in the highest deciles of “equivalised household income”
    * If you can pay more than quarter of a £million for a house, are you really poor?


  14. Robinson Says:

    “Labour’s proposals to partly close the defict were progressive”

    I think your idea as to what “progressive” means is about 100 years out of date. To me a progressive policy is one that gives people the tools to raise themselves and their families up a bit. Note the most important couple of words in there: “raise themselves”. In this respect tax credits are progressive, whereas benefit handouts aren’t.

    It is hardly progressive to tax those who have already, through their own efforts, managed to make themselves a success or improve their own lives a little, is it? Indeed, in terms of my first definition, the latter would be regressive, as it stifles motivation and you end up with a generation of people who think the world owes them a living, such as we see around us today.

    Overall I think the budget distributed the pain relatively evenly across the board. There’s nothing wrong with that. If you’ve got bread, soup, a roof over your head and free healthcare, you’re already doing better than 4,000,000,000 other people on this planet. Everything else, flat-screen TV’s notwithstanding, is a bonus.

    The left’s constant wittering on about progressive/regressive policy is nothing more than the tyranny of comparison or, as Thatcher would have said, the politics of envy.


  15. Terry Gilbert Says:

    I’ve just read the most dreadful drivel from Vince, trying to justify the unjustifiable. Of course VAT is ‘progressive as a proportion of expenditure’ – the rich don’t have to spend that much of their income to survive! And pointing to zero-rated items is just patronising. Are we, the ordinary non millionaires, supposed not to aspire to buy standard rated goods and services.
    There were good points in the budget, which make it less regressive than a purely Tory budget would have been. Let’s point to those, and stop pretending that black is white, and we all think VAT is hunky dory. We don’t, and if Ministers do not accept this they are in for a very tough time indeed at Conference.


  16. tory boys never grow up Says:

    Andy N

    I meant “progressive” in terms of fiscal stance and their impact on income distribution i.e the opposit of regressive – which if I’m not mistaken what was meant and referred to in the original post. Perhaps one of the reasons the LibDems are now seen as particularly useless is their tendency to descend into semantics and move the goalposts when they are losing the argument.


  17. tory boys never grow up Says:

    I appreciate that I am in neo-classical liberal territory – rather than the Keynesian version that was offered by the Party’s economic spokesman in the election – but perhaps you all should be aware that one of Adam’s Smith tenets of good taxation is that it should be levied on the basis of the ability to pay. I think that ven in those terms you lot would struggle with impact of the budget.


  18. John77 Says:

    Dear Terry,
    An impressively good post, except that the deficit is too big for a levy of 100% of millionaires’ income to bride the gap.
    The most-quoted Tory budget is Geoffrey Howe’s that increased the tax receipts from higher-rate taxpayers by reducing the marginal rate of tax from 83% on earnings and 98% on investment income to 60%. I personally would like to see higher rate tax returned to 60% and CGT set at a level equal to income tax (which would make a lot of, currently legal, tax avoidance schemes pointless)


  19. Alex Says:

    Of course, all this is all based on tax and benefits changes, it misses the fact that departments are being cut by 25%, which hits those who use public services the hardest, the poor and middle class:

    http://blogs.ft.com/westminster/2010/06/fair-pain-for-the-poor-at-least-in-2012/


  20. Pogo Says:

    I just love “political language”, especially as used by the left…

    “Progressive” = “Increasingly fierce levels of legalised extortion.
    “Regressive” = “The same for eveyone”.
    “Fair” = “Unfair”.
    “Cut” = “Reduced increase”.
    “Working Poor” = “non-working poor”.
    “Poor” = “A f*ck-sight better off than the middle classes not that many years ago”.

    etc.


  21. Red Rag Says:

    I hope you chaps will give Cameron a big cheers when he appears at your Conference. Well he is telling you what you have to agree with. Though I do not think the locals will be so appreciative to have a Tory leader speaking amongst them. Can you imagine how many Liverpool Lib Dem Councillors will lose their local election seat next May after this PR stunt.


  22. tory boys never grow up Says:

    Pogo

    At least we are consistent in what we mean unlike the New Tories who appear to be in favour of progressive VAT bombshells.


  23. Alex Says:

    Yeah well written article. Love reading your blog.


  24. Secured loan debt Says:

    Amazing post man!


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