The dynamic and static analysis of the impact of the Budget

If you’re still with me, I’m referring to the report today by the IFS which is saying that the last Government Budget was “regressive”. However, the government (of which my party is part of) are arguing that the budget is “progressive” and the analysis by the IFS was “impartial”.

So who’s right?

Actually – as in statistics, both are.

The IFS is right to point out that there are benefit cuts and housing rule changes which will have a bigger impact for low income families, especially if they don’t work. They are also looking at the full impact up to 2014.

The Treasury’s work is looking only at the impact up to 2012, but more importantly it includes the dynamic impact of tax changes (increased income tax allowance, economic growth) to change the poverty trap so it makes it more worthwhile for those not working to work, which will improve income.

So comparing the two analysis is rather like comparing apples with pears. The IFS doesn’t assume any dynamic changes  and is over a longer period, but the Treasury does assume dynamic changes and over a shorter time frame.

For my previous comments on the Budget click here

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