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Were we really all in it together? The distributional effects of the 2010-2015 UK Coalition government's tax-benefit policy changes: an end-of-term update

Author

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  • De Agostini, Paola
  • Hills, John Robert
  • Sutherland, Holly

Abstract

This paper examines the distributional impacts of the changes to benefits, tax credits, pensions and direct taxes between the UK Elections in May 2010 and in May 2015. It also looks ahead to the longer-term effects of changes and plans that were announced by the 2010-2015 Coalition government, such as the complete introduction of Universal Credit and changes to the ways benefits, pensions and tax brackets are indexed from year to year, modelling what effects these would have after five more years. It shows that the changes 2010-15 did not have a common effect on all household incomes and nor did the direct tax-benefit changes contribute to deficit reduction. In effect reductions in benefits and tax credits financed part of the cuts in direct taxes. We find that the relative extent to which the changes most favoured the rich or the poor is sensitive to a wide range of analytical choices and assumptions, but under most sets of assumptions the main gains were in the upper middle of the income distribution and the main losers were at the bottom and those close to, but not at, the very top. Across most of the distribution the impact of the changes was regressive. Looking forward to the effects that Coalition policies would have had by 2020 we find a more strongly regressive picture but with open questions about the effect of Universal Credit on those not currently receiving their entitlements to means-tested payments, and so potentially increasing some of the lowest incomes.

Suggested Citation

  • De Agostini, Paola & Hills, John Robert & Sutherland, Holly, 2015. "Were we really all in it together? The distributional effects of the 2010-2015 UK Coalition government's tax-benefit policy changes: an end-of-term update," LSE Research Online Documents on Economics 121537, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:121537
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    References listed on IDEAS

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    1. Mike Brewer & James Browne & Wenchao Jin, 2012. "Universal Credit: A Preliminary Analysis of Its Impact on Incomes and Work Incentives," Fiscal Studies, Institute for Fiscal Studies, vol. 33(1), pages 39-71, March.
    2. John Hills & Alari Paulus & Holly Sutherland & Iva Tasseva, 2014. "A lost decade? Decomposing the effect of 2001-11 tax-benefit policy changes on the income distribution in EU countries," ImPRovE Working Papers 14/03, Herman Deleeck Centre for Social Policy, University of Antwerp.
    3. Holly Sutherland & Ruth Hancock & John Hills & Francesca Zantomio, 2008. "Keeping up or Falling behind? The Impact of Benefit and Tax Uprating on Incomes and Poverty," Fiscal Studies, Institute for Fiscal Studies, vol. 29(4), pages 467-498, December.
    4. Stuart Adam & James Browne, 2010. "Redistribution, work incentives and thirty years of UK tax and benefit reform," IFS Working Papers W10/24, Institute for Fiscal Studies.
    5. Brewer, Mike & De Agostini, Paola, 2015. "The National Minimum Wage and its interaction with the tax and benefits system: a focus on Universal Credit," EUROMOD Working Papers EM2/15, EUROMOD at the Institute for Social and Economic Research.
    6. Holly Sutherland & Francesco Figari, 2013. "EUROMOD: the European Union tax-benefit microsimulation model," International Journal of Microsimulation, International Microsimulation Association, vol. 1(6), pages 4-26.
    7. Robert Joyce & Luke Sibieta, 2013. "An assessment of Labour’s record on income inequality and poverty," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 29(1), pages 178-202, SPRING.
    8. Brewer, Mike & De Agostini, Paola, 2015. "Credit crunched: single parents, Universal Credit and the struggle to make work pay," EUROMOD Working Papers EM3/15, EUROMOD at the Institute for Social and Economic Research.
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    Citations

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    Cited by:

    1. Anthony B. Atkinson & Chrysa Leventi & Brian Nolan & Holly Sutherland & Iva Tasseva, 2017. "Reducing poverty and inequality through tax-benefit reform and the minimum wage: the UK as a case-study," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(4), pages 303-323, December.
    2. Ruth Patrick & Aaron Reeves & Kitty Stewart, 2021. "A time of need: Exploring the changing poverty risk facing larger families in the UK," CASE Papers /224, Centre for Analysis of Social Exclusion, LSE.
    3. Mike Brewer & Iva Valentinova Tasseva, 2021. "Did the UK policy response to Covid-19 protect household incomes?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 19(3), pages 433-458, September.
    4. De Agostini, Paula & Hills, John & Sutherland, Holly, 2018. "Were we really all in it together? The distributional effects of the 2010-2015 UK Coalition government's tax-benefit policy changes," LSE Research Online Documents on Economics 82895, London School of Economics and Political Science, LSE Library.
    5. Chrysa Leventi & Holly Sutherland & Iva Valentinova Tasseva, 2016. "Improving poverty reduction in Europe: what works (best) where?," ImPRovE Working Papers 16/16, Herman Deleeck Centre for Social Policy, University of Antwerp.
    6. Pascale Bourquin & Jonathan Cribb & Tom Waters & Xiaowei Xu, 2019. "Why has in-work poverty risen in Britain?," IFS Working Papers W19/12, Institute for Fiscal Studies.
    7. Holly Sutherland, 2018. "Quality Assessment of Microsimulation Models The Case of EUROMOD," International Journal of Microsimulation, International Microsimulation Association, vol. 11(1), pages 198-223.
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    10. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    Keywords

    income distribution; direct taxes; social security; united kingdom; coalition government;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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