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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

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  • De Agostini, Paula
  • Hills, John
  • Sutherland, Holly

Abstract

This article examines the distributional impacts of changes to benefits, tax credits, pensions and direct taxes between the UK general elections of May 2010 and May 2015. The changes did not have a common effect on all household incomes; nor did the direct tax-benefit changes contribute to deficit reduction. Effectively, reductions in benefits and tax credits financed part of the direct taxes cuts, but the overall net fiscal cost increased pressure for cuts in other public services and increases in other (more regressive) taxes. 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 changes were regressive. By comparing with other analyses of policy changes in the same period, we illustrate the importance of analytical choices and assumptions for detailed conclusions on their distributional effects. We also show how some groups were clear losers or gained little on average – including lone parent families, large families and families with younger children. Others were gainers, including two-earner couples, and those in their fifties and early sixties. The findings show that a dominant feature of the period was that the combination of higher tax-free income tax allowances, financed by cuts in benefits and tax credits, was generally regressive. As this combination also lies at the heart of the proposed policies of the Conservative government since 2015, we would expect these effects to be intensified in the coming years.

Suggested Citation

  • 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.
  • Handle: RePEc:ehl:lserod:82895
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    File URL: http://eprints.lse.ac.uk/82895/
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. Paola De Agostini & John Hills & Holly Sutherland, 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," CASE - Social Policy in a Cold Climate Working Paper 22, Centre for Analysis of Social Exclusion, LSE.
    4. Virginia Hernanz & Franck Malherbet & Michele Pellizzari, 2004. "Take-Up of Welfare Benefits in OECD Countries: A Review of the Evidence," OECD Social, Employment and Migration Working Papers 17, OECD Publishing.
    5. Stuart Adam & James Browne & William Elming, 2015. "The Effect of the UK Coalition Government's Tax and Benefit Changes on Household Incomes and Work Incentives," Fiscal Studies, Institute for Fiscal Studies, vol. 36, pages 375-402, September.
    6. Declan Gaffney, 2015. "Retrenchment, Reform, Continuity: Welfare under the Coalition," National Institute Economic Review, National Institute of Economic and Social Research, vol. 231(1), pages 44-53, February.
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    Cited by:

    1. Mari, Gabriele & Keizer, Renske, 2020. "Families of Austerity: Welfare Cuts and Family Stress in Britain," SocArXiv vdej8, Center for Open Science.

    More about this item

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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