Debt caused by budget could be tackled with an IVA

25/06/2010

Debt caused by budget could be tackled with an IVA

An Individual Voluntary Arrangement (IVA) may be the best solution for people suffering from serious debt problems as researchers claim that the emergency budget will hit the poor harder than the rich.

Think tank the independent Institute for Fiscal Studies (IFS) has cast doubt on the Liberal Democrats main justification for supporting their coalition partners by claiming that the budget is regressive rather than progressive as claimed by George Osborne.

The Chancellor had said that his budget would have the greatest affect on those who earned the most, but researchers for the IFS have said that this claim could only be made by including measures that had already been announced by the previous government and by ignoring the increased vulnerability of the poor to welfare and public service cuts.

Speaking to the FT IFS director Robin Chote said that "Perhaps the most important omission in any distributional analysis of this sort is the impact of the looming cuts to public services, which are likely to hit poorer households significantly harder than richer households."

The finding is likely to put the spotlight on the role of the Liberal Democrats in the coalition and put pressure on them to justify their support of the budget.

Further evidence of the disproportionate impact on the budget on those with a lower income comes from Office of National Statistics (ONS) figures which showed that lower income families were the biggest users of public services such as education.

A Financial Times simulation of the effect of cutting public services by 15 percent showed that the losses were heavily concentrated in poor families and dwarfed the effects of other budget tax and benefit changes.

Under their analysis the poorest 20 percent of families would lose around eight percent of income, whereas the richest fifth would lose only three percent.

The result clashes with the analysis of the Treasury which, by omitting public spending cuts, had shown bigger proportional losses amongst richer families.

Government aides responded to the claims by saying that it was to early to judge what the full effects of the budget would be and that further decisions to be announced in the October spending review could change the picture further.

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