Wide range of measures makes it harder to see the big picture
The net loss to households after the budget is 1.5% but more time is needed to work out the overall impact
Minister for Finance Michael Noonan (right) and Minister for Public Expenditure and Reform Brendan Howlin at a post-budget press conference. photograph: aidan crawley
The wide range of measures announced in Budget 2014 means it will take some time to come to firm conclusions about its overall impact on the distribution of income.
Switch, the ESRI tax-benefit model, which we use to measure the distributional impact of the budget each year, will require a substantial investment to deal with such issues as the changes in medical card eligibility and the new Housing Assistance Payment, and to estimate the distributional impact of indirect taxes.
With such investment, it will also be possible to track these effects more accurately and to monitor the impact of actual and potential future changes in policy on work incentives facing key groups.
What can be said at this stage about the impact of Budget 2014 on household incomes?
The net loss to households is close to 1.5 per cent, compared with a neutral budget that indexed tax credits and welfare payments in line with expected wage growth of 1.4 per cent.
This reduction is similar in scale to budgets 2010 to 2013, and substantially less than the impact of the two budgets for 2009, which in a single year gave rise to losses to households of over 4 per cent.
Budget 2014 is more unusual in the wide spread of measures used to generate revenue and reduce expenditure, making it more difficult to monitor the overall impact on the income distribution. For this reason, we do not attempt today to produce a “flash estimate” of the income distribution effects, but instead focus on a number of specific areas where our analysis can help to understand the likely implications.
Effects on older people
We look first at the effects on older people. The abolition of the “free telephone” element of the Household Benefits package has attracted considerable attention.
It is useful to put this change in the broader context of the overall impact of welfare changes over the recession on the full value of the cash and Household Benefits Package elements received by older people as compared with payments for other welfare recipients.
Since 2008, the cash element of the state pension rose by 3 per cent, and has remained at this level since then. Abolition of the Christmas payment and reductions in the value of the Household Benefit Package – including abolition of the telephone allowance – mean that the net overall value of the package has fallen by 1.25 per cent.
This contrasts with a fall of 6¾ per cent for most other welfare recipients.
This is just one example, and we are conscious of the danger that examples may not be representative. However, a full analysis using the ESRI tax-benefit model, which is based on a large-scale, nationally representative survey, arrives at similar conclusions: reductions in income arising from welfare policy have been smaller for older people than for other groups of welfare recipients, and less than income losses for those in employment who have faced higher taxes.
Young unemployed people, aged 22 to 25 inclusive, will now face lower payment rates on Jobseeker’s Assistance. The consequences for these individuals are likely to vary significantly depending on the availability of suitable training – in which case they can obtain a higher payment – and their family situations.