Households in the lowest income bracket have borne the brunt of tax and benefit reforms implemented since 2010, according to a comprehensive analysis by the Institute for Fiscal Studies (IFS). The report indicates that the poorest tenth of households have seen their incomes reduced by an average of 11% as a direct result of these policy changes. In stark contrast, the wealthiest tenth of households have experienced an average increase of 2% in their incomes over the same period.
The study highlights a significant divergence in the impact of these reforms across different demographic groups. Working-age families with children and single adults were identified as facing the largest financial setbacks. These households were most affected by substantial cuts to working-age benefits, including freezes to various payments and changes to universal credit. The cumulative effect of these adjustments has been a notable reduction in their disposable income.
Conversely, pensioners have largely been shielded from the negative impacts, with the poorest tenth of pensioner households actually seeing an average gain from the reforms. This protection for pensioners can be attributed to policies such as the 'triple lock' on the state pension and other measures designed to support older individuals. This divergence underscores a clear shift in the distributional effects of government policy over the last decade.
The IFS analysis further dissects the components of these reforms, distinguishing between tax changes and benefit adjustments. It found that tax reforms, on the whole, tended to benefit richer households, while the extensive cuts to benefits disproportionately impacted those on lower incomes. This combination has exacerbated income inequality, placing greater financial pressure on those already struggling.
This report provides crucial context for understanding the long-term financial landscape for UK households, particularly as the country continues to grapple with economic challenges and cost of living pressures. The findings suggest that policy decisions made over the past decade have contributed to a widening gap between the rich and poor, with significant implications for social welfare and economic stability.