What’s the Damage? A low earner impact assessment of deficit reduction options

We argue that:

• Fiscal consolidation is necessary. The process needs to be handled with great care, given the potential trade-off between securing economic recovery and reducing public sector activity
• Both tax rises and spending cuts are inevitable. Any plan must present a package of measures that can be assessed against our proposed criteria of fairness
• A fundamental reform of current systems of taxation, welfare and public service delivery is required to ensure that the deficit reduction is sustainable

At the core of the report is an impact analysis of how individual tax regimes and spending cuts may hit low earning households. We highlight measures which have particular bearing on the low earner group – not to rule them out but to argue that if these measures were adopted, their disproportionate impact will need to be counter-balanced elsewhere. We also call for a zero-based review that identifies priorities in each area of public expenditure and then assesses government effectiveness against each of these priorities.