Dr. Karina Doorley:

In that exercise, we took the pre-pandemic 2020 tax and welfare system and applied it to the population in a representative example for 2024. We do that using the survey on income and living conditions and making it look representative of the 2024 population, given forecast income growth for the next period. When we apply the 2020 parameters of the tax and welfare system to a 2024 population, we must account for the fact that incomes have grown in that period. We index the parameters of the system in line with income growth. That means adjusting them for the growth in income in the previous four years, which keeps the distribution of income constant. It means people are still paying the same proportion of their income in tax and welfare is at the same relative level compared with labour incomes. In terms of that thought exercise as to what the 2024 population would look like if the tax and welfare system had just been indexed in line with income growth and the distribution of income had been kept constant, we compare that with what will actually happen in 2024 for that population. This only relates to permanent changes to the tax and welfare system. If one likes, it is more a look towards the next budget. It is what the permanent system will look like in advance of the next budget when all the temporary measures have expired, compared with four years ago. We found that the only group of the population that gains in that scenario is the lowest income decile, that is, the lowest tenth of the population. The other lower and middle-income deciles are all losing approximately 2% of disposable income compared with that scenario, and there are no losses at the top of the income distribution; they are sort of on par. That is the effect of policy changes alone, abstracting from everything else that happened in the period, such as demographic change, different labour force structures and so on. It is just the effect of policy change on people's real incomes.