John McTernan: A target too far as coalition finds the truth hurts

The problem with setting yourself targets is that you can be measured against them. The coalition government have made a bonfire of top-down, centrally-driven performance management for schools, hospitals and councils. However, it chose to burden itself with the Mother of all Targets - the aim of being a progressive government.

This is obviously an important part of the glue that binds the Tories and the Liberal Democrats together, but it was also a central part of David Cameron's repositioning of the Conservative Party and his appeal to the voting public. Unfortunately for ministers, what was rhetoric has now become a metric - a measure of how successful the government is. The latest row with the Institute for Fiscal Studies is a taste of things to come.

To give George Osborne due credit, in his emergency Budget he embraced the proposition that his actions could and should be judged by how progressive they were - by how they impacted on different income groups, and in particular whether they took more from the rich than the poorest.

With the usual Budget pack of documents, the Chancellor published a table setting out the distributional impact of the Budget measures he announced. This was met with two criticisms. The first was that the progressive tax changes came from Alistair Darling's March Budget. While it is fair to say that it was the Labour tax changes which were progressive, it is also fair to say that the coalition adopted them, rather than reverse them. So on that count, the coalition was arguably right to say the tax changes were progressive.

The bigger question was lodged by those who pointed out that the Treasury tables didn't take into account the impact of cuts to welfare payments - and specifically cuts to Tax Credits, Housing Benefit and Disability Living Allowance.

The IFS, the authoritative and independent economic think-tank, signalled in June that it would be examining this question and would come back with an analysis taking into account benefit changes. That was published yesterday with the damning description of the June Budget as "clearly regressive".

In a series of graphs, the IFS looks at the impact of the direct tax and benefit changes on different income groups and it looks at the full impact of the Budget announcements - looking at what will have happened by 2014 when the changes announced will have been fully implemented.

The report is well worth reading in detail (www.ifs.org.uk), but two quotes tell the story clearly. First, "The measures announced in the June 2010 Budget are regressive as they hit the poorest more than the seventh, eighth and ninth decile groups in cash, let alone percentage, terms." Second, and perhaps most brutally: "The reforms announced in the June 2010 Budget disproportionately affect those groups that are most reliant on benefits, namely the single unemployed, lone parents and zero-earner couples."

This report is a dagger plunged straight into the heart of the coalition - and it fought back hard.

Nick Clegg, Deputy Prime Minister, described the analysis as partial. And, of course, it is. The IFS acknowledges that the data is "insufficient to precisely identify those households that will be affected", but that in "this paper we make the best use of the data that is available".

It is noteworthy that the actual figures are not being challenged or the modelling. Instead, three broad responses are being briefed. The first is that, while the IFS is modelling the impact of the welfare changes on household incomes, it is not modelling the impact that the benefit changes are intended to have. So, the government accepts that Housing Benefit will be cut, but it says that the intention is for people to shop around for lower rents. Therefore, if tenants move to cheaper houses, then they and their households will not be out of pocket. This is, however, a partial point itself. There will be a cut in benefit for tenants unemployed for more than a year, and pensioner couples living in council houses that were their family homes will also face cuts intended to make them move to smaller properties.

The second, and related, government objection is that for people of working age the welfare changes are intended to create incentives to work and people in work will be better off than they are on benefits. And it points to the Office for Budgetary Responsibility figures on the projected growth in private sector employment. The problem for the coalition here is that it is arguing that the benefit of a hypothetical behaviour change encouraging people to take up notional jobs should be modelled. Econometrics can only do so much. The IFS is sticking to looking at the impact of actual cuts which it can assign as closely as possible to actual households.

The final government defence was mounted by Treasury minister Mark Hoban. Commenting on the 20 per cent cut in Disability Living Allowance (DLA), he said: "The changes to that will be based on medical condition not level of income." This is not exactly a rebuttal. The point is conceded that there will be cuts, and from a benefit that is intended to compensate partially for the very real and high costs of living with a disability. Whoever is excluded from DLA by this new medical test is likely to be someone with a modest income because the grim reality is that people with disabilities are generally in poorer households either because they can't work or because of discrimination in the jobs market.

It is said Harold Macmillan used to advise: "There are three bodies no sensible man directly challenges: the Roman Catholic Church, the Brigade of Guards and the National Union of Mineworkers." In an updated version, one would have to include the Institute for Fiscal Studies. The problem for the coalition is that even it has granted the IFS this role, in his Budget speech Mr Osborne lambasted Labour for Budget spin, saying: "It normally takes the Institute for Fiscal Studies less than 24 hours to work it out for themselves and let the public know the truth." It's taken just over two months, but the truth is hurting.