It's still about child poverty
Published 13 March
2008
For ten
years, Labour has been shifting resources to the least well off. Why are the
poor still with us?
Ten years ago this month it first became clear that new Labour, for all
its revisionism, was genuinely willing to shift substantial public resources to
promote social justice. "For the first time that many of us can remember,"
I wrote in the New Statesman following the 1998 Budget, "the Chancellor made a big, explicit
giveaway to poor families, and made it look respectable."
Ten Budgets, one Chancellor and three New Statesman editors later, I am still writing about Labour's efforts to divert
resources to poor families. The continuity of this underlying theme is
remarkable, backed by a main delivery method introduced in 1998. This is to
give tax credits to selected low-income groups, at a favourable rate compared
to money spent on benefits. The first group to be so favoured was working
families with children. Gordon Brown's tax credit generosity subsequently
spread to out-of-work families and to low-income pensioners through the pension
credit.
The cumulative effect of this strategy has been to raise the cash
support for the average family with children by more than £70 a week for the
poorest fifth, compared to less than £10 a week for the richest fifth. The
minimum income guarantee for pensioners has doubled in real terms since 1998,
while average household incomes have risen by only about a quarter.
Why has this doggedly redistributive Budget practice not led to a
transformation of the distribution of income in Britain? In some respects it
has - notably a sharp fall in pensioner poverty. One of the least noticed
achievements of the present government is to make poverty, almost certainly for
the first time in history, less likely after retirement than before it. This
Budget's boost in the winter fuel allowance will stop some pensioners slipping
back into hardship with recent rises in energy prices.
But when it comes to the big headline target, halving child poverty by
2010 and ending it by 2020, the dream is becoming a nightmare for ministers.
Later this month, the latest annual poverty figures are likely to confirm that
an initial fall in child poverty has tailed off less than half way to the first
of those targets.
The Budget threw what limited spare resources Alistair Darling could
find into getting closer to meeting it. The additional amount given directly to
poor families with children is very modest - only £1 a week per child more than
previously announced. But an imaginative new measure will also help poor
working families (which account for half of poor children) to a much greater
degree. They will be able to keep up to £17 a week more in housing and council
tax benefit, reducing the trap whereby the gain from moving into work is lost
by having to pay for more of your rent and council tax. Together with other
measures announced in the past year, this should restore momentum to the fight
against child poverty. Its reduction by 600,000 since 1999 could grow to about
a million by 2010, though meeting the target cut of 1.6 million still looks
highly unlikely.
More inequality
Part of the problem has been that the actual scale of these
redistributive measures has waxed and waned. But more fundamentally, the
cumulative effect of all the redistributive measures of the past decade has
been offset by an underlying budgetary system that works in the opposite
direction. Both the tax and the benefit system are for the most part uprated,
by default, in line with prices rather than earnings. This means that as
earnings rise, people pay a growing share of their incomes in tax, and get a falling
percentage of earnings when they are not working. A powerful report being
published next month by the Joseph Rowntree Foundation will show that the poor
get hit hardest by this system, with devastating results for inequality.
Out-of-work families are being given generous child tax credits with the
Chancellor's right hand, while his left fist keeps tightly closed around
benefits for adults in the same families. Basic income support remains around
£60 a week, the same in real terms as a generation ago, while average income is
up two-thirds. Little wonder that relative poverty is so hard to crack.
Can Darling help square these circles by raising money under the mantle
of green Chancellor? The government is undoubtedly growing more willing to
regulate our lives to save the planet, from the bags we put our shopping in to
how we pay for our domestic gas. The extension of differential treatment of
"clean" and "dirty" drivers through car taxes proceeds
apace.
The idea of taxing polluters to pay for social justice is very far from
being realised. In the first place it's a risky strategy: the more you succeed
in curbing emissions, the less revenue you raise for good causes. And for most
of the measures announced, the effect on the Exchequer will be piffling. The
only non-negligible sum raised will be from aviation tax, which will bring in
£550m more by 2010-2011, equal to a third of the inheritance tax giveaway.
Compare that to the effect of abandoning the fuel escalator in 2000. By
raising fuel duty 6 per cent faster than GDP, the government had been
increasing tax revenues by a cumulative £1.5bn a year in 2000 prices. Had this
continued (and in the unlikely event that the government then survived), it
might by now be bringing well over £10bn extra a year, even with a significant
reduction in car use. That would be about enough to meet child poverty targets,
double funding for the 10 per cent most deprived schools to help them slash
class sizes and employ brilliant teachers and still have enough change to pay for
a much-needed improvement in funding long-term care for the elderly.