The Truth

Increased poverty is New Labour's shame (by a Labour MP) .........

added 2/7/08

In this article, the Labour MP for Luton North reminds us that after eleven Labour years, the poverty gap in the UK has widened and explains that the Party leadership tried to "wriggle out" of implementing the minimum wage and concludes that the means-testing benefits system has been a failure. The emphasis is mine. (Stewart Cowan)

Kelvin Hopkins MP
July 2008
Socialist Campaign Group News

New Labour has many sins of commission to its shame, but its greatest sin of omission is its failure to deal with poverty. The gap between the rich and poor in Britain is now wider than it was under the Tories before 1997.

The first Thatcher decade saw poverty rise dramatically, with those living in poverty doubling between Labourís last year of 1979 and 1987, from 4.93 million to 10.5 million, or from 9.4 per cent of the population to 19.4 per cent (measured as those living below supplementary benefit levels). A quarter of the 1987 total were pensioners, another quarter were unemployed and a third quarter were those in full time work on poverty wages.

A measure of Thatcherís crime against the poor is shown by international comparisons between the mid 1970s and the 1980s. Numbers living in poverty fell by 12 per cent in France, and three per cent in Germany, but in Britain rose by a staggering 79 per cent. The pattern of gross inequality set by Thatcher was what Labour faced in 1997, and it is astonishing that 10 years later the poorest 20 per cent of the population had a smaller proportion of national income than when New Labour first took office. Despite all New Labourís claims to have tackled poverty, with increased pensions and the winter fuel allowance, the minimum wage, and the morass of means tested credits the poor had slipped even further away from the better off than under the Tories.

All this occurred before the recent surge in the cost of living from rising oil and food price rises, and before the abolition of the 10 per cent tax rate which had the effect of raising taxes on the lowest paid to fund tax cuts for those on middle and higher incomes. Between 1997 and 2007, the poorest 20 per cent became relatively poorer, with no change in the second 20 per cent and a significant increase in the relative incomes in the richest 20 per cent. Incredibly too, another change in income distribution was that the middle and fourth 20 per cent, those on middle and upper-middle incomes, saw their shares of national incomes actually fall, an astonishing result given New Labourís alleged concern for Mondeo man and Worcester women. What actually happened was that there was a relative shift of income from those groups to the very richest.

It is useful to look at what exactly happened during the Thatcher, Major and Blair years. When the Tories first came to office in 1979 they immediately cut the top rate of income tax from 83 per cent to 60 per cent and raised VAT from 8 per cent to 15 per cent to fund the tax cut to the wealthy. In the 80s VAT was raised again to 17.5 per cent and the top rate of income tax was reduced from 60 per cent to 40 per cent so that the rich paid the same marginal tax rate as many just above average incomes and who were just caught by the 40 per cent threshold. The substantial shift from progressive income tax to regressive VAT was a major factor in widening the chasm of inequality between rich and poor.

Another simple factor in widening the poverty gap was the Toriesí decision to abandon the earnings link for the state pension in 1980. Between then and now the basic state pension fell from a figure of 25 per cent of average earnings to 15 per cent of average earnings and saw state pensioners gradually slide further into poverty as a result. It is indeed a national disgrace that the state pension as a proportion of average earnings is substantially lower now than it was in 1971, 37 years ago. It was then 21 per cent and rose through the 1970s to 25 per cent, mainly under the then Labour government and despite the serious economic crisis of that time. Since 1997, during the most benign economic circumstances since the Second World War, the state pension has actually been in gradual decline as a proportion of earnings.

From the start, New Labour refused to restore the earnings link and set out determinedly on a drive to means testing ó for pensioners, for families and those in work on low earnings. This had been the Tory plan before 1997 but it was New Labour that put it into practice. The reaction of many Labour MPs was strong, with a rebellion on single parent benefits in New Labourís first months of office. The disquiet in Labourís ranks was bought off with an above inflation increase in child benefit the next year, but that was simply a temporary one step backwards in New Labourís means testing revolution. The panoply of tax credits has been hailed by New Labour but is in fact deeply flawed and has failed to help millions who do not claim.

New Labour has argued constantly that they are targeting the poor with their approach to benefits, but given the end result it is clear that the system has failed and in some cases is just not true. The winter fuel allowance is given to all and thus comes as a tax free bonus to the rich. If it was built into the basic state pension and paid as extra pension in the winter months, this would mean that the rich would pay tax on it and the extra revenue could be recycled to boost poor pension incomes further.

And then finally one comes to the minimum wage. This has been claimed as a major victory by New Labour when in truth it was a commitment forced upon them by the trade unions and Labour movement from years before 1997. Brown, Mandelson and Blair tried to wriggle out of the commitment but had in the end to introduce the necessary legislation for fear of a large backbench revolt. In doing so they forced through a lower rate for younger workers and subsequently kept the minimum wage to the lowest possible level acceptable to the party and the movement. The minimum wage has since been too low and has not been effectively enforced.

An anti-poverty strategy must involve re-distributing income from rich to poor. It can be achieved in no other way and it is very simple. As said by an American wit some time ago, Ďif all else fails, why not try money?í New Labour has been in office almost twice as long as Clem Atlee after 1945 yet has failed on the basic level to recreate even the degree of equality Labour achieved 30 years ago. A return to real Labour policies with a dramatic reduction in poverty in our country could even now see Labour win the general election.