The escape from poverty

Labour made strong progress in the battle against poverty and unemployment, finds Anne Begg

When the Labour government was elected in 1997 there were a number of challenges it faced. These were things that were anathema to an incoming Labour government and included: dealing with pensioner poverty; very high youth and long-term unemployment; and the benefits trap, which meant that for many work did not pay. Improving the life chances of the four million children living in poverty and lifting their families out of poverty was also very important for the new Labour government.

The million and a half pensioners, mostly women, living in poverty seemed a good place to start. Raising the state pension was not going to help this group because they did not get a state pension, as they did not have the national insurance contributions to qualify. They relied on income support which was set at a lower level than the state pension. So it was sensible to introduce the minimum pension guarantee which effectively lifted all pensioners in the United Kingdom out of absolute poverty for the first time ever. The indexing of the pension guarantee was linked to earnings, so it was increasing more quickly than the rise in the state pension, which was linked to prices. This was great for narrowing the gap between the poorest and richest pensioners but it did cement a lot of resentment among pensioners who did not qualify but who had paid in throughout their lives, often pensioners who were traditional Labour voters. The introduction of a £100 per household winter fuel allowance did not make up for the poor message the 75p increase announced in 1999 gave out. Even in the 2015 election the 75p a week rise was still an issue. Once bitten, twice shy, this was not a mistake Gordon Brown made again, however.

The introduction of the savings credit was meant to help pensioners just above the thresholds who traditionally had not got anything other than their state pension from the welfare system, and to address some of the resentment that had built up following the introduction of the pension guarantee. But it was a complication too far, and introduced even more means-testing, so many who would have qualified did not apply. This led to criticism that take-up of pension credit was poor, which it was not among the poorer pensioners – those it aimed to help. Overall pension credit was a great success, though the government did not win the credit it deserved. The reforms to the state pension Labour made laid the foundation for the introduction of a flat rate state pension.

For those of working age the Labour government had to make work pay. The mantra at the time was that work was the only route out of poverty so people needed to be encouraged to take up low-paid jobs in the hope they would then move on to better-paid jobs.

It was therefore crucial that one of the first major reforms of the new government was the introduction of the minimum wage. Without that baseline any cash transfers from the state to the low paid would merely subsidise employers’ low wages. It is often forgotten just how difficult it was to get the national minimum wage legislation through parliament. But its success is shown in the fact that no government since has proposed repealing it. Instead, George Osborne has become its champion. Partly because of the opposition from employers who forecast massive job losses (sound familiar?) the government handed over the setting of the level of the minimum wage to the independent Low Pay Commission. As a result the level of the minimum wage did not – even when rising more than inflation – rise fast enough to always make work pay. It is a pity that in the early years of the new century when it had become clear there was no threat of job losses from a higher minimum wage the Labour government was not bolder in overriding the modest recommendations of the Low Pay Commission. Discussions since 2010 about the need for a review of the mandate should have been looked at before we left office.

So cash transfers were required to incentivise people to take up minimum wage jobs, and to ensure work always paid. Enter tax credits. Their introduction resulted in a huge redistribution of wealth and was the one policy which contributed the most towards lifting a quarter of the children living in poverty out of poverty. The introduction of the working families’ tax credit was marred by the failure of the computer system to make the correct payments, or indeed any payments, which meant the first year’s reconciliation showed large overpayments which had to be clawed back the following year. This put off some people who would have benefitted from claiming, but for those whom tax credits helped they were very, very popular.

One of the problems with any kind of welfare reform, apart from it being immensely complicated, is that there are always unintended consequences. In the case of tax credits, it did not take long for employers to work out how to maximise their workers’ income while minimising what they paid. So we saw the growth in jobs around the cutoff at 16 hours. People who were wanting to work full time found that either they were no better off, because they suffered a withdrawal rate of over 90 per cent for every hour worked above the threshold, or they could not get more hours. This helped to undermine the main purpose of tax credits, which was to make work pay.

High youth unemployment also needed to be tackled in 1997. The New Deal programme which was most successful was the New Deal for Young People which had a remarkable success rate. The economy was growing so there were jobs but the New Deal did help make sure that some of these jobs went to young people. This was also helped by an expansion of the further education sector and the introduction of modern apprenticeships. As a result the endemic unemployment among those now called ‘NEETs’ was cut dramatically for a number of years. Over the years the number of New Deals expanded to address the different groups who were disadvantaged in the labour market. Apart from the New Deal for Lone Parents, none of the others had the same success rate as the NDYP, although no worse than the best of the work programme. By 2008 the New Deals had all come together in the flexible New Deal, the rollout of which was halted by the coalition after the 2010 election.

Apart from tax credits, the Labour government introduced a range of other policies which all helped more and more families escape living in poverty. These included childcare tax credits which helped parents, particularly lone parents, to return to work, increases in child benefit and the introduction of Sure Start for families living in deprived areas. It is tragic to see many of these being reversed. And then there was welfare reform, particularly for disabled people, but that would take another article on its own.

So how successful was the Labour government? When it comes to state support for pensioners I believe Labour was very successful. We effectively ended pensioner poverty, particularly among the group of women who were particularly disadvantaged under the old system. Before 1997 if you were old you were more likely to live in poverty than the rest of the population, but now old age no longer equates with living in poverty. The introduction of the coalition’s ‘triple lock’ and other reforms to the state pension shows that the consensus has survived a change of government.

Another policy area where governments since 2010 have accepted and built on Labour’s record is the minimum wage and the expansion of the living wage. If tax credits were to work effectively without being cripplingly expensive, then employers had to pay higher wages to those in low-paid work. There is no doubt tax credits did a job of work in the short term and made a huge improvement in the living standards of many families. However, Labour did not pay enough attention to addressing the low wage economy. That is also why it is wrong for this government to be cutting tax credits without the loss in income being made up elsewhere.

The biggest reverse since Labour lost in 2010 is the increase in the number of families who are still living in poverty despite having at least one adult in work. So, while we still hear the mantra ‘work should always pay’, we are no longer able to say that work is a route out of poverty. We should not forget too that this was the first government ever, including past Labour governments, to specifically set out to abolish child poverty, a deeply moral aim that should not be forgotten in all the laments about our time in power. Now, coupled with changes to how poverty is measured and the ditching of child poverty targets we are seeing the dismantling of much of the good work Labour did in improving the life chances of the UK’s poorest children. And that breaks my heart.

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Anne Begg is a former chair of the work and pensions select committee

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You can read the full Bedtime pamphlet here. You can read the full Record pamphlet here.

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