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Wednesday, 16 May, 2001, 09:52 GMT
Poverty under Labour

by BBC economics research analyst Steve Coulter

A promise to halve child poverty in 10 years is one of Labour's key manifesto pledges. But Labour is vulnerable to charges that Britain is a more unequal society than it was under the Conservatives.

Official figures show that income inequality was greater in 1999/2000 than it was before Labour came to power.


Just as bad for the government is the additional fact that incomes right across the social spectrum have grown only sluggishly during the Blair years, despite the strong economy.

Analysis by the Institute for Fiscal Studies shows that real disposable income per head under Labour grew by 2.3% a year to December 2000, less than the 2.6% achieved during Margaret Thatcher's government, although ahead of John Major's period in office.

Mr Brown has asserted that this means families were "10% better off under Labour".

But the number of poor families has hardly changed since 1997.

Child poverty target


Gordon Brown has already said that Labour's "aim is the abolition of child poverty in a generation - and to open saving and wealth ownership to all".

The government claims that 1m children have been taken out of poverty since 1997.

The thorny issue for Labour remains the persistent gap in incomes between rich and poor, which seems to be growing under its stewardship. A key indicator of poverty, the percentage of households on less than 60% of average earnings, shows a rise since 1997.

And the number of families with children in poverty has remained stubbornly high.

Mr Brown has energetically targeted low income groups for help, trying to make work pay.

Pensioners and the working poor have been the beneficiaries of a raft of redistributive policies.

Pensions and other benefits were hiked in the last Budget, and Brown has also introduced a series of tax credits targeted to boost the net earnings of poorer families.

At the same time the Chancellor has abolished a number of middle class perks, like mortgage interest tax relief, and slapped a series of new taxes on businesses and individuals, to pay for his social engineering.

Critics argue that his greater use of means-tested benefits stigmatise pensioners, and successive Budget hikes on indirect taxes like cigarette duty hit the poor hardest.

So why isn't the income gap narrowing? To be fair to the government, much of the available data refers to the first three years of its time in office, missing out the impact of some of the main planks of its anti-poverty strategy which followed later.

For instance, the Working Families Tax Credit and the minimum wage only came into force in 1999, and the Children's Tax Credit in April of this year.

But the other problem is the growing gap between the incomes of people in work and those dependent on benefits.

Bigger gap


Although the government's tax reforms have targeted the poor, changes in the labour market mean that the rich have been gaining more overall.

Analysis by the IFS (which takes account of data going up to April 2000) shows that the net income of the poorest fifth of society has grown by 1.4% annually since 1997.

Although this is less than the richest fifth, whose income grew by 2.8% in the same period, what income gains there have been have been distributed more evenly than under Margaret Thatcher.

Ultimately, the main reason why inequality has grown under Labour, even while the absolute condition of society's poorest has still improved, is that the economy has done well, creating more "dot-com" millionaires and padding the bonuses of people working in the City of London.

Poverty lobby

Poverty campaigners have given a qualified thumbs-up to the government's efforts so far.

Greeting the recent Budget in March, the director of the Child Poverty Action Group, Martin Barnes, said: "In the last two years we have seen a fairly significant shift in resources towards poorer families with children."

Professor David Piachaud of the London School of Economics, one of Britain's leading poverty experts, also welcomed Labour's goal of child poverty reduction, although he doubted the means:

In a recent article he said: "No end to child poverty is yet in prospect, but a change in direction has been signalled and moves toward the new goal have begun".

But, to meet its ambitious targets for reducing child poverty, Labour will have to make more progress than it did in its first term of office.

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