The row over the 10p tax rate has inflicted immediate electoral damage on Labour and undermined the government’s proven record of tackling poverty. But in the longer term the more significant damage could be the fracturing of New Labour’s broad coalition and the risk of leaving Labour pigeon-holed again as the party just of the poor. The last time Labour was caught in that position, in the 1980s, it was the late Ron Todd, TGWU leader, who pointed out that Labour’s bedrock was skilled workers.
New Labour’s achievement was to widen the party’s appeal to include all but the seriously rich, and harness this broad coalition to transform our society, including to end poverty. New Labour was not the coalition built of targeted pledges to different special interest groups that kept the wily Ken Livingston in place as London’s mayor until this month. New Labour was a big tent of people who bought into a central proposition that it was possible to construct an economy that would provide decent jobs for the vast majority, with a tax system to finance public services that would deliver a better life, also for the vast majority. The consensus lasted for a decade. The fracturing of it would be the worst legacy of the 10p tax row.
Poverty in Britain is intractable for some groups. A report from the Joseph Rowntree Foundation last year showed that the percentage that were 60 per cent below the median income for three of the last four years shrank by only three percentage points to 12 per cent between 1991 and 2004. Those most likely to be stuck in this intractable poverty are children, followed by pensioners.
What makes people very poor – below half median earnings – is living in a household where no-one works, or where they work too few hours to qualify for working tax credits, according to Department of Work and Pensions figures. For children the risk of being very poor is 42 per cent if your parents are on job seekers’ allowance, 20 per cent if they get income support, and then reduces to 10 per cent if an adult qualifies for working tax credits. For pensioners the big factors that tip people into extreme poverty are lack of a personal or occupational pension or savings.
Most of Britain’s poorest children live in families with a parent who gets child tax credit, which is not linked to work status. So the chancellor’s decision to increase this massively to cut the most intractable child poverty, was spot on. In that sense the budget worked for the poor.
The people the budget did not work for, those hit by the scrapping of the 10p tax rate, were not the poor, but were the central part of the broad coalition that has kept New Labour in power.
Consider this case: a woman pensioner who started her working life paying the married women’s stamp. She divorced, went out to work full-time to support her children, remarried when she was 58, and finally retired at the age of 60 with 31 years national insurance contributions. She was riled at missing out because of the married women’s stamp and her remarriage. But what really infuriated her was that, having assiduously built up a small works pension to supplement her partial state pension, she has now found the tax she pays on it had doubled.
She and her husband own their own house, have a car, and would not call themselves poor. Neither, probably, would students working part-time to pay their way through university, or the childless assembly line worker on £7 an hour, although perhaps the working person going part-time to care for a disabled relative might.
They all bought into the New Labour proposition that work pays, even part-time work on top of studying, running a family or caring. They expected the Labour government to reward their effort.
The chancellor’s new tax package will no doubt repair some of the practical damage by putting more money back into these people’s pockets. More difficult is to make good the political damage caused by the perception that Labour has let down working people. In this month’s elections, Labour has seen the electoral price it pays if people who work hard, aspire, care for their own and plan for the future, believe that Labour is anything other than 100 per cent on their side.
I very much agree with this article. I am 61 and retired after a full working life. I have a state and a work pension and paid additional national insurance contributions to make up for the years when I did not contribute. Despite the Chancellor’s package, I will still be £112 a year worse off following the abolition of the 10p tax band. I find this unacceptable having worked and saved hard for my retirement. I feel offended that the additional £50 fuel allowance given to all retired people was mentioned in the compensatory package when only those between the ages og 60 and 64 are effected by the tax changes.
I am totally disillusioned and horrified that the PM took so long to acknowledge the problem. He then proceeded to insult my intelligence by suggesting that the tax changes were to help all because of the economic downturn rather than to stave off a PLP rebellion.
I am also very disappointed in Gordon Brown’s lack of leadership. The party has been in power for a sufficient period for us all to see the lack of progress in some areas. It is no good Gordon Brown referrring to the Tory years – we are seeing the results of labour policy and the undermining of many reforms wanted by Tony Blair (and the public) by Gordon Brown. What we see is from the PM is “politics” – it is most disheartening. Somehow, we do not feel that the PM is on our wave length.
I am sorry – we all know that governments can do little in the global market. We can blame the PM for wanting to score political points against the opposition and leaving 5m of the lowest earners feeling let down. We can also blame him for making the tax system complex a- what a waste of resources in managing this. It is no wonder that his leadership is being questioned – we are not listening to him. I hate disloyalty but the PM must be used to it. After all he has been plotting and been complicit for years in making Tony Blair’s life difficult and indeed ousting him from office. Ironic and therefore he cannot expect sympathy. Whether it is fair or not, the PM seems to have lost the goodwill of the country. We have no chance at the next election under his leadership. It is all depressing.