1999 is in the headlines today, with news that the stock market has finally surpassed its dot-com peak. But a new Fabian Society report looks back to another key moment in 1999: Tony Blair’s historic pledge to end child poverty within 20 years.
Action on child poverty was a top priority in the 11 years that followed his famous speech. Under Blair and Brown Labour created tax credits and supported hundreds of thousands of parents move into work. The culmination came in 2010, with the passage of the Child Poverty Act which set binding targets for cutting child poverty.
But after the financial crisis and five years’ of austerity it is now clear that Blair’s goal will not be achieved by 2020. Indeed, our report reveals that, without significant government action, the numbers of children in poverty will steadily climb, with 1.2 million extra children projected to be in poverty by 2030.
The reason poverty is expected to rise is overwhelmingly down to government policies, for our modelling assumed decent economic growth and good levels of employment. Growing child poverty will not be a consequence of economic crisis, but a permanent feature of life in Britain.
This is because, under current policies, benefits and tax credits will be frozen in real terms, while the rest of society grows wealthier. Low earning families will not receive enough to compensate, especially if wage inequalities keep rising. Households with no one in work, because of disability or caring responsibilities, will fare even worse.
As a result we project that low income households will have just £200 per year more in 2030 than they do today, even if the economy grows a lot. By contrast high-income households will gain by £13,000 a year.
To make matters worse, these projections take no account of possible cuts after the general election. If the Tories regain power and implement their plan to cut another £12bn from benefits, poverty will rise even more.
So it is time for Labour to speak out. Prospects for poverty and inequality should be a key dividing line in this election. In particular, the party should rule out any significant social security cuts that will hit low-income families.
Labour must restate its commitment to ending child poverty, but also be realistic – there is no point pretending that the target for 2020 can be achieved, when it cannot. However, the Fabian modelling shows that child poverty can be massively reduced over 10 or 15 years. A goal for 2030 or perhaps 2025 is credible.
Action would be needed right after the election – and it would need to take two forms. First, our report calls for a radical package of labour market policies – so-called ‘pre-distribution’. We propose policies to support an employment rate of 80 per cent, a gradual increase in the minimum wage to 60 per cent of median earnings and a national crusade to increase take-up of the living wage.
But alone these interventions will not be enough. Redistribution is needed as well as predistribution: as New Labour ministers understood, solving child poverty means spending more on benefits and tax credits.
Clearly, there will not be any new money to set to this task in the early years of the new parliament. So our report proposes an elegant solution, recommending that government revenues generated from labour market reforms should be recycled back to low and middle income families. For our ‘predistribution’ reforms would generate billions in extra taxes and reduced benefit payments. It turns out that returning this money to families would do far more to reduce poverty than the labour market policies themselves.
The report recommends that Labour should establish a prosperity fund to recycle the proceeds of higher employment and less low pay. The money could be used to significantly increase child benefit or raise benefits in line with earnings – two measures which would do a huge amount to reduce child poverty – all while placing no extra burden on the public finances.
The Fabian report shows that inequality and poverty will get much worse if politicians do not act. Labour needs to rediscover its passion over poverty and commit to a radical but affordable agenda that can make poverty history.
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Andrew Harrop is general secretary of the Fabian Society. He tweets @andrew_harrop