The tax credits debacle, which saw almost two million families forced to repay an average of £1,000 overpaid benefits, was deeply embarrassing for New Labour.
The mainstream media have accepted the government’s line that a serious of unfortunate computer errors combined to leave some claimants forced to rely on Salvation Army food parcels.
In fact, the problems with tax credits run much deeper. The scheme was classic New Labour—designed to suit markets, rather than people.
Tax credits were the chancellor’s flagship scheme for tackling persistent low pay and unemployment. Each claimant would be assessed on the basis of their need, and paid a small benefit by the Inland Revenue.
The amount received would be carefully tapered so as to “encourage” claimants into work.
Unfortunately, you cannot ask free markets to produce social justice. The tax credits scheme is so complex that the respected Institute of Fiscal Studies estimates that 150,000 fewer people have signed up than predicted.
As the Citizens’ Advice Bureau said in its damning report, “Incomprehensible and contradictory award notices have meant that many people cannot understand their entitlement, or spot errors frequently made on their awards.”
But even when New Labour’s social policies work as expected, they have fallen far short of making Britain a more just society.
Income inequality in Britain is now higher than it was under Margaret Thatcher and John Major’s Tory governments. The extent of New Labour’s redistributive achievements has been to prevent income inequality rising still further.
Wealth inequality, however, has worsened dramatically. The top 1 percent of wealthiest individuals, some 600,000 people, increased their share of the national wealth from 20 percent to 23 percent from 1996 to 2002.
By contrast the bottom 50 percent, around 30 million people, owned 7 percent of national wealth in 1996, but only 5 percent in 2002.
While the poor are humiliated and treated with suspicion, life under New Labour has been sweet for those at the top. According to the Economist, the bosses’ magazine, in 1997 the average chief executive of one of the top 200 British companies took home £955,000 a year. By 2003, British bosses’ average annual pay had risen 77 percent to £1.69 million.
Meanwhile, schemes like “self-invested personal pensions”, to be introduced next April, pamper the rich still further with tax breaks.
Under New Labour, the gap in life expectancy between the richest and the poorest has increased significantly.
Research from Bristol University found that men in the richest areas live 11 years longer than those in the poorest—a bigger gap than in Victorian times.
The researchers’ claim this directly reflects increases in inequality of income and wealth. The rich have access to private health care, live in areas of low pollution and limited road traffic, and can save for their retirements.
Those outside of this happy situation must rely on underfunded NHS hospitals, live in worse housing in more polluted areas and have little hope of retiring either early or in comfort.
As a result, they die younger. The bigger the gap in income and wealth, the more pronounced this effect becomes.
New Labour, however, would rather trumpet its dog’s dinner “Third Way” schemes and mollycoddle the rich than do anything to challenge this state of affairs.
The Joseph Rowntree Foundation recently ventured an alternative to New Labour’s hare-brained schemes. If the British economy grows at the same rate for the next 20 years as it has for the previous 20, they estimate £500 billion will be added to national income.
They claim that it would cost £25 billion to move ten million people clear of poverty over the same period—a fraction of the total economic growth.
A socialist alternative to New Labour would go much further—a steep increase in taxes on income and wealth for the richest.
This would be used to fund meaningful and well paid work for the unemployed, and a benefits system that actually delivers some benefit.