By Charlie Kimber
Downloading PDF. Please wait... Issue 1778

Pre-budget analysis: Was it a return to Old Labour?

This article is over 20 years, 1 months old
Commentators like Polly Toynbee in the Guardian praised Gordon Brown's pre-budget statement last week for its \"admirable next phase of increases for the poor\".
Issue 1778

Commentators like Polly Toynbee in the Guardian praised Gordon Brown’s pre-budget statement last week for its ‘admirable next phase of increases for the poor’.

She suggested the only problem was that Labour might be too radical for the general population. The reality is very different to the spin of a relentless drive away from poverty.

Under Brown’s proposals the minimum pension (pension plus the minimum income guarantee, if you can jump through all the hoops to claim it) will be £100 a week in 18 months time. That is barely enough to exist on, let alone have a decent life. Around 40,000 pensioners will die this winter because of an inadequate diet and insufficient warmth. In response to the outrage that followed the 75p a week pension increase in April 2000, Brown promised that in future the rise would never be less than 2.5 percent or at least £100 a year.

Next year the basic pension will go up to £75.50 a week. But remember that if the link between pensions and earnings was restored the pension would now be over £105 a week. Brown also announced that the value of the Winter Fuel Allowance would be frozen at £200 a year. That means its value is eroded by inflation every year. The new pension credit will come into operation in 2003-4 and top up the income of pensioners with small extra pensions or money from savings as long as their income does not exceed £135 a week.

This very complicated scheme is part of a much simpler, brutal strategy. The pension credit is about smoothing the path towards the rundown of the state pension. New Labour wants workers to put aside their own pay for pensions and not expect to live a reasonable life off the state pension. But so far only 380,000 stakeholder (private) pensions have been sold despite a massive government publicity drive.

Many of these are for rich people’s children or grandchildren. The rich can avoid inheritance tax and income tax by setting up a pension for their children. Few people on low or average pay have any spare money to afford a stakeholder pension.

There is little incentive after Equitable Life (one of the top pension providers) announced recently that it was cutting 20 percent from payments it had previously guaranteed to pensioners. For most people, the income from a private pension is so small that it does no more than bar them from Income Support and other benefits. The pension credit means that if you have a small pension you will come out ahead of what New Labour sees as the ‘feckless’.

These people have trouble living off their wages, never mind saving money for their retirement.

People with children will soon be able to apply for a bewildering range of benefits. These include Working Families Tax Credit, Children’s Tax Credit, the Integrated Childcare Credit (from 2003), the Sure Start maternity grant and children’s allowance in Income Support.

The full figures aren’t revealed until March. But we can be certain that, as now, they will be directed towards a quite narrow range of people. At the moment the most important of these benefits, Working Families Tax Credit, begins to get smaller once your post-tax income exceeds £93 a week.

It is cut off entirely once you and your partner’s income exceeds £21,000 if you have one child or £28,500 if you have two children. Working Families Tax Credit does help around 1.3 million families (not vastly more than the old Family Credit system). But it is counted as income and therefore cuts people off from other benefits such as council tax rebate.

When New Labour came to power there were 4.4 million children living in poverty. By 1998-9 that figure had risen to 4.5 million. In July this year the government’s Households Below Average Income statistics showed that there were 4.3 million children in poverty. This is a small fall, but hardly a great reforming achievement.

All the benefits that Gordon Brown pushes are means-tested, dependent on navigating a maze of form-filling and proving that you are poor enough to qualify.

Eight years ago Brown said he wanted ‘the next Labour government to achieve the end of the means test for our elderly people’. In fact with the pensioner credit he has presided over the greatest expansion of means-testing in the history of the British welfare state.

This incredibly complex system of benefits means that many people do not receive what they are entitled to. At least 500,000 pensioners do not claim the minimum income guarantee and are therefore trapped on the basic pension of £72.50 a week.

The Child Poverty Action Group reported recently that £4 billion of means-tested benefits go unclaimed each year-and its analysis did not even include unclaimed Working Families Tax Credit.

Far from any sort of bonanza for the old and poor, the pre-budget statement was entirely in the spirit of New Labour-a small amount for the ‘deserving poor’, nothing for most.

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