through investment in childcare, and through a series of policies
intended to ‘make work pay’, including the national minimum wage,
reforms to tax and National Insurance which favoured low earners and –
most significantly – the system of means-tested tax credits. In particular,
the Child Tax Credit (CTC) introduced in April 2003 integrated the
systems of support for children in households in and out of work, in principle removing many of the benefit disincentives and uncertainty surrounding the move into a job – although at the cost of creating high
effective marginal tax rates higher up the income scale (see chapter 10).
The level of worklessness among households with children – the highest
rate in the industrialised world when Labour came to power – fell
steadily, as indicated in table 19.2, though it remains high by international standards. A strong underlying economy – itself to at least some
degree attributable to Labour’s macro-economic management – was an
important factor, but supply-side policies increasing the incentives for
parents to work also appear to have been effective.17
At the same time, tax credit and benefit changes (including those mentioned above as well as increases to universal Child Benefit and to the
length and generosity of maternity pay) substantially lifted the incomes
15 Mike Brewer, Will the Government Hit its Child Poverty Target in 2004–5? Briefing Note 47
(London: Institute for Fiscal Studies, 2004); Holly Sutherland, Poverty in Britain: The
Impact of Government Policy since 1997. An Update to 2004–5 Using Microsimulation
(Cambridge: Microsimulation Unit, University of Cambridge, 2004).
16 National Audit Office (NAO), HM Revenue and Customs 2005–06 Accounts: The
Comptroller and Auditor General’s Standard Report (London: TSO, 2006).
17 For example, tax credit changes between 2000 and 2003 are estimated to have raised loneparent employment by 3.4 percentage points, and that of fathers in couples by 0.9 percentage points, but to have had a slight disincentive effect for mothers in couples. See
Richard Blundell, Mike Brewer and Andrew Shephard, ‘The Impact of Tax and Benefit
Changes between April 2000 and April 2003 on Parents’ Labour Supply’, IFS Briefing Note
52 (London: Institute for Fiscal Studies, 2004).
Table 19.2. Worklessness and children
Children under
Children in workless households
16 in workless
by family type
households
1000s
%
Of all children in
Of all children in
lone-parent two-parent
households (%)
households (%)
Spring 1996
2.4
19.9
58.4
10.0
Spring 1998
2.2
18.5
56.5
8.2
Spring 2000
2.0
16.6
52.5
6.8
Spring 2002
2.0
16.8
51.1
6.8
Spring 2004
1.9
16.1
49.3
6.1
Spring 2006
1.7
15.3
46.8
6.2
Source: Office for National Statistics, ‘Work and Worklessness among
Households: Time Series’, Tables 3(i) and 3(ii). Online edition:
www.statistics.gov.uk/statbase/Product.asp?vlnkϭ12859 (downloaded May 2007).
of families in all types of employment situations, reducing poverty for
most groups – as indicated in table 19.1 – with families with a single
earner benefiting most. Researchers at the Institute for Fiscal Studies
(IFS) estimate that rising incomes for households in given employment
situations were responsible for around 80% of the total change in poverty
rates during Labour’s first two terms, while movements into work explain
much of the rest.18
Why were these policies not sufficient to meet the child poverty target,
despite optimistic predictions? Forecasting economic change is notoriously difficult, and in the case of a relative child poverty measure small
errors can have a big impact on results, both because many children are
positioned just above and below the poverty line, and because the future
poverty line itself is unknown and dependent on median income, which
is even harder to control and predict than the incomes of poorer households. Any combination of the assumptions made about earnings,
profits, rent, interest rates, tax and employment behaviour may lie
behind the shortfall. The IFS initially suggested that part of the explanation may have been an overestimation of tax credit take-up in forecasts,
18 Jonathan Shaw, ‘Eradicating Child Poverty’, Briefing Note (London: Institute for Fiscal
Studies, 2007).
but recent administrative figures indicate that take-up of Child Tax
Credit was high, at between 93% and 98% among low-income working
families in 2004/5, up from 91–95% in 2003/4.19 Another, rather
different, issue raised by the IFS is that the household survey data used by
the government to track child poverty (the Family Resources Survey)
appear to under-record receipt of tax credits, perhaps because they are
sometimes made as one-off payments and may not show up in the month
in which the household is surveyed. This problem has worsened sharply
since 2001/2: by 2004/5 the gap between administrative data and FRS
data had reached nearly £5 billion, or almost one-third of total expenditure on tax credits.20 As administrative data are a more robust indicator of
tax credit spending than survey data, this suggests that child poverty may
have fallen by more than official data suggest.
If this is the case, it poses serious questions about the government’s
ability to measure child poverty accurately in the future, particularly as
tax credits become an increasingly important part of the anti-poverty
strategy. But the challenges for the future clearly do not stop with measurement issues. A 2006 report by the Joseph Rowntree Foundation estimated that additional spending of at least £4 billion a year in tax credits
would be needed to lift enough children over the poverty line to meet the
2010 target of halving child poverty.21 Whether or not a Brown government succeeds in finding these resources, it is disappointing that a bigger
dent has not yet been made in the mountain of poverty illustrated in
figure 19.1, and disappointing that the government was unable to point
unequivocally to a 25% reduction in child poverty by 2004/5. However, it
is also undeniable that real and substantial progress was made for poor
children under Blair. Perhaps not least of his government’s achievements was David Cameron’s announcement that a future Conservative
government would also have the reduction of relative child poverty as a
goal.22 That a Conservative leader would make such a commitment –
indeed, would even accept the concept of poverty as relative – would have
been quite inconceivable when Labour took office.
19 Mike Brewer, Alissa Goodman, Jonathan Shaw and Luke Sibieta,
Poverty and Inequality in
Britain: 2006, IFS Commentary 101 (London: Institute for Fiscal Studies, 2006); HM
Revenue and Customs, Child Tax Credit and Working Tax Credit Take-up Rates 2004–05
(London: HMRC, 2007).
20 Brewer et al., Poverty and Inequality in Britain: 2006.
21 Donald Hirsch, What Will it Take to End Child Poverty? Firing on all Cylinders (York:
Joseph Rowntree Foundation, 2006).
22 Helene Mullholland and agencies, ‘Cameron: Poverty is a Moral Disgrace’, The Guardian,
24 November 2006.
Pensioners
Over a quarter of pensioners lived in relative poverty in 1997. Prior to
Blair’s leadership, Labour had been keen to restore the link between pensions and earnings broken by the Thatcher administration – this was a
central plank in both the 1987 and 1992 manifestos. But by 1997 the
policy had been dropped in favour of a broad statement that ‘all pensioners should share fairly in the increasing prosperity of the nation’. The first
two years of Labour government saw very few policy measures aimed
explicitly at pensioners, with the exception of annual Winter Fuel
Payments of £100, introduced in November 1997.
However, from April 1999 a series of reforms aimed to improve living
standards for the poorest pensioners. Income Support for pensioners was
rebranded the Minimum Income Guarantee (MIG) in 1999, with aboveinflation increases and a commitment to increase MIG in line with earnings rather than prices, which was repeated in the 2001 manifesto. In
2003 the MIG was renamed again (and made more generous) as the guarantee element of the Pension Credit, and the 2005 manifesto and then the
2006 Pensions White Paper continued the commitment to earningsuprating into the long term. By April 2004 the guarantee element was
equivalent to around 25% of average earnings for a single person – the
level the basic state pension would have been if the link with earnings had
not been broken. The difference, of course, is that the Pension Credit is
means-tested. At the same time, some new universal benefits in kind such
as free eye tests and TV licences were introduced, and there were also
small increases in the basic state pension. The 2006 White Paper pledged
to re-link the latter to earnings by the end of a fourth Labour term.
If the guarantee element of Pension Credit continues to be linked to
earnings it will remain just above the poverty line for a single person,
though still just below for a couple. Its impact is clear: the level of pensioner poverty has fallen steadily and substantially, from 29% in 1996/7
down to 17% in 2005/6, measured after housing costs, representing a
fall of more than 40%.23 This can be seen in figure 19.2, which also shows
that most of the change took place during Blair’s second term, as would
be expected given the timing of reforms. Measured before housing costs,
the decline is less dramatic, but poverty still fell by 15%, down from 25%
23 Department for Work and Pensions (DWP), Households Below Average Income
1994/5–2005/6 (London: TSO, 2007). The poverty line is 60% of equivalised median
income.
35
30
25
20
%
AHC
BHC
15
10
5
0
1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06
Figure 19.2. Share of pensioners living below the poverty line before and after
housing costs
Source: DWP, Households Below Average Income 1994/5–2005/6.
Note: Percentage of pensioners living in households with income below 60% of the
equivalised median before and after housing costs.
to 21%. It is striking that by 2003/4, on the AHC measure, a pensioner
was less likely to live in poverty than a non-pensioner for the first time
since the early 1980s recession, and the gap widened in each of the subsequent two years.24 Not all the decline in pensioner poverty can be attributed to government policy: there is also a cohort effect, as new retirees
tend to be better off than the older pensioners they replace. But the IFS
estimate that the cohort effect accounts for only one-quarter of the
poverty reduction over the period, with rising incomes accounting for
three-quarters.25
If all pensioners claimed the Pension Credit, poverty would have fallen
even more quickly – after all, poverty in single-pensioner households has
in principle now been abolished. In fact, while take-up of the guarantee
element increased substantially in the year after its introduction in 2003,
in 2005/6 between 19% and 30% of eligible pensioners still failed to
24 Mike Brewer, Alissa Goodman, Alistair Muriel and Luke Sibieta, Poverty and Inequality in
the UK: 2007, IFS Briefing Note 73 (London: Institute for Fiscal Studies, 2007).
25 Brewer et al., Poverty and Inequality in Britain: 2006.
claim.26 This compares with between 6% and 17% of the non-pensioner
population eligible for Income Support.27 In many cases the amounts
unclaimed are quite substantial, with one-third of non-claimants eligible
for more than £50 a week.28 Research commissioned by the DWP in 2004
and 2006 into the causes of low take-up found the most common obstacle to be perceived ineligibility: many pensioners did not think they
would qualify, perhaps because they were home-owners, lived with adult
relatives or had been turned down for assistance in the past.29 Some were
put off by a complicated application process; others were worried about
going through the process only to be turned down, as they did not want to
appear ‘greedy’. A positive finding of the research was that very few
people were unaware of the existence of the Pension Credit, in contrast to
an earlier finding that 57% of entitled non-recipients of MIG were
unaware of benefits payable to people on low income.30 In 2006 the
National Audit Office concluded that the Pension Service had made ‘real
and substantial progress’ since 2002 ‘using new and well-thought
through approaches’ to ensure that more pensioners received their entitlements, although still more could be done to reach the most disadvantaged.31 Continued low take-up highlights the key problem with reliance
on means-tested benefits to tackle poverty, but it remains true that poor
pensioners have vastly improved financial support available to them in
2007 compared to 1997, and that imaginative efforts are being made to
make sure all of them benefit in practice.
Working-age households without children
The situation of working-age households without children was conspicuously absent from government targets and indicators under Blair. This is
not to say that nothing was done to improve living standards for lowincome households without children. The extensive agenda aimed at
26 DWP, Pension Credit Estimates of Take-up in 2005–06 (London: DWP, 2007).
27 DWP, Income Related Benefits: Estimates of Take-Up 2004/2005 (London: DWP, 2006).
28 DWP, Pension Credit Estimates of Take-up in 2005�
��06, figure 1.2.
29 C. Talbot, L. Adelman and R. Lilly, Encouraging Take-up: Awareness of and Attitudes to
Pension Credit, DWP Research Report 234 (London: DWP, 2004); K. Bunt, L. Adams and
C. Leo, Understanding the Relationship between the Barriers and Triggers to Claiming
Pension Credit, DWP Research Report 336 (London: DWP, 2006).
30 Cited in Maria Evandrou and Jane Falkingham, ‘A Secure Retirement for All? Older People
and New Labour’, in Hills and Stewart, A More Equal Society?
31 NAO, Progress in Tackling Pensioner Poverty: Encouraging Take-up of Entitlements
(London: TSO, 2006).
helping people into work and at making work pay encompassed nonparents as well as parents. Some of the measures, such as the national
minimum wage and reforms to tax and National Insurance contributions
at the bottom of the income distribution, benefited all low earners. There
were also a series of New Deal programmes for specific groups, covering
young people, the long-term unemployed aged twenty-five plus, and
disabled people (compulsory for the first two groups, voluntary for
the latter); these appear to have had positive though limited impacts.32
Smaller initiatives strengthened the employment rights of part-time and
temporary workers, and helped address low pay in the public sector.33
Perhaps most strikingly, in April 2003 the Working Tax Credit was
extended to include households without children: with this move the
government effectively began to subsidise low wages in general, not just
where a low wage is insufficient to support children. In one of the last acts
of Blair’s premiership, the Welfare Reform Act of May 2007 introduced
substantial reforms to Incapacity Benefit, including both much more
support for work-related activity and training and the threat of benefit
sanctions for the first time for those refusing to participate.
What about the level of financial support for those who remain
without work? Reforms to the benefit system raised incomes for the
most severely disabled, while introducing a greater degree of meanstesting. These reforms were largely welcomed by disability campaigners,
although there is concern that benefits are poorly advertised and difficult
to access.34 Incapacity Benefit rose only in line with the retail price index,
lagging behind the change in the poverty line over most of the period,
BLAIR’S BRITAIN, 1997–2007 Page 67