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Poverty and inequality: has New Labour delivered?

Jean-Philippe Fons
p. 153-166

Résumé

This article intends to assess New Labour’s achievements on their poverty and inequality agenda after 13 years in office. It notably suggests that while reducing significantly the number of children living in low-income households, New Labour has failed notably to build a fairer society or to make work pay (and thereby to alleviate poverty).

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Notes de l’auteur

A truncated and incomplete version of this paper has been published in the previous issue of the journal.

Texte intégral

“I say to doubters, judge us after ten years in office. For one of the fruits of that success will be that Britain has become a more equal society. However, we will have achieved that result by many different routes, not just the redistribution of cash from rich to poor, which others choose as their own limited version of egalitarianism” (Peter Mandelson, Labour’s Next Steps : Tackling Social Exclusion, Fabian Society, 1997.)

  • 1  The author wishes to thank warmheartedly the participants to the international symposium which too (...)

1We will not explore here each and every “route” presented by Peter Mandelson but rather take at his word the then Campain Director of the New Labour party and judge New Labour’s action after 13 years in office1.

2The portrait of the British society after 13 years of New Labour government appears puzzling to the eye of the foreign observer. In 1997 (the year New Labour came to power) the richest tenth of individuals had 27.8 per cent of all income, the poorest only 2.0 per cent. By 2006 the richest tenth had increased their share (of an altogether much bigger pot) to 29.5 per cent, while the poorest tenth had seen their relative share fall to 1.6 per cent (graph. 1).

  • 2  The annual survey conducted by the Joseph Rowntree Foundation provides much of the data presented (...)

3Graph 1 shows that while in 1997 the top 1 per cent of the British population owned 20 per cent of the wealth of the entire country, by 2006 this had risen to 21 per cent of a total value which had nearly doubled in size. Over the same period National Statistics record the poorest halfof the population as owning just 7 per cent of all national wealth. This first snapshot seems to suggest that overall inequality of incomes and earnings continued to rise over New Labour’s first and second term, driven particularly by inequality at the top. However, those with low incomes began slowly to catch up on the middle, and relative poverty to fall, particularly for children (and most notably over New Labour’s third term)2.

Graph 1: Change in wealth and income distribution, 1997-2006.

Graph 1: Change in wealth and income distribution, 1997-2006.

Source : adapted from Households Below Average Income, DWP, Aug 2009.

4Tony Blair had repeatedly promised to halve child poverty by 2010 while campaigning for the 1997 and the 2001 General Elections. In 1997 4.3 million children were living in poor households (34%); this figure rose to 4.4 million in 1998/99 and now stands at 3.8 million (30%) – it is estimated that over half a million children have been lifted out of poverty between 1998/99 and 2007. Estimates for 2010-11 suggest that 2.2 million children are or will be living in poor or deprived families (while the initial target set by Tony Blair was 1,7 million).

5

Graph 2 : Children living in poverty in the UK (millions)

Graph 2 : Children living in poverty in the UK (millions)

Source : adapted from Households Below Average Income, DWP, Aug 2009.

6Peter Mandelson (a former Blairite Cabinet member, European Commissioner and close adviser to Tony Blair) once famously (and provocatively) declared that he was “relaxed” about people becoming “filthy rich” in New Labour’s Britain. Some ultra-Blairites have tried to argue that only (paid) work ends poverty. But a social state must be able to defend the lives and opportunities of those who cannot work or those who are in the low-wage jobs. To the observer, therefore, the test of any Labour government is whether it leaves the country more equal than it found it. This is precisely what this section will discuss. Without anticipating too much on our conclusions, Labour has kept its head above the water. But social mobility is still going backwards and the GINI coefficient – the internationally accepted measure of inequality – is slightly worse for the UK now than in 1997.

7Graph 3 : Percentage of households below average income (as defined by DWP)

8

Source : adapted from Households Below Average Income, DWP, various issues.

9The change in the distribution of income in the last quarter century has been dramatic. While relative poverty is now falling slowly, it remains at twice the level of the 1960s and 1970s.

10The EU indicator to measure and define poverty (which corresponds to 60% of the median salary) has gradually replaced the series ‘Households Below Average Income’, used by the Department for Work and Pensions (DWP) and other official statistical databases. However, the OECD estimates that this new methodology does not change the number of poor people or the rate of poverty in the country.

11To assess New Labour’s achievements when it comes to fighting poverty and promoting social justice, we will cast a critical glance first at New Labour’s pledge to reduce child poverty. We will then consider the question of working people on low income, particularly the situation of young people in low-paid jobs. Income inequalities and an examination of the impact of the National Minimum Wage will also be addressed to appraise Labour’s record after 13 years in office.

Children poverty: unfinished business

12Official figures reveal that 4 million children were living in low-income households in 2008 in the UK.  This is half a million less than in 1998/99, yet the numbers in 2008 were back up to the levels of 2001.

13The government's initial target was to reduce the number of children living in poverty by a quarter by 2004/05 compared with 1998/99. Pressure groups such as the Child Poverty Action Group (CPAG) insist that the government, whose short-term targets have not been met, has, therefore, failed to deliver on this particular agenda and push for further political action.

14

Graph 4 : Number of children in low-income households

Graph 4 : Number of children in low-income households

Source : Households Below Average Income, DWP, Aug 2009.

15Official sources point out that half of all people in lone parent families are in low income. Put differently, statistics suggest that a child's risk of low income varies greatly depending on how much paid work the family does. Unless all adults in the household are working, the risks of being in low income are still of considerable importance: 90% for unemployed families, 75% for other workless families and, notably, 35% for those where the adults are part-working3.

16A longitudinal analysis of the Department for Work and Pensions statistics suggests that these risks have remained unchanged over the last decade – which is undoubtedly one of the most debatable aspects of New Labour’s record on reducing child poverty; it seems the party has failed to achieve some form of equality on this matter.

  • 4  New Labour Because Britain Deserves Better, New Labour Manifesto, 1997 General Elections.

17While New Labour pledged in its 1997 Manifesto that “the best way to tackle poverty [was] to help people into jobs - real jobs4”, working (and having a paid job) appears not to be sufficient when it comes to combating child poverty despite New Labour legislating on tax credits and in-work benefits.

18Most lone parents in low income are not working while, in contrast, most of the couples with children in low income do have someone in paid work (whether working part-time of full-time). Geographical inequalities and discrepancies should be underlined here: Inner London has a much higher proportion of children in poor households than any other UK region.

  • 5  Kenway, P., Eradicating child poverty: the role of key policy areas, Joseph Rowntree Foundation, N (...)
  • 6  Delivering on Child Poverty: what would it take?, Department for Work and Pensions, Londres, 2006.

19Much of the success in reducing child poverty has come from greater employment opportunities, facilitated by a growing economy, welfare-to-work policies and tax credits. The UK has one of the highest employment rates of the industrialized world but it also has significant problems of in-work poverty with over half of poor children living in a household with a parent in work5. If welfare-to-work is to deliver more in improving equality it is argued that the government (whether Labour or Conservative) needs to do more than just pushing more people into jobs. COMPASS (an influential centre-left pressure group) contends that what the country needs is a “work first plus approach6” which would emphasize pay, employment quality and skills development to prevent poverty amongst working families.

20If we take stocks of New Labour’s achievements, poverty rates have declined since 1998 for both children in working and workless households. There are now fewer children in workless families than in 1997 and this has also contributed to the overall fall in child poverty. Even though the poverty rate for children in workless households has changed little under New Labour, the proportion of children who are both in a workless household and in poverty has fallen quite substantially since 1997.

21Although we acknowledge that child poverty has fallen noticeably over the period, we do not know for certain to what extent New Labour’s policies caused this decline. Surely the Labour Government has substantially increased the amount of state financial support that is contingent on having children.

  • 7  Goodman, A., Shephard, A., The links between income distribution and poverty reduction in Britain, (...)

22As well as redistributing to families with children, Labour’s tax and benefit changes have been extremely redistributive within families with children: the gains for the poorest families have been substantial, with tax and benefit changes under Labour increasing the incomes of the poorest families with children by over 20 per cent7.

  • 8  Brewer, M., Shephard, A., Has Labour made work pay?, Joseph Rowntree Foundation and the Institute (...)

23The ambition of the New Labour government’s agenda (to “make work pay”) was to make work pay more than not working and to make work pay more than mere state support. The policies designed by New Labour aimed at reducing the number of workless households with children as the main route to reduce child poverty. Examining the macroeconomic situation of the country in 2010 would lead one to conclude that the policies have been a success, as Mike Brewer and Andrew Shephard suggest: employment rates for lone parents have risen by 10 percentage points since 1997; there are 350,000 fewer children under 16 in households where no adult works; child poverty is by and large at a level last seen in the early 1990s8. Academic studies agree that the Government’s policies were partially responsible for these changes, but the (favourable) macroeconomic situation of the late 1990s may also have contributed to a large extent.

24Overall, the impact of Labour’s changes on couples means that a couple with children now faces, on average, an increased incentive to be a single-earner couple, rather than have two earners or none, than in 1997. Academic studies also suggest that New Labour has been successful in reducing the proportion of couples with children where no adult works, but employment rates among parents in couples have changed by very little.

Low income and young people in low-paid jobs

  • 9  Department for Work and Pensions.

25The most commonly used threshold to determine the level of low income is a household income that is 60% or less of the average British household income in that year9. In 2008, the 60% threshold was:

  • £115 per week for single adult with no dependent children;

  • £199 per week for a couple with no dependent children;

  • £195 per week for a single adult with two dependent children under 14; and

    • 10  Source: Households Below Average Income, Family Resources Survey.

    £279 per week for a couple with two dependent children under 1410.

26Measured after income tax and housing costs have been deducted, these amounts represent what the family has left to spend on everything else (goods and services such as food, heating, travel, or entertainment).

27In 2008, studies reveal that more than 13 million people in the UK (22% of the population) were living in households below this low-income threshold. The number of people living below the low-income threshold has increased steadily since 2004.

28The number of people on low incomes is still slightly lower than in the early 1990s but is much greater than in the early 1980s. Since 2004, the situation has deteriorated and, among EU countries, the UK has one of the highest proportions of its population in relative low income.

29

Graph 5 : Risk of being low paid, according to age (%)

Graph 5 : Risk of being low paid, according to age (%)

Source : Annual Survey of Hours Earnings (ASHE), 2006.

  • 11 National Minimum Wage, Low Pay Commission Report (various issues). The latest report was presented (...)

30In 2006 people aged under 22 were far more likely to be low paid than those aged between 22 and 29. Those in their thirties and forties were on the contrary less likely to be low paid. However, to fully understand the relationship between age and low pay we also need to look beyond these headline risks, to the distribution of all low-paid workers, mapped by age11.

Table 1 : Low pay and age

Percentage of workers on low pay

Median hourly pay (£)

All

22,5 %

9,88

16-17

91,8 %

4,80

18-21

67,2 %

5,95

22-29

24,9 %

8,94

30-39

14,3 %

11,54

40-49

15,7 %

11,37

50-59

18,9 %

10,32

60+

29,8 %

8,46

Source : Annual Survey of Hours Earnings (ASHE), 2006.

31An analysis of the distribution of low pay by age groups shows that more than nine in ten employees aged 16 and 17 earned less than £6.67 an hour. However, the composition of this age group has to be cautiously examined: almost 86 per cent of 16- and 17-year-olds were in education or training of some kind, 6.4 per cent were employed and 8 per cent were not in education, employment or training (NEETs).

32While New Labour admitted that low pay is an injustice wherever it is found, they think it appropriate that policy for 16- and 17-year-olds focuses principally on increasing participation in education – as embodied in Labour’s proposal to raise the effective school leaving age to 18.

Income inequalities and the National Minimum Wage. Towards a fairer Britain?

33Over the last decade, the Department for Work and Pensions, using the Households Below Average Income indicator, notes that the poorest tenth of the population have seen their incomes fall. This stands in sharp contrast with the rest of the income distribution, which, on average, has seen substantial rises in their real incomes. The richest tenth of the population are definitely the beneficiaries as they have seen much substantial rises in their incomes than any other group. The proportion of the total wealth available to the richest tenth of the UK population is noticeably higher than a decade ago.

  • 12  The Gini coefficient is a measure of statistical dispersion of income in a given country. A 0 Gini (...)

34A quick look at the evolution of income inequalities over the last 30 years in UK is revealing. The Gini coefficient for the UK (a measure of overall income inequality) is now higher than at any time since the 1980s12.

35

Graph 6 : Evolution of the Gini coefficient, 1979-2008

Graph 6 : Evolution of the Gini coefficient, 1979-2008

Source : Households Below Average Income, DWP, 1994-1995 onwards ; Family Expenditure Survey.

  • 13 National Minimum Wage, Low Pay Commission Report 2009, p. xi.

362009 saw the tenth anniversary of the introduction of the National Minimum Wage (NMW). Since 1999, the country has experienced “record levels of employment and unprecedented consecutive quarters of economic growth”13. But this anniversary coincided with the most violent economic crises the UK has seen for decades, and the decline in economic activity has been much more pronounced than experts had previously anticipated.

  • 14  Ibid.

37The 2009 Low Pay Commission (LPC) report on the impact of the national minimum wage on the economy found that it has continued to play a significant role in increasing the wages at the bottom of the pay spine. The minimum wage has also continued to rise relative to both wages and prices. The LPC commissioned a comprehensive research programme that investigated how firms had coped with these additional wage costs, focusing on the period 2003-2006. Small and medium entreprises and businesses (SMEs and SMBs) appear to have adapted to these increases in wage costs by “changing pay structures, removing wage premia, and reducing non-wage costs”14. The LPC research found little evidence to suggest that the regular increases in the national minimum wage had led to reductions in employment or hours worked, or any other alternative measure taken to the detriment of employees. The report concludes that the minimum wage continues to exert overall a mild (not to say limited) influence on the economy.

38These findings were drawn from data collected until the middle of 2008; the economic climate has changed dramatically since then. The numbers of job vacancies are falling, and unemployment and redundancies are rising sharply. It is the first time that year-on-year aggregate employment has fallen since the introduction of the NMW.

39A study conducted in 2007 by Metcalf for the Centre for Economic Performance (London School of Economics) revealed that the gap between male and female median salaries has narrowed between 1999 and 2006; the research team suggests that the national minimum wage is largely responsible for this situation. The study therefore concludes that the NMW has, to some extent, narrowed the distribution of income for those workers at the bottom of the pay distribution (i.e. the poorest 10% of the population). This, as noted earlier, has not prevented the wages of those at the top of the earnings distribution to increase. Mike Brewer (a researcher at the Institute for Fiscal Studies) showed in 2008 that while the average salary rose by 3,1% between 1997-2006, the income of the richest 1% grew by 8%.

40The research of the Low Pay Commission has shown how limited the impact of the NMW has been as far as job creation is concerned. One of the roles of the LPC is to observe the attitudes of managers and their management strategies when a majority of their employees are paid at NMW rates. The LPC has repeatedly stressed the negative impacts of the NMW on companies’ profitability particularly in those sectors of the economy traditionally associated with low wages and low added value (such as catering, cleaning and retailing). With the introduction of the NMW, these companies have had for instance to moderate their profits or increase their prices to compensate for higher staff costs, but real terms wages have, by no means, increased, the study reveals. From the LPC reports and the Centre for Economic Performance analyses, it is tempting to conclude that the NMW has had no concrete impact on the reduction of poverty for working adults.

Conclusion

41Poverty, inequality and exclusion are multi-faceted concepts. Though this contribution has focussed primarily on quantifiable and statistical evidence there are many other aspects that have been neglected, such as the gender, the geographical or the ethnicity parameters. We have also endorsed the commonly accepted idea that absolute poverty has been eradicated in major developed countries and that only relative poverty deserves attention.

42From our study, it seems that the only success of New Labour so far regarding the poverty and inequality agenda has been the noticeable reduction of poverty rates among children in workless families or in low-income households. While inequalities in salaries, incomes and living standards have increased unprecedentedly, New Labour has not reached the ambition announced in the 2004 Budget to « build a fairer society ».

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Bibliographie

Brewer M., Shepard A., Has Labour made work pay?, Joseph Rowntree Foundation, 2004.

Brewer M. et al., Poverty and inequality in the UK: 2009, Institute for Fiscal Studies, 2009.

Cooke G., Lawton K., Working out of poverty, Institute for Public Policy Research, 2008.

Closer to Equality? Assessing New Labour’s record on equality after 10 years in government, Compass, 2008.

Harker L., Delivering on child poverty: what would it take?, Department of Work and Pensions, 2006.

National Minimum Wage, Low Pay Commission Report, 2009.

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Notes

1  The author wishes to thank warmheartedly the participants to the international symposium which took place in Aix-en-Provence in October 2009 for their stimulating remarks and suggestions after the author’s presentation, and notably Valérie Auda-André, Nicholas Deakin and Timothy Whitton.

2  The annual survey conducted by the Joseph Rowntree Foundation provides much of the data presented in this section. The latest figures are available in the 2010 issue of Monitoring poverty and social exclusion. It also includes an interesting section on the effects of the economic recession.

All statistics are Crown Copyright material; the data is available through the UK Data Archive or from the poverty statistics website.

3  Households Below Average Income, Department for Work and Pensions dataset (http://www.dwp.gov.uk).

4  New Labour Because Britain Deserves Better, New Labour Manifesto, 1997 General Elections.

5  Kenway, P., Eradicating child poverty: the role of key policy areas, Joseph Rowntree Foundation, November 2008.

6  Delivering on Child Poverty: what would it take?, Department for Work and Pensions, Londres, 2006.

7  Goodman, A., Shephard, A., The links between income distribution and poverty reduction in Britain, UNDP, Human Development Report Office, Occasional Paper, 2005.

8  Brewer, M., Shephard, A., Has Labour made work pay?, Joseph Rowntree Foundation and the Institute of Fiscal Studies, 2004.

9  Department for Work and Pensions.

10  Source: Households Below Average Income, Family Resources Survey.

11 National Minimum Wage, Low Pay Commission Report (various issues). The latest report was presented to Parliament by the Secretary of State for Business, Innovation and Skills in March 2010.

12  The Gini coefficient is a measure of statistical dispersion of income in a given country. A 0 Gini coefficient would suggest a perfectly equal distribution of income, henceforth a model of society with complete equality

13 National Minimum Wage, Low Pay Commission Report 2009, p. xi.

14  Ibid.

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Table des illustrations

Titre Graph 1: Change in wealth and income distribution, 1997-2006.
Crédits Source : adapted from Households Below Average Income, DWP, Aug 2009.
URL http://osb.revues.org/docannexe/image/1174/img-1.jpg
Fichier image/jpeg, 88k
Titre Graph 2 : Children living in poverty in the UK (millions)
Crédits Source : adapted from Households Below Average Income, DWP, Aug 2009.
URL http://osb.revues.org/docannexe/image/1174/img-2.jpg
Fichier image/jpeg, 36k
Crédits Source : adapted from Households Below Average Income, DWP, various issues.
URL http://osb.revues.org/docannexe/image/1174/img-3.jpg
Fichier image/jpeg, 104k
Titre Graph 4 : Number of children in low-income households
Crédits Source : Households Below Average Income, DWP, Aug 2009.
URL http://osb.revues.org/docannexe/image/1174/img-4.jpg
Fichier image/jpeg, 120k
Titre Graph 5 : Risk of being low paid, according to age (%)
Crédits Source : Annual Survey of Hours Earnings (ASHE), 2006.
URL http://osb.revues.org/docannexe/image/1174/img-5.jpg
Fichier image/jpeg, 96k
Titre Graph 6 : Evolution of the Gini coefficient, 1979-2008
Crédits Source : Households Below Average Income, DWP, 1994-1995 onwards ; Family Expenditure Survey.
URL http://osb.revues.org/docannexe/image/1174/img-6.jpg
Fichier image/jpeg, 101k
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Jean-Philippe Fons, « Poverty and inequality: has New Labour delivered? », Observatoire de la société britannique, 10 | 2011, 153-166.

Référence électronique

Jean-Philippe Fons, « Poverty and inequality: has New Labour delivered? », Observatoire de la société britannique [En ligne], 10 | 2011, mis en ligne le 01 mai 2012, consulté le 22 septembre 2017. URL : http://osb.revues.org/1174 ; DOI : 10.4000/osb.1174

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Auteur

Jean-Philippe Fons

Maître de Conférences à l'Université Rennes 2 Haute Bretagne

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