Top 10 Tory myths on inequality

by Liam Byrne | 29.11.09 | in: Tories, Uncategorized

This week, the issue of inequality has once again come into focus. Following our new breakdown of Tory tax-plans I thought it would be worth setting out some of the myths about poverty and inequality, the Tories are trying to get to stick. Mr Cameron’s allegations against Labour, as our review shows, are utterly disingenuous, consisting of a series of distortions and in some cases, total inaccuracies.

Below we list 10 myths about Labour’s record that Mr Cameron has tried to seed in his recent speeches.

Myth 1: Conservatives will reduce inequality but Labour won’t

“In the past decade, the gap between the richest and the poorest got wider. Indeed, inequality is now at a record high”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • After the record of the Tory years, this is perhaps the most audacious claim yet from David Cameron. First of all the OECD have said that poverty and income inequality has fallen faster in the UK than any other OECD country since 2000. This can be seen when you chart inequality in the UK versus the OECD 24 using the gini coefficient – the standard measure of inequality, the gap between rich and poor
  • Looking in detail at the UK picture Labour has reduced the growth rate of inequality significantly compared to the Conservatives.
  • The Conservative record on inequality explains why David Cameron in his Hugo Young speech jumps from the 1960’s to the present day, ignoring the Tory years. And it explains why he wants to avoid discussing inequality between rich and poor, saying:

“That doesn’t mean we should be fixated only on a mechanistic objective like reducing the Gini co-efficient … Instead, we should focus on the causes of poverty as well as the symptoms because that is the best way to reduce it in the long term. And we should focus on closing the gap between the bottom and the middle, not because that is the easy thing to do, but because focusing on those who do not have the chance of a good life is the most important thing to do”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • There is no rational basis for discarding the gap between rich and poor and for focusing instead on the gap between the bottom and the middle. But the political motivation is quite clear – Conservative pledges to reduce tax on the wealthiest in society will see a return to the growth in inequality not seen since the 80’s and 90’s
  • The Conservative argument that shrinking the state will help fight inequality lacks any empirical basis. Sweden, France, Denmark – the largest states in terms of Government expenditure as a % of GDP, have among the lowest gini coefficients.
  • Labour advocates a strong state, not a large one. But Mr Cameron remains fixated on size. He told the Today programme this year that his target was a 40% state and he misled the Guardian audience this month saying that the state would rise to 50% – out by two percentage points, and completely disregarding of the fiscal stimulus, supported by respected economists the world over

Myth 2: People are poorer under Labour

“The very poorest in our society got poorer…..The incomes of the bottom ten percent actually fell by £6 per week between 2002 and 2008 before housing costs, and £9 per week after housing costs”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • Mr Cameron has extracted a select statistic from a whole stream of data that shows the opposite trend. Low income households have shared fully in rising national prosperity.
    • Household survey data show that living standards for poorest 20% of households have risen by over 1.5% a year in real terms since 1997-98, keeping pace with incomes of richest 20% of households.
    • Key to this were tax and benefit measures meaning
      • households in the poorest fifth of the population are on average £2,850 a year better off
      • families with children in poorest fifth of population are on average £4,750 a year better off;
      • the poorest third of pensioner households are, on average, £2,100 a year better off.
    • This contrasts sharply with the 80’s and 90’s when living standards of poorest 20% of households rose by less than 1% a year compared with 2½% for the richest 20% of households.

“….and there are more of them…The number of people living in severe poverty has actually risen – not fallen, risen – by 900,000 in the past ten years”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • It is hard to know how this statistic has been generated. The Government does not have a measure of “severe” poverty and such measures are regarded by the IFS and others as unreliable (see http://www.ifs.org.uk/publications/4524)
  • According to HBAI, over the period 1996/97 to 2007/08, the percentage of the population below 60 percent and 70 per cent thresholds of contemporary median income showed slight falls.  What we do know is that:
  • 500,000 children have been lifted out of poverty since 1998-99
  • Measures announced since Budget 2007 will lift around 500,000 more children out of poverty
  • 900,000 pensioner households have been lifted out of relative poverty since 1998-99
  • A pensioner is now no more likely to be in poverty than someone from the population as a whole.

Myth 3: Social mobility has stalled

“And studies by the Sutton Trust indicate that social mobility has effectively stalled – people are no more likely to escape the circumstances of their birth than they were thirty years ago. If you think about it, these are astonishing facts”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • The concensus among numerous studies is that while social mobility rose after the second world war, it stayed flat between 1970 and 2000. This despite protestations that the Thatcherite revolution would increase mobility. In fact, two studies suggest social mobility is on the move since 2000:
  • A Joseph Rowntree report published in October 2008 shows that earnings mobility during careers had fallen in the 1980s and 1990s, but had risen since 2000. This provides encouraging signs for social mobility in the future.
  • Academic research from Bristol University, highlighted in the recent Cabinet Office paper shows that the impact of family background on exam results has declined for recent generations of 16 year olds. This indicates (relative) social mobility should increase in the future after 20 years of no change.
  • For more details on the evidence, see the Cabinet Office report from November 2008: Getting on, Getting Ahead athttp://www.cabinetoffice.gov.uk/media/66447/gettingon.pdf

Myth 4: Government is not advancing progressive aims

“the size, scope and role of government in Britain has reached a point where it is now inhibiting, not advancing the progressive aims of reducing poverty, fighting inequality, and increasing general well-being”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • Various studies including those by the Institute for Fiscal Studies and the Joseph Rowntree Foundation have found Government’s reforms to taxes and benefits to be clearly progressive, benefiting the less well-off relative to the better-off.
  • The Government has pursued a comprehensive strategy to support families on lowest incomes:
    • In 1999, we introduced the National Minimum Wage, which has increased by 24% in real terms since then
    • In 2003, we introduced Working Tax Credit, the first system of in work support for families without children – meaning four out of ten families with children now receive more in tax credits and child benefit than they pay in income ta
  • By April 2009 Child Benefit and the Child Tax Credit guarantee support for the first child of £3,820 a year for families with an income of less than £16,040 a year and £1,585 for families on up to £50,000 a year. George Osborne announced cuts to Child Tax Credits and the Child Trust Fund in his Party Conference speech
  • Since 1997-98, living standards for the poorest 20% of households have risen by 1.6% a year in real terms BHC, broadly matching strong growth in average incomes, and also keeping pace with the richest 20%.

Myth 5: Incentives to work are falling

“the harm that means-tested benefits do to work incentives is beginning to undo the good they do in raising people’s incomes”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • Studies show that tax credits have played an important role in getting disadvantaged groups back into work.  In 2008 Q2, the lone parent employment rate was 56.3%, an increase of more than 11 percentage points since 1997.
  • Government reforms, including introduction of tax credits, have raised incentives to work for low income families, have halved the number of families facing highest Marginal Deduction Rates (MDRs), and have helped deliver a significant reduction in child poverty:
  • Government reforms to tax and benefit system mean that number of families facing highest MDRs have halved since 1997.
  • Increase in number of families facing MDRs of 60-70% reflects more generous financial support to a greater number of families through tax credits including, for the first time, families without children.
  • The Conservatives presided over a regime where MDRs exceeded 100%. This is no longer the case. They offer no policy suggestions on MDRs but some of their own tax proposals will create new ones
  • There is little evidence that tax credit reforms have significantly harmed progression: some studies have identified small increases in working hours due to tax credits for lone parents, and most others provide no evidence of reductions in working hours among couples.
  • Focussing additional support on those families who need it most has led to a significant reduction in child poverty. Relative child poverty has fallen by 500,000 since 1998‑99, and absolute poverty has more than halved since 1997.

Myth 6: The benefits system doesn’t help the poor

“A couple with no children where the head of the family works sixteen hours a week at minimum wage would be better off if they both just claimed benefits”

David Cameron, Hugo Young Lecture, 10 Nov 2009

This statement is extremely selective. It ignores the fact that:

  • the minimum guaranteed income for a couple without children where one person works full-time has risen 55% in real terms since 1999, as a result of the introduction of tax credits and the minimum wage
  • the Government does not believe it is right to offer WTC to people who do not face significant barriers to work but choose to work only part-time. This would undermine the incentives to work full-time. Full-time work offers greater opportunities for progression and is a surer route out of poverty.

“The pensioner who has saved their whole life gets little or no pension credit, but the person who hasn’t saved gets their income topped up”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • Pension Credit tackles poverty amongst today’s pensioners without undermining incentives for future pensioners to save for their retirement. If a person does not save for their retirement, then they could receive a weekly income equivalent to the guaranteed minimum income.
  • However, if a person wants more than this minimum level – as most people aspire to – they have an incentive to save for their retirement.
  • The Savings Credit component of Pension Credit rewards pensioners who have low or moderate incomes and who have saved for their retirement with extra payments up to £20.40 a week for single pensioners and up to £27.03 for couples in 2009-10.
  • Government believes it is right to provide a safety net which helps to protect the vulnerable and those who have been unable for whatever reason to make adequate provision for their retirement.

Alongside this, Government has introduced policies to benefit all pensioners, irrespective of their income or savings. These include:

  • Winter Fuel Payments of £200 for households with someone aged 60+ (or £300 if someone is aged 80+). Budget 2009 announced an additional payment of £100 to households with someone aged 80+, or £50 if someone is aged 60+, to be paid in winter 2009-10;
  • free television licences available for those aged over 75;
  • free off-peak local bus travel and eye tests for those aged 60+.

“We have set out plans to end the couple penalty in the tax credits system by increasing working tax credits for couples who stay together.  As we end the couple penalty, there will be an immediate benefit – the poorest couples with children will gain, on average, £1500 a year, lifting up to 300,000 children out of poverty”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • Tax credits treat couple and lone parent households equally, and are not designed to favour any particular arrangement. Levels of financial support are determined by need, and are based on the number of children in the family and the household’s income
  • Increasing working tax credit for couples would weaken the incentive for potential second earners to enter work, by raising their out-of-work income. In the long-term, this could increase poverty. Children in dual earner families are less likely to be in poverty than those in single earners – just 4 % of children in families where one is working full-time and one part-time are in relative poverty as against 18 % of single earners.
  • Therefore this unfunded Conservative policy – which they estimate costs £3 billion per year to be funded by supposed “future savings” – could be far better targeted to alleviate poverty

Myth 7: Labour has a poor record on youth unemployment

“Youth unemployment has also increased – with nearly one million 16-24 year olds now out of work”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • The 18-24 claimant unemployment has so far remained almost 400,000 below the early 1990s peak, and nearly 500,000 below the peak of the 1980s
  • Over 75% of young claimants move off unemployment benefit within 6 months
  • Youth unemployment also continues to be transitory, with young people typically moving into work quicker than other age groups. Off-flow rates have remained higher than the previous recession, thanks in part to investment in the jobseeker’s regime over the last decade
  • The ILO definition of unemployment for 18-24 year olds includes 121,000 full time students. Excluding this group, the latest figures are 115,000 below the equivalent peak in 1993

Myth 8: Society and solidarity has diminished under Labour

“the recent growth of the state has promoted not social solidarity, but selfishness and individualism”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • Relevant indicators suggest the opposite is true:
    • The Citizenship Survey shows that in April-June 2009, 76 per cent of people felt they belonged strongly to their neighbourhood, an increase from 2003 (70%)
    • Charitable giving has increased dramatically. In 1997 the average weekly household contribution to charity was £1.50. By 2007 this had increased to just over £2.50.
    • Government funding has more than doubled according to the NCVO since 1997 to over £12 billion
    • The number of charities has grown by 42% between 1994/5 and 2006/7
    • There were 124,000 more people working in the sector in 2006 than in 1997, an increase in 24% (now at 634,000)

Meanwhile the Conservatives have proposed real cuts to the third sector in both inference and concrete proposals. Initially Oliver Letwin proclaimed himself a fan of the third sector because it can do things “more cheaply” than the public sector. Then Nick Hurd said that the sector needed to “stand on its own two feet” rather than rely on “state aid”. And then David Cameron announced he’d cut £100 million from the Cabinet Office budget from April 2009 which would mean the end of the Office of the Third Sector, with:

  • Cancellation of grants to over 5000 small local charities across the country
  • Cancellation of approximately 400,000 volunteering opportunities
  • And cancellation of funding to some of the umbrella organisations

Myth 9: Spending on welfare is paid for by borrowing

“Much of govt’s welfare spending has been paid for on account to be paid back by future generations”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • This is simply not true. The Government did not borrow to fund current spending over the last economic cycle. Since then, borrowing has been essential to fight the recession

Myth 10: Spending on welfare has rocketed under Labour

“473bn spent on welfare payments since 1997”

David Cameron, Hugo Young Lecture, 10 Nov 2009

  • It is not clear where this figure comes from.
  • What we do know is that spending on welfare rocketed under the Tories. Looking at annual spend on incapacity benefits (including Income Support for long-term sick/disabled, Sickness Benefit, Invalidity Benefit, Incapacity Benefit and Employment and Support Allowance) spending in real terms (09/10 prices) was 7,506 billion in 1991/92 and rose to 11,715 billion in 1996/97. In 2008/09 it was 11, 793 billion.
  • In other words, the Tories increased these welfare payments by 56% but under Labour they rose only slightly. It is odd that the Conservatives feel confident in their track record on welfare payments.

Related Posts

Ban Trump From Brum

In response to rumours in the Telegraph that Donald Trump’s UK visit will be moved to the Midlands and Birmingham, I decided to set up a petition calling on the PM and Birmingham City Council to halt his visit. Earlier today, I spoke with the Birmingham Mail about how the Government may be planning  to […]

Read more

Humanitarian situation in Syria

The humanitarian situation in Aleppo is more serious than ever, with supplies of food, clean water and medical equipment now nearly exhausted. It is now time for the Government to consider airdrops of humanitarian aid and to work to ensure the safe passage of civilians from besieged areas to safe grounds. We in the Labour […]

Read more

Brexit Vote

Many in Hodge Hill and the West Midlands voted to leave the European Union on June 23. I accept and respect the result as the will of the British people expressed in a democratic exercise. I will not therefore vote to frustrate the Brexit process. I will be fighting to ensure that we get the […]

Read more

Stay up to date with Liam's work

  • Latest Tweets

  • Copyright Liam Byrne MP 2017