Redistribution under New Labour

"The poorest households in Britain are now paying a higher share of taxes and getting a lower share of benefits than before Labour came to power."
That's the claim made in this report (pdf) from the Centre for Policy Studies.
It shows that since 1996-97 the share of benefits recieved by the poorest quintile has fallen from 28.1% to 27.1% of the total. The share of taxes they pay has risen from 6.8% to 6.9% of all taxes.
The official figures on which these are based are here.
The report corroborates two of my priors.
1. Governments have an incentive to direct redistribution towards middle-earners, as these are the median voters.
2. There's a trade-off between big government and redistribution. If the government is spending two-fifths of national income, it will have to tax the poor, and this limits the scope for redistribution.

Comments

[james higham]

...If the government is spending two-fifths of national income, it will have to tax the poor, and this limits the scope for redistribution...

And the corollary of this is?

[Mr Eugenides]

If a Labour government doesn't help the poor, one is tempted to ask, what is it for, exactly?

[John Quiggin]

A couple of comments.
(1) The error in measurement is large enough that the first of these comparisons (27.1 per cent to 28.1 per cent) is very dubious and the second (6.8 per cent to 6.9 per cent) is meaningless

(2) Taking these numbers as exact, as long as expenditure has risen by 4 per cent the poor are net gainers [since 27.1 per cent of 104 is more than 28.1 per cent of 100].

[Matthew]

"If the government is spending two-fifths of national income, it will have to tax the poor, and this limits the scope for redistribution."

This doesn't follow. The poorest 10%, who I think we can classify as 'poor', account for just 2.8% of total income. This can't be necessary to tax 40% of total income.

[dearieme]

A Labour government has to keep many people poor, because its key supporters make their livings pimping off the poor.

[chris]

John - they're good points. You might add that New Labour has also helped the poor insofar as it has contributed to falling unemployment; the pre-tax, pre-benefit incomes of the poorest quintile have for this reason risen sharply.However, table 26 of this document shows that since 1996-97 there has been, roughly, no change in the post-tax and benefit distribution of income:
http://www.statistics.gov.uk/articles/nojournal/taxesbenefits200405/Taxesbenefits200405.pdf

[Jim]

I think you're really stretching here, Chris. Since the average pre-tax income of the poorest quintile increased much faster than that of the rich, you would expect their share of taxes to be significantly up, but it ain't. That's because both direct and indirect taxes are down as a share of the poorest's incomes since 1997 - in other words, the government has cut the tax burden on those at the bottom. The (slightly) increased share of the better off in benefits seems to be mostly down to them taking a higher share of in-kind benefits, probably due to much higher expenditure on health, the benefits of which are shared out fairly evenly.

Incidentally, would the share of benefits taken by the better off rise or fall with a citizen's basic income?

[Charlie Whitaker]

Jim,

I think the point of the CPS report is that if tax and benefit proportions were still as they were in 1997, the poorest quintile would be better off (in relative terms, obviously). There may have been some tax relief at the bottom end, but this has been more than offset by a fall in benefits.

[Jim]

Charlie, benefits haven't fallen. All that's happened, as far as I can see, is that the share of benefits in kind going to the middle and upper quintiles has risen slightly because of much higher investment in health.

[Charlie Whitaker]

"... The Labour Party is a democratic socialist party. It believes that by the strength of our common endeavour we achieve more than we achieve alone, so as to create for each of us the means to realise our true potential and for all of us a community in which power, wealth and opportunity are in the hands of the many, not the few. Where the rights we enjoy reflect the duties we owe. And where we live together, freely, in a spirit of solidarity, tolerance and respect."

If all that can be said is that things are only slightly worse than they were in 1997, what sort of vision of an equal society is that?

Was society perfectly formed in 1997?

[Charlie Whitaker]

"All that's happened, as far as I can see, is that the share of benefits in kind going to the middle and upper quintiles has risen slightly because of much higher investment in health."

But isn't this the same as saying that the poorest quintile is bearing a disproportionate share of the cost of that higher health expenditure? Benefits 'in kind' still have to be paid for - out of taxation.

[Jim]

"Was society perfectly formed in 1997?"

Not sure who that is meant to be aimed at, but if you're asking whether I think Labour should have done more for the poor since 1997 the answer is yes, much more.

"But isn't this the same as saying that the poorest quintile is bearing a disproportionate share of the cost of that higher health expenditure?"

Fair point. I don't think I particularly disagree with you here - I do think the tax burden is still too high on the poorest, for example. But my verdict on the record since 1997 would be 'okay, should have done better' rather than the much bleaker picture painted in the original post.

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