27 September 2022

How redistributive was New Labour?

Though inequality did not fall under Blair and Brown, child and pensioner poverty were dramatically reduced.

Photo by JOHNNY EGGITT/AFP via Getty Images

In the BBC documentary series Blair & Brown: The New Labour Revolution, former cabinet minister Ed Balls remarked that the last Labour government was “the most redistributive since 1945”. The line stands out because New Labour is rarely described in such terms. If Tony Blair’s government did redistribute wealth, it is often assumed to have done so in the direction of the wealthiest. Peter Mandelson’s declaration that “we are intensely relaxed about people getting filthy rich” is typically cited (though he did add the caveat: “as long as they pay their taxes”).

So what are the facts? By the metric typically used to judge whether budgets are progressive or regressive, New Labour was highly redistributive. As the graph below shows, the party’s tax and benefit changes led to the poorest tenth of households gaining 13 per cent as a share of net income while the richest tenth lost almost 10 per cent (relative to what would have happened if no fiscal changes had been made from 1997 onwards). In the view of some, this was the fulfilment of the approach advocated by former education secretary Anthony Crosland in The Future of Socialism (1956), which encouraged a focus on ends (a more equal society) over means (nationalisation).

Graph by Ben van der Merwe

The cause of this shift was overwhelmingly the tax credit system introduced by Gordon Brown as chancellor, which dramatically increased benefits for low and middle-income workers and families (tax credit spending accounted for 1.9 per cent of GDP by 2010). But this was redistribution by stealth. Fearful of alienating “middle England”, New Labour avoided making an explicit case for its fiscal approach and failed to build a long-term coalition of support for the welfare state (leaving it more vulnerable to austerity from 2010 onwards).

Graph by Ben van der Merwe

However, the effects of stealth redistribution were still real. As the graph above shows, child and pensioner poverty both fell significantly, with 900,000 children and over a million pensioners lifted out of relative poverty (aided by an £18bn increase in benefits for families with children, and an £11bn increase in benefits for pensioners). More than two million children and nearly three million pensioners were removed from absolute poverty.

As the subsequent record of Conservative governments shows, there was nothing inevitable about falling poverty – its level depends on political choices, perhaps most crucially whether to cut or raise benefits. The share of children in relative poverty (23 per cent) was at its highest rate in 2019 since the start of New Labour’s second term in 2001.

Graph by Ben van der Merwe

Blair and Brown’s record is more vulnerable on the issue of inequality. As the graph above shows, New Labour left office in 2010 with inequality at the same level as when it entered government in 1997.

This was a reflection of surging incomes at the top during the long financial boom – the share of wealth held by the top 1 per cent increased by 0.6 per cent under Blair, a postwar record. It was also a reflection of New Labour’s reluctance to tax such gains. The top rate of income tax remained at 40 per cent for all but one month of the party’s time in office (finally reaching 50 per cent under Brown in April 2010) and no attempt was made to reform wealth taxation.

Only after the 2008 financial crisis did Brown feel liberated to raise income tax on earnings over £150,000. No concerted effort was made to reverse the dramatic increase in inequality during the Thatcher era, which has been linked to social ills from crime to drug abuse, obesity, educational failure and mental illness.

Yet had New Labour not redistributed wealth to the extent that it did, inequality would likely have surged to new heights. Ed Balls and others can be justifiably proud of the government’s record on poverty – not least in view of what followed.

This article was originally published on 18 October 2021