Labour's Record on Cash Transfers, Poverty, Inequality and the Lifecycle 1997 - 2010

John Hills

Published 1 August 2013

Cash transfers (benefits and tax credits) are crucial to the way that inequalities develop over time. This paper looks at how Labour’s aims, policies and achievements on poverty and inequality related to its reforms of and spending on cash transfers. - Labour’s aims for poverty and inequality were selective. ‘Equality of opportunity’ was the stated aim, rather than equality of outcome – with a focus on lifting the lowest incomes, not reducing the highest ones. - Labour gave priority to reducing child and pensioner poverty, addressing them through a series of reforms. It increased the share of national income provided through cash transfers to children and pensioners, and increased the value of their cash transfers relative to the poverty line. - By contrast, spending on other transfers to working-age adults fell as a share of national income from the level Labour inherited, while benefits for those without children fell further below the poverty line. - By the end of the period both child poverty and pensioner poverty had fallen considerably, in circumstances where child poverty would have risen without the reforms (and pensioner poverty would have fallen less far). However, poverty for working-age adults without children increased. - The risks of poverty converged between children, their parents, pensioners, and other working age adults. Being a child or a pensioner no longer carried a much greater risk of living in poverty than for other age groups. - Overall income inequality was broadly flat, comparing the start and end of Labour’s term in office. But differences in net incomes between age groups were much lower. The smoothing of incomes that occurred across the life cycle could be seen as a striking, if unremarked, achievement.