The Centre for Policy Studies, a think tank, has analysed the government’s own figures and concluded that the poorest households are paying more tax and receiving lower benefits in comparison with the rest of the population than when Labour took office in 1997.
“Almost five million households have an average pre-tax-and benefit income of just £4,280,” said Charlie Elphicke, the report’s author and a tax partner in a leading international law firm.
“Those households are now paying over £1,000 a year in income and council taxes. The impact of the government’s policies resembles those of the Sheriff of Nottingham, not Robin Hood.”
In 1998, Gordon Brown promised in his second budget that Labour would be “modernising . . . the entire tax and benefits system of our country” to “advance the ambitions not just of the few but of the many”.
The report suggests, however, that it is the “many” who are being hit disproportionately hard by Brown’s reforms.
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The poorest fifth of households accounted for 6.9% of all taxes paid in 2004-5, the latest year for which detailed figures are available, up from 6.8% in 1996-7. Meanwhile, their share of state benefit payouts dropped from 28.1%, when Tony Blair came to office, to 27.1%.
The next fifth of households, whose average income is £11,000, fare little better. Their share of the tax take, 10.1%, is the same as in 1997, but the proportion of benefits they receive has dropped from 26.2% to 25.3%.
“The evidence is clear,” said Elphicke. “The poorest households in Britain are now paying a higher share of tax and getting a lower share of benefits than before Labour came to power.”
The richest fifth of the population, with an average household income of £66,330, have seen their share of the government’s tax take go up, from 41.3% to 42.8%. But they also receive more benefits as a result of Brown’s reforms.
The policies of paying tax credits to families with children and of increasing child benefit means 10.9% of benefits go to the richest fifth of households, up from 10.1% in 1996-7.
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The biggest gainers have been mid-level earners. Households with an average income of £21,580, have seen their share of the tax take drop from 16.9% to 16.4%. At the same time their share of benefits has risen from 20.8% to 21.3%.
A similar picture emerges for the next group of households, whose average income is £34,460. In 1997 they paid 24.9% of taxes and got 14.7% of benefits. Now they get 15.3% of benefits and pay 23.9% of taxes.
Stuart Adam, a specialist in tax and benefits at the Institute for Fiscal Studies, said it would be misleading to conclude that the government had not redistributed income from rich to poor. “Changes in the economy mean we would have seen a very big increase in inequality without any changes in taxes and benefits,” he said. “As it is, those changes have kept things roughly the same.”
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CHILD BENEFIT GOES ON ALCOHOL
New research has shown what many have long suspected — child benefit is not spent on children but by parents on themselves, writes David Smith.
The study, commissioned by several government ministries, found more than 50p of every £1 increase in child benefit is spent by parents on alcohol.
The research at Warwick University also found child benefit, standing at £17.45 a week for the eldest child and £11.70 for each additional offspring, is paid to parents of all children under 16. It is also paid to under-19s who stay on at school and some 16 and 17-year-olds living at home and in training. Combined with child tax credit it comes to 1% of the economy.
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The alcohol finding was reached by comparing changes in benefit with the detailed spending patterns in the official Family Expenditure Survey.
But researchers suggest parents may act as they do because they are already providing for their offspring.