Dead Men Left

Friday, June 24, 2005

Toynbee and tax credits

Polly Toynbee's strategy, if we can allow her the forethought required, is to cloak New Labour puffery with old-fashioned social democratic truths. Here she is, for instance, putting a spin on the tax credits debacle:

However, there is one serious long-term critique of tax credits. They are a massive hidden subsidy to low pay, allowing employers to pay sub-survivable wages in this most unequal of EU countries. (When did the CBI ever murmur a word of thanks?) The only countries that have succeeded in all but abolishing child poverty - the Nordic nations - created societies far more equal in pay from top to bottom. There is no known or imagined economic model that can abolish child poverty while the rich soar ever further away at the top, leaving growing numbers of people trapped in low pay at the bottom. Tax credits have taken a million children out of poverty - but not a single economist thinks tax credits alone can do the heavy lifting to reach the other 3 million. The very low minimum wage - £4.85 - would need to rise to become a living wage. Gradually incomes would have to converge nearer the middle, in the Swedish way. And taxes would have to rise. Everyone knows it, no one in government says it.

The subsidy of poverty pay is endemic to New Labour's welfare reforms. The New Deal, for example, with its badly-monitored in-work "training" wages, is a bonus for employers unwilling to pay their employees properly: that is to say, it subsidises the very worst employers. The significant re-entry rate of New Deal participants, with very large numbers sitting through scheme time and time again, strongly suggests that both employers are collectively more than happy to maintain a convenient poverty-pay labour force. Forty thousand 18-24 year olds have been through the entire six month-long programme at least three times in just four years.

Underlying structural problems in the economy are not addressed by the New Deal. See, for instance, this short report (PDF) from the Centre for Economic Policy covering the incredible variations in regional unemployment rates; tinkering with microeconomic reforms simply will not address longstanding economic disparities on this scale.

Toynbee doesn't touch on any of this, leaving £2bn tax credit overpayments as the circumstantial result of administrative incompetence, and a predictable (privately-contracted) public sector IT failure. Despite her apparent aspiration to create a more humane and effective labour market, she provides no clue as to get there. The paragraph above is left hanging - a rhetorical device, rather than a serious political programme. Her call is to rally round tax credits against the right-wing hordes eager to remove even this slender prop for millions of poverty-stricken workers. The real left has to start constructing alternatives: a significant increase in the minimum wage would be an excellent start.