2002 Budget Response

By Fran Bennett, Jay Ginn, John Grieve Smith, Hilary Land, Richard Madeley,Paul Spicker, and Anne West.

Published: April 2002

The Labour government has turned a corner in affirming the case for redistibutive taxation to fund public service expansion and an ambitious anti-poverty strategy.

For this exciting new political venture to succeed it is crucial that the money is spent in the most effective way possible. Here some of the country's leading academic experts in the fields of economics, public service delivery and social policy make an initial assessment of the new measures that have been announced.

A summary of the response follows - the document can be downloaded in full at the bottom of the page.

EXECUTIVE SUMMARY

1. Public finances and the macroeconomic picture - John Grieve Smith

• The Budget is a welcome, if overdue, acknowledgement that if public services are to be improved, then expenditure on them will have to take a higher proportion of national income, as will the taxes to finance them.

• The Budget is broadly neutral in its effects on demand, and in the present uncertain state of the economy this is probably appropriate.

• There was a disappointing lack of measures to tackle the main obstacle to achieving the Chancellor’s aim of “moving nearer to full employment”, namely, the high level of unemployment in the older industrial regions.

2. The National Health Service – Richard Madeley

• In deciding to fund an expansion of the health service from general taxation the government is moving in the same direction as many other European countries. This is the most efficient, least bureaucratic and most redistributive way to do it.

• Supporters of the NHS should prepare for a strong counter-attack from its opponents and counter prevalent misrepresentations of how the system works.

3. Education – Anne West

• Whilst education was not the focus in the 2002 Budget, there were some interesting measures in the £270 million package for England that was announced

• The targeting of pupils at risk of exclusion can be seen as being aimed at reducing not only school exclusion but also social exclusion.

4. Child poverty – Paul Spicker

• Figures released shortly before the budget show that the government is not yet on course to meet its target of abolishing child poverty in twenty years.

• Much discussion has focussed on how poverty is measured, and the government is now considering a less “relative” index. But this will not address the issue of “economic distance”, and is not the standard the government originally set itself.

• The 3.9 million children remaining in poverty will be harder to reach through the labour market measures that the government seems to favour. Much more significant will be the level of benefits they receive.

5. The new tax credits – Fran Bennett

• Despite the government’s rhetoric the new tax credits can be understood as jointly assessed means-tested benefits.

• There has been concern about the Working Tax Credit underpinning low pay and discouraging investment in human capital, addressing symptoms rather than root causes of labour market disadvantage

• The generous rates of the Child Tax Credit and the promise to increase them in line with earnings are very welcome, but the extension of means-testing and breach of the principle of independent taxation is more questionable.

• The government’s claims to be providing a “guaranteed minimum income” for some groups rests on improving take-up, which in turn depends crucially on achieving its declared goal of reducing stigma.

6. Child care – Hilary Land

• The government has accepted a responsibility to share with all parents the costs of feeding and clothing their children. It has yet to accept such a responsibility for their care. There is no “seamless web” of support for childcare in Britain.

• State help to parent with the costs of childcare may depend on employment status, income, discretion of a personal adviser for those on a New Deal Programme, age of the mother as well as where the family happen to live.

• Experience from our European partners shows that directly subsidising child care services in the public sector is a far more certain way of meeting needs than the current heavy reliance on the private for-profit sector.

7. Pensions – Jay Ginn

• Sadly, in a Budget that is redistributive in other respects, measures announced will do little to address poverty and income inequality among pensioners.

• Although the Pensions Credit will increase incomes for some pensioners, further modifying the structure of means-testing it is a flawed way of tackling pensioner poverty, especially for women who make up the bulk of low-income pensioners.

• A better basic pension, raised to the level of the “minimum income guarantee” and indexed to wages, is the most effective way to ensure that all pensioners share in the general rise in economic prosperity.

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