Credit where credit is due?
After 13 years in power the Labour government's record on reducing poverty in Britain is a contentious issues; Gordon Brown's party has often been criticised for a perceived failure to do enough to tackle the problem.
In Wednesday’s Daily Mail, columnist Max Hastings reeled off a number of areas of perceived Government failures including what he saw as the failure of the tax credit system to address poverty.
The Claim
Mr Hastings arguec that the tax credits system hac “proved a bonanza for fraudsters, but created few real jobs and done nothing to narrow the poverty gap.”
We took a look at the facts, figures and expert opinions to see just how the tax credit system has impacted on Labour’s overall aim to tackle poverty.
Assessing the changes in the poverty gap is often clouded by differing uses of the phrase. Strictly speaking, the poverty gap is calculated by adding the amount by which everyone on an income below the poverty line falls short of that level. In the UK this is 60 per cent of median income.
Yet in the media reports the term is also used more generally in connection with income inequality.
Taking the strict definition first, it seems that discussing the poverty gap is not deemed to be the more accurate way to assess poverty.
Mike Brewer, Director of Tax and Welfare at the Institute for Fiscal Studies (IFS), told Full Fact that that the poverty gap was an unreliable means of looking at poverty.
Instead Mr Brewer said that looking at numbers of people in poverty was more illustrative of the state of poverty in the UK.
Looking instead at such measures, the idea that tax credits have “done nothing” to tackle poverty, as Max Hastings claims, can be questioned.
Figures from the DWP show that total number of people earning below 60 per cent of the median income has fallen since 1997, despite rising In the years after 2005. But is it possible to assess the role played by tax credits in these figures?
Mr Brewer cited figures from the Treasury which estimated the effect on poverty of changes to the tax and benefit system since 1997.
“If they had made no changes to the taxes and benefits since 1997 except increases in line with inflation then two million more children would be in poverty than there are now,” he said.
“Tax credits would be a very large part of that two million”.
Full Fact also spoke to the Child Poverty Action Group (CPAG), who insisted that tax credits had helped reduce the number of children in poverty.
“Reductions in child poverty have clearly followed significant investment through tax credits.
So in the strict sense of a narrowly defined poverty gap, Mr Hastings’ claim about the effect of tax credits can be questioned.
If the claim was making reference to the poverty gap within the wider issue of inequality, then there has been minimal movement in narrowing income inequalities.
The Office of National Statistics record of income inequality shows that despite some fluctuation, there was little change between 1997 and 2006. Yet is it fair to use such figures as a criticism of the tax credit system?
An IFS briefing, published today, states that while income inequality has increased under Labour, the gap would have been greater without action taken in the tax and benefit system. The widening of the gap is also attributed to significant growth in incomes at the very top of the income scale, while incomes at the very bottom grew slowly.
Because this measure has been influenced by the growth of incomes at the upper end of the income scale, the CPAG rejected the suggestion that the increasing gap could be blamed on failures in the tax credit system.
Max Hastings criticism of the tax credits system appears invalid, given the questions asked over the worth of the poverty gap as a measure. Instead analysts and campaign groups suggest tax credits have played a part in fighting poverty.
It is also possible to question the other aspects of Mr Hastings criticism of the system. For instance the working tax credit is intended not as a job creation measure, as the column asserts, but as an incentive for those not into work to take up employment.
While the tax system has been criticised as complicated, the CPAG also took issue with Mr Hastings’ claim that the system was a “bonanza for fraudsters”.
Figures from the National Fraud Office estimate the amount of money lost to the Treasury from tax credit fraud is between £100m and £200m while the cost of tax fraud is put at £15 billion.
A CPAG spokesman told Full Fact they considered the statement so inaccurate they were considering approaching the Daily Mail for a correction.
Patrick Casey
Comment is free but facts are expensive!
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