Child poverty and the unravelling of New Labour’s ‘hybrid’ political economy

Cameron claims to lead a ‘One Nation’ government, but pursues a ‘two nations’ governing strategy

Scott LaveryOne of the headline social policy goals of the Blair and Brown governments was to eradicate child poverty in Britain by 2020.  During New Labour’s thirteen years in power considerable progress was made in this regard: child poverty fell from 3.4 million in 1998 to 2.3 million in 2010.

Recent figures from the Department for Work and Pensions confirm that under the Conservatives this fifteen-year trend has now ground to a halt.  More worryingly still, it looks increasingly likely that child poverty will increase over the coming years as the government’s £12 billion programme of welfare cuts is implemented.  For this reason, the Institute for Fiscal Studies (IFS) has predicted that child poverty is set to increase by 700,000 between now and the end of this parliament.

This prospect of a rapid increase in child poverty fits with a distinctive pattern which has been established under David Cameron’s governments.  Rising employment, steady economic growth and low inflation are regularly highlighted as evidence that the British economy is on the mend.  However, this increase in growth is taking place alongside a rolling-back of the social policies which helped to alleviate poverty and temper the rise of inequality under the previous Labour government.

What were the key features of New Labour’s political economy and how might these help us to understand the contemporary conjuncture?

It is often argued that New Labour represented fundamentally a continuation of Thatcherism. During its first two terms in government, the party refused to raise the top rate of income tax, whilst corporate tax payments fell to the lowest share of national income ever recorded.  Tony Blair regularly boasted that Britain had the ‘most flexible labour market’ in the OECD and senior figures within the party seemed actively to endorse growing levels of inequality.

At the same time, however, New Labour implemented a series of policies which could still be characterised as broadly social democratic in inspiration.  For example, between 2000 and 2005 the party increased real spending by 8.1 per cent on the NHS and 6.1 per cent on education year-on-year – the largest increase in spending on public services in peacetime British history.  This growth in public investment was flanked by an array of social and economic policies – including the introduction of working tax credits and the implementation of the minimum wage – which effected a limited redistribution of income and went some way towards alleviating in-work poverty.

New Labour’s political economy is therefore best viewed as a hybrid: it relied upon a combination of two logics of social and economic development.  Although liberalisation was a dominant feature of the party’s programme, the state was also a crucial actor in expanding and stabilising Britain’s pre-crisis growth model – whether through sustaining work in the ex-industrial regions in the public and para-state sectors or through compensating low-paid work through the tax credit system.

This framework, for a period of time, served to stabilise Britain’s pre-crisis model of capitalism.  It redistributed jobs across the country and buoyed levels of aggregate demand in the process.  New Labour’s governing legitimacy – and of course its three successive electoral victories – were built in good part upon the temporary success of this hybrid regime.

However, the crisis of 2007-8 shattered this settlement.  In its place, the Conservatives have sought to re-shape Britain’s political and economic landscape through a programme of rapid deficit reduction focused on public spending cuts.

This project can be viewed as representing both a continuation of and a rupture with New Labour’s hybrid political economy.

On the one hand, David Cameron and George Osborne continue with the finance-led growth model which they inherited from New Labour.  Asset-price inflation persists; private indebtedness continues to grow; and – in the absence of export-led growth – Britain’s stubborn trade deficit endures.

However, Cameron’s ambition to eliminate the budget deficit through huge departmental budget cuts and reductions to the welfare bill – focusing in particular on cutting working-age benefits – breaks fundamentally with the limited redistributive elements of New Labour’s social and economic programme.

The problem is that this strategy is likely to drive increasing levels of inequality and instability in the years ahead.

The expected increase in child poverty can be read as a manifestation of this dynamic.  From 1998-2010, reductions in child poverty were achieved in large part because of the expansion of the tax credit system under Gordon Brown.  However, the proposed cuts to tax credits under current Conservative plans are poised to drive up child poverty further, with 72% of the cuts likely to affect in-work families on incomes of less than £20,000.

A similar story could be told about the public sector.  Having grown substantially under New Labour, general government employment is projected to fall by a massive 1.1 million by 2018-19 compared to 2010-11.  As has been shown in previous SPERI research, however, this retrenchment disproportionately impacts upon Britain’s ex-industrial regions, aggravating geographical imbalance and uneven development in the process.

Cameron has claimed that he intends to lead a ‘One Nation’ government.  However, his deficit reduction strategy actively dismantles the very mechanisms which served to reduce relative poverty and inequality under the previous Labour government.  Although cutting working-age benefits may be politically appealing in the short term, the social and economic consequences of pursuing this ‘two nations’ governing strategy are likely to be highly damaging in the years ahead.