---

Budget Resolutions and Economic Situation

I will come to precisely that. The hon. Gentleman might have read, I think, the most authoritative study on inequality, mobility and poverty by Professor Hills of the London School of Economics. He says that it is likely that in the last two years for which figures are available, the widening of the inequality gap, which widened massively during the 1980s, has been halted. What we know for sure is that poverty has been reduced, particularly among children and pensioners. The truth is, however—we see it in the hon. Gentleman’s constituency as much as in mine—that the gap remains stubbornly and persistently wide. While more people are better off, poverty has become more entrenched. There is a glass ceiling on opportunity in our country. We have raised it, but we have not yet broken through it. There are many welcome measures in the Budget that will help the position. Increasing the value of tax credits is one; yesterday’s White Paper, with its focus on skills, is another. But as Amartya Sen, winner of the Nobel prize for economics, has noted, social inequality is best tackled and mobility best advanced if we tackle the root causes, not the symptoms. That must mean moving beyond simply correcting low wages and family poverty after the event, towards policies that spread opportunity and help people to realise their own aspirations for progress. The biggest inequity today in our country is not between income groups, but between those who own shares, pensions and housing and those who rely purely on wages and benefits. That is why I believe, in common with my right hon. Friend the Chancellor, that the biggest contribution to enhancing social mobility is to establish Britain as an asset-owning democracy. After all, people rarely spend their way out of poverty. It is far better to encourage people to own assets, so that they have a real stake in the future. I therefore welcome the Budget announcement about the child trust fund. I also welcome the extension of home ownership: indeed, I want it to go further. Just as we are extending home ownership, we should seek to extend employee share ownership to give people a greater stake in economic success. My party won by becoming a party of aspiration. Our means of beating poverty should involve unleashing aspiration. That brings me to another area in which more reform is needed to combine the values that the Labour party, at least, has always supported—social justice and fairness for all—with the modern ambition that people rightly have to progress. I refer to the sensitive issue of taxation. The Chancellor told the House that he had had scope for tax cuts, but had chosen not to make them. He rightly announced, however, that he was uprating tax credits in line with earnings. In effect he was announcing a tax subsidy for working households, and I welcome that. Tax credits have made a real difference in raising living standards and incentivising people into work. Before their introduction, thousands of low-income families faced marginal tax rates in excess of 70 per cent. Some were even clobbered by rates of over 100 per cent. That meant that for every £1 earned in wages, more than £1 was taken off in tax. Today, over half a million fewer low-income households face such insanely high marginal tax rates than was the case in 1997. However, as the Red Book itself confirms, the number facing marginal tax rates of 60 per cent. or more has increased by nearly 1 million, largely as a consequence of the workings of the tax credit system. The Institute for Fiscal Studies has warned that without remedial action, that could worsen work incentives. I was brought up to believe that hard work and endeavour would be rewarded, not penalised. The tax system needs to reflect those values. On fairness grounds, it surely cannot be right for people towards the bottom of the income scale to face higher marginal taxes than those at the top. It is for that reason that I welcome the Chancellor’s plan for a review of the feasibility of aligning income tax and national insurance contributions for low-income families. I believe that the review should consider additional ways of making direct, targeted cuts in the tax burden on low-income families, building on our introduction of the 10p starting rate of tax in 1999, so that we can spring more people from the poverty trap. Such radical action is needed if we are to unfreeze social mobility in our country. Of course there is much that this Labour Government have already done of which we can be proud. No Conservative Government would ever have introduced a national minimum wage, made universal child care a new arm of the welfare state, or helped millions of pensioners out of poverty. The Budget is a further step in the right direction, but we need to do more to help more people through that glass ceiling. An 80–20 society, in which 80 per cent. do OK but 20 per cent. are left behind, might be good enough for the Conservatives, but it should not be good enough for us. That is why I urge my right hon. and hon. Friends to keep moving forward with reform. The longer we are in government, the greater the need to keep on changing to keep pace with the times in which we live.