NEW STATESMAN 27 September (Labour conference section)

Second term issues

Poverty by Donald Hirsch

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The first Blair administration did some remarkable things for poor people, yet failed to make a (so far) measurable difference to overall poverty. Benefits destined for a young child with parents on income support rose at least 80 per cent in real terms; the poorest pensioners saw their minimum income rise 22 per cent, twice as fast as average earnings. But overall, Labour could not show in 2001 that it had made a dent on poverty in Britain. The number of people in households earning below half the average income stood at 10.7 million in 1999-2000, barely changed from 10.5 million in 1996-97.

One of Labour's difficulties - but not the whole problem - is statistical lag. First-term Budget measures such as the working families tax credit, which the government estimates take 1.2 million children out of poverty, will not have a full impact on the figures for another year. But for the government to make a decisive difference to poverty trends, let alone meet its ambitious target of halving child poverty by 2010 and abolishing it by 2020, it will have to do far more than let first-term measures run their course.

But that will be difficult for two big reasons. First, in terms of bringing people out of poverty, it has already picked the ripest apples from the lowest branches. Many of the families

it has helped rise above half the average income are those already working, who have had extra cash through the working families tax credit, or those who moved into work during the 1990s jobs boom. Families out of work have also had their benefits increased, but not by enough to lift them above the half average income threshold. So further improvements depend largely on getting more people into work. Even without a global slowdown, sustaining the employment growth of recent years would have become trickier, as those remaining on benefits tend increasingly to be those hardest to help.

Second, the government faces underlying long-term trends that have contributed to growing inequality - such as the widening of wage disparities. The best strategy for tackling those trends involves steady increases in the minimum wage, better training, and an emphasis in job schemes on higher-quality, sustainable employment. But that could be undermined by a recession, when public policy tends to focus on getting people off benefits into any job, rather than into good or sustainable jobs.

Alistair Darling's new Department for Work and Pensions will focus on encouraging lone parents and disabled people to think about working. Hitherto, their benefits did not depend on their seeking a job; now they will have to attend a "work-focused interview" when first claiming support. If large numbers of these groups do move into jobs, the impact on poverty will be significant; but, so far, the numbers do not look promising. Despite the New Deals set up to help them, the reduction in the number of out-of-work claimants was only 2 per cent for disabled people and 11 per cent for lone parents in Labour's first term.

By continuing to stress the importance of getting a job - any job - as the best route out of poverty, the government risks neglecting the importance of the quality of jobs that people take up. Paradoxically, reducing in-work poverty by topping up low incomes through tax credits - a policy that will be extended in 2003 - can also reduce the pressure to improve job quality, productivity and pay at the lower end of the labour market.

Even by 2005, it may still be too early to judge Labour's performance in its long-term mission to reduce poverty. But, unlike in 2001, things will need to be moving firmly in the right direction for the strategy to be convincing.