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New Labour

Asked by sweet_gurl | Jan 23, 2008 | University Level > Politics > Homework
sweet_gurl asks:

‘The goal of greater equality has been abandoned not only by the Conservative Party, but also by New Labour.’ Discuss.

etutor answers:

‘The goal of greater equality has been abandoned not only by the Conservative Party, but also by New Labour.’ Discuss.
I assume that the focus of this question is very much on the modern Labour party. The Conservative party has not 'abandoned' the goal of greater equality for the very simple reason that it has never been committed to it! The Conservatives have instead pursued the very different goal of EQUALITY OF OPPORTUNITY, which of course refers not to OUTCOMES but rather to ensuring that citizens are provided with greater opportunities to improve their economic status. There is a fair amount of evidence that 'New' Labour has placed emphasis upon this goal rather than its traditional pursuit of greater equality of outcome. It is still committed to a measure of income redistrbution, though this is less evident than in the past.

For most of its history Labour has been a moderate, pragmatic, non-doctrinaire party. In particular, no Labour government has brought about a major and permanent redistribution of income and wealth, while it might be argued that the only truly radical government was that of Attlee after the war, which nationalised major industries and introduced most of the modern welfare state. Instead, Labour governments in the past have tended to focus upon extending opportunity, improving public services and industrial planning. Indeed, all earlier post-war Labour prime ministers (Attlee, Wilson and Callaghan) were regularly accused by the left of betraying socialism. Yet in 1974, the party was elected with a commitment to bring about ‘an irreversible shift’ in wealth between the rich and the poor.

The Blair ‘New Labour’ project was shaped by the party’s experience of eighteen frustrating years in opposition, during which time profound changes in the UK were brought about by the Thatcher and Major governments. Labour found itself having to adjust to, even accommodate Thatcherism, following four successive general election defeats. The party was also angered by what it saw as the deleterious effects of Conservative rule, in terms of widening inequality and deepening social division. The process of Labour party modernisation that began with Neil Kinnock in 1983 was driven by electoral imperatives that became stronger with each subsequent defeat. After 1992, the party concluded that it was now vital to improve its image of economic competence, and that this must involve the abandonment of traditional ‘tax and spend’ policies and an acceptance of much of the Thatcherite commitment to free markets and to the primacy of inflation control. The importance of removing this obstacle to electoral success led to Labour’s pledge not to increase either the basic rate or the top rate of income tax, as well as a commitment to remain within the limits of the Conservative government’s planned public spending increases for the first two years of a Labour government. This boosted Labour’s electoral credibility, though at the expense of the pursuit of greater equality through significant redistribution of income and wealth. Under the leadership of Kinnock and Smith, Labour had gradually moved back towards the political centre, while Blair completed the transition in a highly symbolic way in 1995 when the old ‘Clause Four’ of the party’s constitution was replaced by a re-statement of the party’s aims and values in a modern context. The slogan ‘New Labour’ was also symbolic, as it was designed to distance the party from its past, and to underline the process of modernisation undertaken by the party and, in particular, the abandonment of Clause Four, which had committed it to collective ownership of the means of production. The combination of Labour’s ‘revolution’ and the vast catalogue of difficulties confronting the Conservatives enabled Labour to win the 1997 election, and by a landslide.

Even now there is huge disagreement over where Labour stands ideologically, despite the insistence of both Blair and Brown that the emphasis has always been upon the restoration of traditional Labour values of fairness, justice and social inclusion. There had been an earlier attempt to update Labour’s ideology while in opposition in the 1950s, which had focused very heavily upon the need to bring about greater equality of outcome through the tax and benefit system. Anthony Crosland’s The Future of Socialism (1956) had contended that the debate about private versus public ownership was essentially dated, and that the Labour party should instead concentrate its attention upon the objective of equality. This became close to an act of faith for those on the social democratic Right of the party, many of whom were opposed to further exercises in nationalisation. Several of these eventually left the party in 1981 to form the SDP. Others, such as Dennis Healey and Roy Hattersley, remained loyal to Labour and fought the battle for moderation from within the party and against the Left. But their battle for moderation did not involve an espousal of Thatcherite market forces, but rather the old Crosland commitment to equality. Hattersley has frequently, and perhaps accurately, criticised Blair for having written the pursuit of equality out of the New Labour script. New Labour has been committed not so much to greater equality as to greater equality of opportunity – a very different concept and goal, and one that has been readily adopted and pursued by the Conservatives. Indeed, Labour in office initially promised to ‘think the unthinkable’ with regard to social security benefits, since it had become mainstream orthodoxy within the party that more generous benefits, if anything, encouraged welfare dependency and did little to enable people to escape from poverty. Instead the emphasis was on ‘welfare to work’ policies, in part inherited from the previous Conservative government, and designed to tackle long term and youth unemployment and to persuade economically inactive groups such as lone parents to join the workforce.

Blair repeatedly acknowledged that Thatcher altered the political landscape, though always denied that New Labour represents any endorsement of Thatcherism. There has been some acceptance of market forces and competition, and of choice in the provision of public services, though policies such as the introduction of a national minimum wage, tax credits for poor working families and the European social chapter clearly owed nothing whatever to Thatcherism, and could perhaps be seen as evidence that the pursuit of greater equality remained alive. At the same time it cannot be denied that Labour adopted much of the Thatcherite agenda in areas such as macro-economic policy, privatisation, welfare reform, social policy, crime and immigration. Blair (and to a lesser extent, Brown) has frequently justified the policy changes on the grounds that the more traditional social democratic approach is inappropriate in a rapidly changing, integrated and globalised international economic system where capital is increasingly mobile and free to shift to economies that favour the free market approach. In facing up to these often unpleasant realities, governments are constrained in their choice of policies, and are virtually obliged to opt for low rates of personal and business taxation, fiscal prudence, inflation targeting and deregulation.

The Labour government, elected in 1997, was determined not to suffer the fate of its predecessors, all of which had encountered serious economic difficulties, and often crises. Labour accepted the Thatcherite view that monetary stability and fiscal conservatism should take precedence over more traditional objectives such as full employment and income redistribution. At the same time, Labour was convinced that increased public investment in health and education represented an investment in social capital, which in turn would increase the trend rate of growth. The new government was anxious to gain the trust of financial markets, and had already reached out to British industry while in opposition. Gordon Brown, as Chancellor, argued that a stable macro-economic framework was a precondition of achieving sustained growth, higher levels of employment, greater competitiveness and an extension of opportunity. The tone was set when operational responsibility for the conduct of monetary policy, and thus interest rates, was handed over to the Monetary Policy Committee (MPC) of the Bank of England in Labour’s very first week in office. Brown also announced a new self-imposed ‘Golden Rule’ that required the government’s budget to be balanced over the course of a trade cycle; any borrowing would be for capital investment purposes only, and not to finance current government spending. Brown's decision to opt for a spending straitjacket ensured that the government would have to resist demands made by departments and pressure groups for additional spending and, indeed, would find itself cutting back on some social security benefits, much to the consternation of many of its backbenchers.

The key to greater equality for the new government lay not in more generous benefits for ooorer people, but rather in a clear strategy for creating employment. This was based largely on the extension of incentives and opportunities for the unemployed to search for, and then find work. This strategy required lower paid employment to be made more attractive, and to increase the size of the difference between income received in and out of work. The policies adopted to achieve this objective were very much in line with Labour’s more traditional ideology. A national minimum wage was introduced in 1998 that guaranteed all employees over the age of 21 a minimum hourly wage (of £3.60 in the first instance); the NMW applied also to those over 18 but under 21, though at a lower rate. A Working Families Tax Credit was also introduced, with income supplements to guarantee a minimum weekly income for households with at least one full-time worker. These measures were designed to increase the size of the workforce and to reduce welfare dependency. Another dimension was the government’s oft-stated belief that education and training, including for those out of work, were central to the preparation of the labour force for participation in increasingly competitive and globalised world markets. Central to the strategy, therefore, was the government’s obligation to equip the workforce with the necessary skills through education, training and re-training. Blair and Brown argued that economic prosperity and social justice were two sides of the same coin. Higher growth and prosperity provide the funding for the education and training programmes for the least well off in society, which in turn result in a more skilled workforce, greater efficiency and output, and still higher rates of growth. At the core of the employment strategy was the New Deal, which was set up specifically for groups encountering the greatest difficulty in finding work. Originally it targeted 18-24 year olds, for whom participation was made compulsory; later it was extended to the long-term unemployed, to the over 50s, to lone parents and to the disabled. Essentially, the New Deal removed the option of claiming benefits, with qualifying groups required to take on subsidised employment or further education or training, or else voluntary work or work on an environmental task force. The stress upon work and training opportunities was consistent with the modern liberal approach that has existed since Beveridge, and with social democratic ideas of social inclusion, though there is a far greater emphasis upon the obligations of citizens to take full advantage of the various opportunities on offer. The same approach can be seen in the priority attached to education by Labour. Blair announced that his three top priorities would be ‘education, education and education’, viewing education not only as a vehicle for enhancing individuals’ opportunities, but also (as had the previous government) as a means of ensuring future economic success. This theme has been reiterated by Brown since he became prime minister.

There is little agreement over the extent to, and even the ways in which Labour has changed. 'New' Labour could be seen as bringing socialism up to date – the values haven’t changed (social justice, equality of opportunity, community, partnership, rights); instead, its policies acknowledge that society has changed. 'New' Labour is thus in the tradition of democratic socialism, but with a much reduced stress on unions, public ownership, state provision, and even redistribution. Alternatively 'New Labour' could be seen as a radical transformation, from democratic socialism to social democracy. If this is the case, then the pursuit of equality has certainly been downgraded. The state is much more an enhancer and facilitator than a provider, and exists to ensure there is opportunity and choice A 'fair' distribution of income is pursued, but not at theexpense of liberty; hence the stress is on expanding the range of opportunities available to citizens, while still protecting the most vulnerable. The emphasis is generally on 'inclusion' and on a reduction of inequality, though there is a much broader understanding of equality which goes beyond the economic to focus upon equality for sexual minorities, outlawing of religious and racial hatred, acknowledgement of alternative lifestyles, etc.

Traditional Labour policy focused upon income redistribution via the tax and benefits system; to some extent it is still used by 'New' Labour, though nowadays it has a much lower profile. It operates through the use of a progressive income tax system, whereby higher income earners pay not only more tax, but also a greater PROPORTION of their income in tax. Today the only rates of income tax are 20 and 40 percent, but back in 1979, there were many different marginal tax rates, rising to as high as 83%. The income collected is then redistributed to low income earners and those without work in the form of various benefits. Some of these are contributory - so, for example, you couldn't receive unemployment benefit (now JSA) without having paid a specified number of national insurance contributions. But the main redistributive benefit is income support - for those on low or zero incomes. This is then a 'passport' to receiving a variety of other benefits such as housing benefit, designed to help poorer citizens to pay their rent. The problem with this approach, as Labour eventually recognised, is that if marginal tax rates are too high then it may damage incentives for higher paid earners to work, or to work overtime, or to seek promotion, or to set up/expand small businesses, or even to remain in the UK. This then reduces enterprise and economic growth and depletes the government's tax revenues. At the same time there is a danger that a 'dependency culture' will be created -if social security benefits are too generous and easy to receive then this may act as a disincentive for people to seek work or to pull themseves out of poverty. Moreover, the longer that people are out of work, the more their skills become rusty, and the less likely it becomes that they will eventually find work.

So Labour's approach now recognises that the most important cause of low income and poverty is unemployment - about 40% of the poorest households have no income earner. Hence the emphasis is upon providing incentives for people to seek and find work, and this is achieved in a number of ways - what they all have in common is that the gap between earnings if at work and income if not at work should be significantly large to make the former the desired option. This explains why the government has devoted so much time and money to various training and retraining schemes, which increase the skills of the unemployed and thus make them more employable. A National Minimum Wage was introduced back in 1998 to make low paid work more attractive. At the same time, the conditions for receiving benefits were steadily tightened, while benefits increase each year only by the rate of inflation. Since average earnings are always rising by a greater % than benefits it follows that those who choose to remain on benefits and out of work become steadily relatively worse off. The New Deal, introduced in 1997, is also part of the overall policy, since it provides further education, training and job placements for those out of work; a failure to take advantage of the opportunities on offer results in disqualification from receiving benefit. Low paid workers do not pay income tax until they earn about £5000 a year and also pay national insurance contributions at a much lower rate, thus keeping a greater proportion of their income in take-home pay. Brown, when Chancellor, also introduced an elaborate system of tax credits for low paid workers, which supplements their income (especially where they have children) and thus increases the gap between income in and out of work still further. The advantage of this approach is that it does not penalise high income earners, while also adding to the numbers in employment, and thus the size of the tax base. This in turn enables the government to spend still more on key public services such as health and education, which in principle should benefit poorest citizens more than any other group. The problem with the policy is that the tax credits system is very complex, with many not claiming their entitlements; moreover, despite all the government's efforts to pull people into work, the number of people claiming Incapacity Benefit (which pays more than JSA) has risen alarmingly to almost 3 million. The Minimum Wage also acts as a deterrent to firms in some sector to employ workers since it raises their costs, while many on the New Deal programme fail to find permanent jobs, or indeed any jobs at all.

Recent evidence has shown that income inequality in the UK is again increasing, despite massive transfers of funds year after year from the South to the North of England and Scotland. Brown is probably more in the 'Old' Labour tradition than was Blair, with a greater commitment to income redistribution, though this is increasingly difficult to achieve as the growth of the economy slows.

I hope this is helpful.

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