Tax | ukwatch.net

Poor get hit as business walks free

tim — Sat, 05 Jul 2008 11:51:39 +0000

Even as the government admits to a £10 billion black hole in its finances caused by its gifting of tax back to businesses to plug their pensions holes, it looks set to U-turn on its policy to close corporation tax loopholes costing the exchequer tens of billions more every year.

Threats from major UK companies to relocate overseas or into tax havens has prompted a move to revise corporation tax rules following high-profile complaints that the UK’s taxation levels are significantly higher than elsewhere in the EU.

Pharmaceuticals giant Shire recently announced it would relocate to Ireland to take advantage of the low tax regime there.

While UK law stipulates a basic corporation tax of 28%, corporations on average pay closer to 22%, with some of the largest paying significantly under this figure.

A simplification of the rules mooted by the treasury last year would have closed loopholes which at present allow huge levels of tax evasion.

The UK has recently come under fire for itself maintaining more tax havens under British rule than anywhere else in the world, something which campaign groups argue has directly led to tens of thousands of deaths.

Corporate tax avoidance is thought to cost £25 billion every year – more than twice the amount these major companies were gifted by the government in tax breaks to allow them to refill the pension pots they themselves had emptied.

In two years, the same amount would pay for the total line of credit currently being offered to major banks as part of the credit crunch – £50 billion is being underwritten in loans to maintain the flow of money through the economy.

The same banks, along with a host of other companies, are already benefiting from government handouts this year to the tune of £10 billion, as they pour money into pension funds to keep them afloat.

This money, rather than coming from profits or business chiefs who were the investors who caused the problem, is being paid in from taxes.

Pension deficits have soared by more than £100bn in the past year, the Pension Protection Fund said recently.

Meanwhile, as the Treasury struggles to maintain its financial balance, fears are rising that the pensioners themselves could be at risk of falling prey to the 10p tax band changes which the government have proposed.

Up to 420,000 pensioners with small private pensions of up to £1,000 a year could start having to pay tax of £200 a year from next April, under new plans – potentially raising around £80 million a year.

What we need is a new dawn

Ellie Keen — Sun, 08 Jun 2008 23:02:06 +0000

Gordon Brown’s apparent decision to build more nuclear power stations because fuel prices are going through the roof is bizarre. It takes 15-20 years to build a nuclear power station. Hard-pressed hauliers and the fuel poor cannot wait that long. Nuclear power is irrelevant to addressing the present cost of fuel. And it can do next to nothing to ease the cost of heating homes.

Rising oil prices are already significantly reducing car and plane use. For home heating, the sensible way to proceed is by a rapid shift to domestic renewable energy: solar, wind-power, air or ground heat pumps, biomass (wood-burning boilers) and micro-generation. Germany is already proving the huge success of this policy through feed-in tariffs which enable families to generate their own energy and sell on any excess to the national grid at a profit.

Sadly, the British Government has turned its back on such ideas because it is committed to industrial vested interests. We hear a lot about empowering the consumer, but where this would really count – with decentralised energy systems – the fossil fuel and nuclear industries have the inside track.

This is not the only example of Government prejudices holding back desperately needed changes. In the current turmoil in financial markets, as the crisis broke and it became clear that City trading in near-worthless financial derivatives or “structured investment vehicles” had been a major ingredient in the collapse, it was decided there would be no change in light-touch regulation.

No committee of inquiry would be set up to deal with the rottenness of the financial system. Despite the toxic mix of poor accounting transparency, risk-laden financial products, evasive offshore operations, weak banking regulation and a gross lack of public accountability, a return to business-as-usual (if that were possible) was judged better than cleaning out the Augean stables.

As far as housing is concerned, the shortage of social, affordable housing has reached crisis levels. There are 1,634,000 households on the waiting list in 2004, according to the latest available data. The actual figure is probably nearer two million. In addition, nearly 100,000 households are registered homeless. Yet virtually no council houses have been built over the past 10 years.

Local authorities get no grant from the Government for house-building and are forbidden to borrow on the open market against the security of their housing stock to fund the tens of thousands of affordable houses for rent that are needed. However, housing associations are permitted to borrow on the market, to an extent equal to their grant from the Government, so that their house-building is doubled. Making a political point against council housing because of an obsession with owner occupation is wholly unacceptable.

If council tenants want their homes to be repaired and modernised, they have been required to vote in a ballot either to be transferred to a private landlord, a housing association or a so-called arm’s length management organisation. If they reject these options and opt to stay with the council, their homes have simply been left to deteriorate.

This is about ideology, not meeting housing need. Are ministers oblivious to the needs of the quarter of the population with the lowest incomes who do not have the wage levels or the regularity of employment to afford owner-occupation when mortgage debt to income is now on a six-to-one ratio or even higher?

Some people are rather better off. The chief executives of the FTSE 100 companies now take home on average more than £71,000 a week. Meanwhile, employees in their companies on the minimum wage take home £200 a week – 350 times less. Like other bosses before him who brought down their companies, Adam Applegarth was able to walk away from Northern Rock with a golden goodbye (£760,000 in his case), while hundreds of jobs could be lost in the north-East of England with little or no compensation.

Non-domicile tax refugees, many of them millionaires, are untroubled by the Inland Revenue because taxing the rich is a reminder of the bad old days. The Treasury has even retreated from the minimalist proposals on non-doms.

The fiasco over the abolition of the 10p tax band has still not been properly rectified. Alistair Darling’s compensation scheme, which still leaves 1.1 million of the 5.3 million losers worse off, comes to an end after one year. What is needed is not a bit more tax credit adjustment, but the re-introduction of the 10p tax rate with the £6.6 billion cost funded by redistribution from the richest 5 per cent in society with incomes over £150,000 whose wealth has quadrupled under this Government.

The enthusiasm for the private sector in all things has led to more problems. Through 1997-2002, the public accounts were in surplus. However, instead of the huge public rebuilding programme being financed cheaply via the Public Works Loan Board, the decision was made to hand over the construction and management of new hospitals, schools, roads and prisons to Private Finance Initiative schemes. This is a distinctly “unsound money” policy – top-slicing public expenditure for 30-50 years ahead, pushing a number of health trusts into bankruptcy and opening up re-financing scams offering even bigger profit rake-offs. And it has been pushed through with future liabilities for the public purse of more than £100 billion, even though many surveys have found that the PFI does not generally offer the best value for money.

The poorest in our society are probably more vulnerable now than at any time for a century and workers can still be arbitrarily dismissed in their first year of employment without any rights. Yet the Government continues to restrict trade union rights. Nor will it implement the European Union’s Charter of Fundamental Rights for all citizens, which all the other 26 EU member states have accepted without demur. The charter bans excessive working hours (British workers work longer hours per week than anyone else in Europe) and would allow secondary action in industrial disputes (which is not an issue anywhere else in Europe).

It’s not Gordon Brown’s leadership that’s the problem. It’s the policies that have alienated Labour’s core vote. Changing the leader will alter little unless the policies are altered in a manner to convince those voters Labour is now fully on their side.

Michael Meacher is Labour MP for Oldham West and Royton and a former environment minister

Book Review: Who Runs Britain?

tim — Sat, 31 May 2008 21:19:43 +0000

For more than a century writers and politicians on the left have been predicting that the capitalist system would shortly collapse under the weight of its own contradictions. Again and again capitalism has proved these prophets of doom wrong. However the start of the 21st century has coincided with a financial crisis every bit as great as any that has gone before. If things go on as they are, Karl Marx may be proved right after all.

There is a paradox here. The Labour government which took power in 1997 seemed to mark the final victory of capitalism. The new prime minister Tony Blair and his chancellor Gordon Brown both explicitly repudiated the socialist system which all previous Labour governments had embraced while acknowledging the victory of free market ideas.

Indeed they went far further than any previous 20th century administration in forming an alliance with what George Orwell used to label the boss class. As Robert Peston demonstrates in horrifying detail in this extremely important book, a small group of super-rich effectively dictated large tracts of government policy.

Corporate buccaneers were allowed access to Blair’s Downing Street and Gordon Brown’s Treasury in a way that was entirely new. Nothing like it had occurred even under Margaret Thatcher.

In return for comparatively derisory financial contributions to the Labour Party these businessmen and entrepreneurs received what amounted to a general exemption from the obligation to pay taxation. The effect of this decision was the creation of private wealth on a scale that has not been seen since before World War One and probably not even then.

New Labour’s decision to cultivate the super-rich – a class which is now lavishly repaying Tony Blair in kind as he jets first class round the world from boardroom to corporate jamboree – has not been without terrible cost.

The thesis of Robert Peston’s book is that the losers have been the ordinary, middling people who benefited from the restrained shareholder capitalism which flourished in Britain from the end of World War Two.

This capitalism was based around large, accountable public companies – Marks and Spencer, ICI and so forth. By the late twentieth century these were no longer owned by private individuals but overwhelmingly by large and seemingly impregnable pension funds.

The senior management in these companies were paid generously (perhaps quarter of a million a year) but not lavishly. The real beneficiaries from the profits made by these large public companies were not private individuals but members of the large final salary schemes which guaranteed security in retirement to millions upon millions of ordinary employees.

These large corporations were socially responsible and financially conservative. Above all they were strongly biased towards financing investment through equity rather than borrowing – a prudent approach which helped guarantee long term survival at the expense of short term profit.

Robert Peston quite brilliantly shows how the fiscal changes introduced by Gordon Brown in his early budgets destroyed this relatively benign system of shareholder capitalism. Acting on the self –interested advice of a small group of corporate marauders from the private equity industry, Brown systematically put in place the conditions for the emergence of a novel and highly destructive kind of finance.

This structure was based on debt rather than equity. It was designed to create giant private fortunes rather than the even distribution of wealth. Brown’s changes actively disadvantaged the prudent and careful public companies that preferred equity to debt finance. Within a short space of time it completely destroyed the British pension funds that were until very recently the envy of the world.

One of the great merits of Robert Peston’s book is that he knows the hedge fund managers, private equity moguls and politicians involved intimately. He has talked to them, and understands their point of view. Some of them are certainly friends of his. But he has something very rare in any kind of journalism: the ability to write with the insight and understanding of a genuine insider – and the dispassionate clarity of an highly intelligent observer.

This is why I do not believe that anybody else apart from Peston would have been able to write this unique guide to our contemporary predicament. It shows how Tony Blair and Gordon Brown’s New Labour government have hollowed our public domain, unthinkingly destroyed and created a barbarous economic and social structure.

New Labour’s structure is not merely unethical, however. It is also desperately unstable. The shameful surrender by the state to an untrammelled capitalist class has destroyed large parts of the public domain and created genuine conditions for a crisis in capitalism in the months and years ahead.

The most important of these is an explosion of public and private debt. Numerous public assets – ranging from hospitals and schools to great businesses – can only survive through huge debt repayments. This kind of financing works in boom times but is destined to fail when an economy turns sour, as ours is starting to do.

The second has been the destruction of large parts of the public domain and the creation of a tiny class of super-rich at the direct expense of a broad mass of ordinary people. As a result many of the institutional protections against social and political instability have vanished.

There are too many lazy mistakes in this book. A volume as significant as this ought to be footnoted. Above all it is poorly designed, occasionally giving the impression that it is a collection of essays rather than a coherent and rigorously argued document. The chapter on Marks and Spencer, for example, while well-informed, has little thematic connection with the remainder of the text.

Peston never seriously tries to answer the question – Who Runs Britain? – posed in the title. It is hard to tell whether his editor at Hodder & Stoughton has done a wretched job or the whole thing was produced in a tremendous hurry. This is a pity because Peston has produced a truthful guide to our times. It deserves to become essential reading as we slide deeper and deeper into an economic, political and moral morass.

Britain’s rich get richer even as recession begins to bite

tim — Wed, 14 May 2008 23:24:01 +0000

The choice of headline to mark 20th aniversary of the Sunday Times Rich List will hardly have given the newspaper’s editor sleepness nights: “Rich Get Richer under New Labour.” The same headline would suffice for each of the past 10 years.

But this time the uninterupted growth of wealth amongst the already super-rich takes place amidst a period of extreme economic turbulence, during which the living standards of working people have fallen sharply. As Sunday Times journalist Philip Beresford’s opening gambit illustrates: “Even as the storm clouds gather, Britiain’s super-rich have never been richer.”

Not only are the super-rich utterly impervious to the extortionate recent rises in the cost of living, but their wealth grows whether economic conditions are favourable or not. While house prices in the UK have begun to fall, reports in the media detail how the rarified West London housing market of the international super-rich is insulated from such downward pressures and continues to climb—albeit at a slightly slower rate.

The accumulated wealth of those on the rich list has grown to £412.8 billion, an increase of almost £53 billion from last year. Growth has fallen by more than a quarter, from last year’s rate of 20 percent, to 14.7 percent. Of this year’s top 10, only three were born in Britain. Indian-born number one Lakshmi Mittal’s wealth grew by an astonishing 44 percent, mainly by virtue of swallowing up more international steel producing facilities through mergers. Such business manoevres usually result in consolidation and redundency notices for staff who find their jobs duplicated.

In his new book on international elites David Rothkopf observes, “The rise of nation states produced national ruling classes. It would be odd if the current integration of the world economy did not produce new global elites—business people and financiers who run global companies.”

Writing in his Observer column about Rothkopf’s new publication, Will Hutton noted how Prime Minister Gordon Brown has surrounded himself with former employees of Morgan Stanley and Goldman Sachs. Jonathan Powell, former premier Tony Blair’s chief of staff, has joined Morgan Stanley and Blair himself receives a large stipend from Goldman Sachs.

The Sunday Times then addresses itself to the relatively tragic fate of British-based billionaires. Whilst the international super-rich are, in the words of the Sunday Times, “getting richer quicker,” by contrast British-born billionaires with substantial UK investments suffered from the economic slowdown far more than their international counterparts. Falls were expected in fortunes reliant upon British retail, property and investment. British-born Sir Philip Green, who owns BHS and TopShop, saw his wealth decline by 10 percent—losing £570 million in one year. Richard Branson lost £400 million off a previous £2.7 billion due in no small measure to the drop in Virgin Media’s share value. Vincent Tchenguiz, a British investor and property dealer, suffered a 76 percent fall in his wealth.

Rupert Murdoch’s flagship newspaper complains (in what will be seen as a warning by the Brown government) that “whereas we used to lead the field with the near-20 percent growth rates, our 14.7 percent increase this year seems positvely pedestrian.” Rich list lead writer Beresford points to contemporary increase of 22.6 percent in the wealth of the world’s super-rich and of a staggering 26.6 percent increase amongst Europe’s super-rich over the last year.

Beresford then complains about the new single payment of £30,000 annual tax levied on those deemed to be non-domicile (not resident) in Britain—irrespective of their actual wealth—despite this being little more than loose change for those on its list. The UK’s non-domicile rule in fact still allows the international super-rich to make London their home without paying taxes on earnings from abroad. And they pay very little or nothing on their British-based profits.

But Beresford is worried about bigger things to come. He notes that the storm clouds are gathering and worries that the super-rich have become a “convenient target,” writing, “In times of economic uncertainty, the gulf between rich and poor is rarely ignored by those looking for a convenient scapegoat.” By way of defence, the Sunday Times hails the money donated by a few of the super-rich to charity.

The degree of wealth disparity in the UK is astounding and Beresford is not the only commentator to note the increasing hostility towards the super-rich. A couple of days after the publication of the list, Dominic Lawson opened his weekly column in the Independent newspaper by stating, “If there is a bloody Bolshevik revolution in this country, I think I can guess the inflamatory pamphlet which will be waved by the people putting the wealthy up against the walls and shooting them. It will not be the Communist Manifesto. It will be the Sunday Times Rich List.”

Though decrying what he described as the “politics of envy,” Lawson states that “The 2008 edition, published just a couple of days ago, was more eye poppingly voyeuristic than ever: 110 pages of non-stop salivation over fortunes which the rest of us could only dream about.”

He then notes that the Archbishop of Cantebury, Rowan Williams, was interviewed only days prior to the rich list publication, telling BBC interviewer John Humphreys, “The more you have a disproportion between what people are earning and what they are worth, the more we have astronomical sums with no clear rationale behind them, the less credibility the whole thing has.”

Williams added that the enormous disparities between the super-rich and ordinary working people brings about “a degree of envy and cynicism … that leads people to feel alienated from the rest of society.”

Lawson’s derision is not directed against inequality, but at those like Williams who presume to draw attention to the elephant in the room. The Archbishop’s sin is to make the obvious connection between the gargantuan wealth accumulated at the one pole of society with the increasing immiseration and insecurity at the other. Willliams, writes Lawson, “is one of those who believes that over the past decade under New Labour the least well off have got poorer as the rich got richer, and that the latter fact is in some way responsible for the former.”

Lawson spends the rest of his column arguing that inequality, regardless of repeated academic research findings, is not really growing. And besides, he pleads, any attempt to redistribute wealth through taxation is self-defeating.

But such statements—the mantra of Thatcher, Blair and Brown—ring increasingly hollow. In the UK millions of working people live a life of perpetual financial insecurity and crippling debts. They suffer the daily ignonimy of waiting nervously for the latest bank or mortgage statement, or looking on as petrol gauges and pay-as-you go utility meters tick over. Newpapers, even the upmarket broadsheets, are full of advice for readers about how to tighten their belts, how to reduce debt and avoid bankruptcy or how to save money on household shopping and utility bills.

While house prices rose and credit was readily available, the Labour government and a supportive media was able to dazzle sufficicent numbers of people with the illusion of rising living standards. No longer. Gordon Brown has constructed an economy built on unsustainable levels of debt. Not for nothing did Guardian economics editor Larry Elliott call his book on Blair and Brown’s economic policies Fantasy Island. That some commentators are now worried by the vulgar worshiping of money represented by the Sunday Times Rich List is out of fear of the social and political struggles that will inevitably be provoked by the onset of recession.

Britain: Tax credit system plunges families into debt

tim — Tue, 08 Apr 2008 23:52:51 +0000

Prime Minister Gordon Brown’s Working Families Tax Credits (WFTC) system, launched in 2003 and which was supposed to lift families with children out of poverty, has caused untold stress and financial hardship for millions of families.

Designed to replace an earlier system of tax credits introduced by Brown when he was chancellor in 1999, a family of four with an annual income of £15,400 a year (half the male average earnings), would get an additional £4,200 in 2006, still less than two-thirds average male earnings, under WFTC.

But the new IT system was overly complex, dealt with three times the number of households and was riddled with design and implementation problems. Brown rejected warnings that the system would not be able to cope and pushed on regardless.

The system was designed so that claimants would notify Her Majesty’s Revenue and Customs (HMRC), which administers the system, of changes to family circumstances and income after the year end so that adjustments could be made the following year. But HMRC had underestimated the volatility in poor people’s income and the work after the year end this would give rise to, particularly as there is little information publicly available to show entitlements or how the credits are calculated.

While HMRC had anticipated 300,000-400,000 overpayments in the first year as the tax credit payment system bedded down, the volume was five times that number. It “overpaid” £2.3 billion to 1.9 million families in 2003-2004, £2 billion to 2 million families in 2004-2005, and £1.7 billion to 1.9 million families in 2005-2006. One third of payments to more than 6 million households were wrong. This is equivalent to an average overpayment of £1,000 a year or £20 a week, a large sum for a low-income family for whom this could represent more than 10 percent of their income.

HMRC then sought to claw back the overpayment automatically. Families were brusquely informed that deductions would be made in their tax credits for the subsequent year or recouped via increased taxes, arguing that families could “reasonably” have expected that their changed circumstances would result in HMRC seeking to recover the overpayment. Unless challenged, HMRC immediately begins recovery.

HMRC had made no provision to examine each family’s situation on a case-by-case basis before automatic recovery of overpayments. The transfer to HMRC, which had been used to dealing with taxes, usually where people are more prosperous, meant that it would be totally unused and unsuited to dealing with highly vulnerable people for whom £10 a week matters.

Claimants were faced with bills to repay £5,000, a massive sum for families earning an average wage, let alone the more vulnerable families on low and fluctuating incomes, and were plunged into debt. Unable to pay, many found themselves facing court orders for the repayment of thousands of pounds of tax credits.

Having commissioned a fully automated system, HMRC had few staff to handle the volume of complaints that poured in. In 2006-2007, 371,282 families disputed the recovery of overpayments. When challenged, HMRC has taken months to reply and provides no explanation of the so-called overpayment. So error-prone and arbitrary is the system that some families have had their “overpayments” reduced and a few have had them written off, but many families found they were increased, again with no explanation.

There is scarcely a family in the country that does not have a horror story to tell about their experiences with WFTC: from the extreme complexity of forms that have been known to defeat qualified accountants to the nightmare of challenging the alleged overpayments and attempts to claw them back, and coping with reduced income the following year.

Nearly 55,000 people filed an official complaint expressing their dissatisfaction with HMRC, mostly relating to the handling of disputed overpayments. The parliamentary ombudsman has stated that more than a quarter of the cases she handles relate to the WFTC system, higher than any other department. In 2006-2007, she received 393 complaints about tax credits, of which 74 percent were fully or partially upheld, higher than in any other department.

The ombudsman’s 2007 report, Tax credits: getting it wrong?, noted that a group of some of the poorest people in the country had said that this had led to them getting into debt where they had previously not been in debt—causing distress, anxiety and even family break-up.

Many families have refused to have anything to do with WFTC for fear of being caught up in the system’s maladministration. As a result, hundreds of thousands of families do not claim the money to which they are entitled.

While families can appeal to an independent tribunal about the amount of tax credits to which they are entitled, they do not have a similar right in relation to a decision by HMRC to recover an overpayment once the claimant has disputed it. They cannot appeal the way the HMRC has reached its decision or applied the “reasonableness” test, unlike the comparable right of appeal in the benefit regime.

The reform agenda

The state of play with WFTCs is not simply the result of bureaucratic error. WFTCs were part of the Tony Blair government’s broader agenda of getting families off welfare and into work by “making work pay.” When Blair took office as prime minister in 1997, he categorically rejected redistributive taxes and universal cash benefits to reduce the ever-growing social inequality that is the hallmark of Britain today.

Instead, he called in an array of big businessmen to review welfare and social policy issues and suggest how it should be reformed. Martin Taylor, then chief executive of Barclays Bank, was asked to set up a task force “to advise on the reform of the tax and benefits system.”

His task force concentrated on work incentives and converting the existing system of family credits to a tax-based system. It was a crucial step in the direction of a unified benefit system more directly linked to the tax system and workplace, and a tax-based credit system that would force people off benefits and into low-paid work.

As a unified benefits system, WFTC would—it was claimed—reduce fraud and “offer joined up government,” with a “more efficient service to customers.” But a unified benefits system would have to bring together the assessment of eligibility for benefits and their payment. It therefore depended upon highly integrated IT systems linking the various agencies and the transfer of responsibility from the then-Department of Social Security to the Inland Revenue, which has subsequently merged with the Customs and Excise Agency, under the direct control of the Treasury.

This resulted in yet another lucrative IT contract for EDS, but a financial disaster for claimants. While most of the responsibility for the faulty IT system and the £7 billion worth of wrong payments has been laid at EDS’s door, the contractor has been subject to a trifling £75 million penalty, and £25 million of this would only be payable if it won further government contracts. To date, less than £55 million has been repaid.

WFTC aligns benefits away from payments paid as a matter of right based on rules of eligibility to a means-tested tax credits system. In effect, it is determined by employers. Under the Labour government, welfare henceforth was to be linked to the responsibility to work. In the future, anyone refusing a job, however lowly paid, will have his or her benefits stopped. This is now being extended with attempts to force those with disabilities, long-term sick and health problems into work.

The “social safety net” of collective social insurance is being replaced by discretionary payments by the state. They can be withdrawn or changed as the state sees fit and are subject to tax regulations rather than those of the benefits system. Part at least of the benefits system has been brought under the direct control of the Treasury.

In this context, a little-reported measure in the Finance Bill going before parliament is significant. It will extend the right of Customs and Excise officials to turn up unannounced on taxpayers’ doorsteps, demanding to go through records, to tax inspectors, as part of the ongoing merger of Revenue and Customs. The proposals will specify and standardise the records taxpayers must keep, although it is as yet unclear what these requirements will be.

While Customs officials have long had strong search rights, tax inspectors require official warrants to make surprise visits. Now, HMRC is seeking to extend these rights across the two merged agencies. While these new powers are ostensibly aimed at corporations and businesses, they will be used against working people under the guise of combating fraud.

A recent report published by the Economic and Social Research Council, Tracking income: how working families’ incomes vary through the year, sheds light on the implications of the move to a tax credit system. It found that low-income households had much greater income volatility than had been expected. For example:

*Only 7 of the 93 families it tracked had incomes within 10 percent of the annual average.

A quarter of the families had at least four periods with incomes outside the range of 85 to 115 percent of their annual average.

The families with the highest volatility were generally those with the lowest incomes, and a higher proportion of lone parents and tenants had more variable income.

WFTC was aimed at creating a new pool of cheap labour by forcing people off benefits. That in turn would serve to drive down wages. By providing inducements to work in the form of tax credits, it was a barely disguised subvention to big business, enabling employers to pay poverty-level wages. The government admitted as much when it said that making savings was not the primary purpose of the scheme. Indeed, it would cost more, not less, as the evidence has confirmed.

WFTC is a £20-billion-a-year subsidy to the employers and has become key to making Britain a low-paid service centre, while the service companies are the Stock Market’s darlings. It is an essential mechanism for corporate welfare—for redistributing wealth from the mass of the population to the financial elite.

The latest official figures show that unclaimed means-tested benefits—pension credits, housing benefit, council tax benefit, jobseekers’ allowance and income support— amounted to about £9.37 billion in 2005-2006, the most recent year for which data is available. This is an increase of £1 billion on the previous year. It contrasts with the paltry £750 million for 2008-2009 and £950 million earmarked for tackling child poverty in the budget, which Save the Children believes means that the government will miss its own target for relieving child poverty by 450,000.

It is now deliberate government policy to increase the level of unclaimed benefits. According to official papers from the Department for Work and Pensions (DWP), ministers have decided not to try to meet the benefit take-up targets on the grounds that it would not represent “value for money to repeatedly press unwilling people to take up their entitlement.”

In the case of pensions, the government has introduced legislation making it compulsory for workers to pay into a second-tier personal and portable insurance for pensions, whose funds are to be invested on the Stock Market.

The new welfare system radically alters the relationship between the government and its citizens: the individual’s responsibility is to work, be independent, support family members, not just children, and save for retirement. The state’s role is to ensure that people do work and thus become “economically independent” so that the state supports only those unable to work, and then only on the most stringent conditions with meagre entitlement. Thus, the Labour government has gone a long way towards dismantling the system of state social insurance, introduced by the post-war Labour government exactly 60 years ago as a mechanism for eradicating poverty.