HM Treasury News Release
27 May 1999
MODERNISING THE BRITISH ECONOMY - THE NEW
MISSION FOR THE TREASURY
The text of the Chancellor's speech at the Institute of Fiscal Studies 30th Anniversary Lecture is attached.
30TH ANNIVERSARY LECTURE BY
THE CHANCELLOR OF THE EXCHEQUER TO THE INSTITUTE OF FISCAL STUDIES
ON 27TH MAY 1999
MODERNISING THE BRITISH ECONOMY - THE
NEW MISSION FOR THE TREASURY
Let me start this evening by congratulating the IFS on 30 years of
outstanding work in their field. Born under a previous Labour government,
its reputation built initially from work on corporation and capital
gains taxes, its sponsors as varied as the Economic and Social Research
Council and Marks and Spencer, the IFS has - in just three decades
- under distinguished directors and excellent staff - established
itself as an indispensable British institution. And as every government
finds sometimes to its cost, an institution that is rigorous in research,
proudly impartial and objective in analysis, forward- looking in the
causes it adopts and fiercely independent - yielding to no-one, friend
or foe, on its way.
When we came into government, we set as our central economic objective
the 1944 White Paper aim of high and stable levels of growth and employment
I want to talk tonight about how in the 1990s, the Government is
seeking to meet these same objectives in completely transformed circumstances.
And I want to describe the new role for the Treasury, working with
other departments, to meet these goals.
Of course, the first task for Government must be to deliver a platform
of stability based on low inflation and sound public finances.
But, as I made clear in a speech on the role of the Treasury as we
prepared for government in 1996, I do not believe that in the modern
world you can have a successful Ministry of Finance unless it plays
its proper role in successfully equipping British people and British
companies to succeed.
Indeed, it is only by equipping people for change and strengthening
the supply-side of the economy that we can put past instability behind
So our task now as a government is to use this platform of stability
that we are creating to fulfill our long-term ambitions for our country -
delivering higher levels of sustainable growth, employment opportunity
for all and creating a fairer society.
Some seek to claim that the best government is the least government
- that there is nothing Government can do to improve our productivity
performance, get people back to work or tackle the cycle of poverty
and deprivation that has been a feature of Britain in the last 20
Others have argued that delivering high growth and full employment
can be done simply by old-style demand management. And that the only
answer to poverty is to compensate the poor for their situation rather
than tackling the underlying causes.
I reject both these approaches. And tonight I want to set out what
these long-term challenges demand of modern government and the Treasury
- a long-term commitment to stability, to raising the trend growth
rate, to delivering employment opportunity for all, and by tackling
child poverty ensuring everyone has the chance to realise their potential.
When we came into government, we faced the prospect of another inflationary
spiral, derailing the British economy - what would have been yet one
more damaging episode in the repeated cycles of boom and bust that
have marked British macroeconomic policy management in the last 30 years.
In these circumstances, the first thing that the Treasury had to
do was to get inflation and the public finances under control and
break decisively with the short-termist, secretive and unstable record
of macroeconomic policy-making of the past two decades by setting
a credible framework.
We took early action to put in place a framework for economic stability
- not only making the Bank of England independent but putting in place
a new long-term monetary framework based on clear rules and open procedures.
And as a result of the decisions that we took, inflation has been
brought down to historically low levels.
We also took the same tough action to tackle the fiscal deficit which
we inherited: not just cutting public borrowing in our first two years
by £31 billion, but also putting in place a long-term fiscal
framework, underpinned by legislation, with clear rules that, over
the cycle, there is a current budget balance and prudent levels of
This platform of stability, as I set out to the CBI last week, is
founded on clear rules: first setting out long-term policy objectives;
second, the certainty and predictability of well-understood procedures
for monetary and fiscal policy; and third, on an openness that keeps
markets properly informed and ensures that objectives and institutions
are seen to be credible.
We have also brought stability to our relations with Europe. For
the first time we are committed in principle to economic and monetary
union. We are working with our European partners to make sure EMU
is a success. The UK has also been working with our international
partners to help create the conditions for stability, prosperity and
poverty reduction throughout the world.
Some said, when on our first weekend in office we gave responsibility
for interest rate decisions to the Bank of England, that the Chancellor
and the Treasury would have nothing to do.
But I was clear then that we were only putting in place the foundations
that would provide a platform of stability from which we could build
to achieve our objectives of high and stable levels of growth and
In other words stability is a necessary pre-condition to deliver
our objectives for growth and employment, but it is not sufficient.
An economy cannot fly on only one wing.
Indeed the experience of the last twenty years shows that simply
trying to control inflation alone without tackling the underlying
causes of sluggish productivity growth and inflationary pressure has
proven to deliver neither stability nor the high and stable levels
of growth and employment that we set as our central objective on coming
Raising our growth rate
So let me turn first to raising our long-term growth rate.
Some people argue that governments cannot affect the trend growth
rate of the British economy. I reject this pessimistic view. Our task
as a government is to raise the sustainable trend rate of growth of
our economy from the low level we inherited. That is our ambition
and in the next decade we will achieve it in new ways.
Fifty years of our economic history from 1945 was marred by a succession
of sterile and self defeating conflicts between state and market,
managements and workforce, public and private sectors.
We need a new national purpose based on an end to short-termism and
an understanding of the need to take a long term view, government,
industry and the financial community:
- government - by ensuring lasting stability and removing the barriers
- industry - by investing for the long term; and
- the financial community by refusing to resort to the short-termism
and stop-go attitudes which have bedevilled us since the war.
So our analysis suggests that we must combine our strategy for stability
with major structural reforms of our product, capital and labour markets.
One measure of productivity is output per worker. On this basis when
we came into government, we inherited an economy with productivity
gap approaching 40 per cent with the United States and 20 per
cent with France and Germany, and a trend rate of growth which meant
that a substantial productivity gap was set to remain.
Alternatively you can measure productivity as output per hour worked
rather than on the basis of output per worker. Because a UK worker
works fewer hours than in United States but more than in Europe, we
do better against the us, but even worse against Europe. However there
is still a considerable gap with the us of about 25 per cent.
The IFS have suggested that we should measure productivity as total
factor productivity, a measure which strips out the contribution from
capital and labour intensity. On this basis the UK's productivity
gap narrows to 10-20 per cent compared to the US and to Europe. Although
this is a useful measure it does not reflect the chronic under-investment
in physical capital in this country over decades. It is that low level
of investment that has led to lower levels of labour productivity.
In every year since at least 1960, the UK has invested a lower share
of GDP than the OECD average and capital stock per hour is much lower
in the UK than for our competitors - 31 per cent higher in the US,
36 per cent higher in France, 55 per cent higher in Germany. Raising
productivity per worker in the UK requires a period of sustained high
investment so that we can close the gap in capital stock per worker
with our competitors.
Of course, how the extra investment is used, its effectiveness, is
just as important as the volume of investment which is why the productivity
agenda is so important.
So I do not believe that any of us - analysts, employers, employees,
politicians - can wish away the productivity challenge that Britain
faces. While 30 years ago governments responded to the productivity
challenge with top-down plans, and tax incentives and grants primarily
for physical investment, today it is more complex - involving the
modernisation of capital and product markets, the encouragement of
innovation and an enterprise culture open to all, and the building
of a modern skills base.
Enterprise, investment and risk-takers
First, we moved decisively in our first two budgets to encourage
new businesses with a cut in the small companies' tax from 23p to
20p. To encourage start-ups we have introduced a new 10p rate of corporation
tax for small companies and a new 10p rate of income tax which will
help the self-employed. And to encourage growth we have provided 40
per cent investment incentives for small businesses and medium sized
businesses; provided additional support for venture capital; and reformed
the capital gains tax system with a long term rate of 10 per
cent to promote and reward long-term business investment.
Recent work by the OECD has highlighted the problems which small
businesses face in raising finance where they have little track record.
As part of this reform of capital markets the challenge for Britain
is to create a stronger venture capital industry and to make sure
there is enough venture capital for hi-risk, early stage and start-up
Some argue that the capital gains tax system is too blunt an instrument
to encourage long term investment by individuals. They also argue
that companies and investors will not respond to tax incentives to
encourage investment. But these are often the same analysts who are
quick to point out the power of incentives in our tax system to tax
avoidance. Our shared task is to ensure we put in place incentives
to encourage long term improvements to productivity not short term
We are putting in place measures to encourage investment in early
stage, high technology companies, through a new £20 million
Venture Capital Challenge run jointly with the private sector; and
will be introducing incentives to promote corporate venturing.
And next year we will introduce a new Enterprise Management Incentive
measure to provide help where it is most needed to smaller companies
with potential for rapid growth which are seeking to recruit or retain
key personnel by offering equity remuneration. So the scheme will
allow tax relief for incentives of up to £100,000.
But we need to give all who create wealth a greater stake in the
wealth they create.
There is clear evidence that giving people a genuine stake in their
company's future delivers real improvements in performance and productivity.
One study from the US has shown that in 73 per cent of cases, firms
significantly improved their performance in the five years after establishing
an employee share ownership scheme. And on average, these firms increased
sales and employment by 5 per cent more than similar firms without
schemes. In this country, the value of employee share ownership is
We are introducing a new programme of shares for all, in which employees
will be able, for the first time, to buy shares in their own companies
from their pre-tax income. Every employer will be able to match, tax-free,
what each employee buys. The only condition is that the scheme must
be offered across the company's entire workforce.
Second, we need to do more to turn scientific inventions in Britain
into jobs for Britain by honouring the spirit of invention, facilitating
the exploitation of invention and encouraging the commercialisation
of invention. Higher productivity in part depends on inventions which
are created in Britain being developed and manufactured in Britain.
The seedbed is basic science so we are investing an extra £1.4 billion
in basic scientific research.
And we are putting in place a new R&D tax credit to encourage
small business investment in R&D. Work by the OECD suggests that
R&D investment contributes to productivity growth and tax credits
will encourage more R&D investment by the private sector. We expect
the R&D tax credit to benefit over 3,000 companies and help support
at least £700 million of R&D spending.
Our University Challenge Fund is designed to help turn British inventions
into businesses here, and the new British Institutes of Enterprise
will provide management skills and advice on commercial expectations
to ensure the innovations that are developed in the UK are turned
into products manufactured in the UK, creating good paying jobs in
Competition and regulation
Third, the sharpest spur to innovation, efficiency and improvement
is competition. Work by Steve Nickell at the Centre for Economic
Performance indicates the positive effect of competition on productivity.
It is competition which drives companies to invest in people and equipment,
to match the best in management and marketing and to innovate in process
This requires reform of our product markets - tackling vested interests,
exposing management to international best practice and bringing down
unnecessary market barriers to new entrants and new ideas.
So Steve Byers is now proposing as fundamental a long term reform
of competition policy as we have achieved for monetary policy - a
new long term framework with clear objectives and rules, free of political
We have rewritten this country's out-dated framework of competition
law. We have given the Office of Fair Trading new powers and new money
to police anti-competitive practices which damage businesses and consumers
alike. This is one of the most important legislative reforms of this
Parliament. Now we will be consulting on the next stage, withdrawing
ministers from the decision process on merger cases.
And we have launched a major independent review of competition in
our banking sector in which Don Cruickshank is working with the
banks to examine the obstacles to firms getting the finance they need
to start and to grow.
The future agenda
We have made progress on a number of areas but there is more to be
With the help of Lord Haskins we are considering ways of reducing
the impact of regulation on productivity and growth, we are looking
at improving the efficiency of the planning process, at meeting ambitious
targets for electronic commerce to help make the UK the best place
to trade electronically by the end of this Parliament, establishing
Regional Development Agencies and considering how urban policy can
improve economic competitiveness in our towns and cities.
The drive to improve productivity is an ongoing task which the Treasury
has a responsibility to help meet, including through the work of the
new Cabinet Committee on Productivity at which Cabinet Ministers from
a range of key government departments are represented.
We are also continually looking at ways to improve public sector
productivity including through public private partnerships and in
public sector procurement. We have set tough targets for outputs from
every department in our public service agreements. And we are learning
from the Public Services Productivity Panel - a new advisory committee
of outside experts from the private sector. Leading businessmen and
women, bringing into the public sector, expertise of managing change
in large complex organisations.
In Europe too we need to pursue a strategy of structural reform;
reforming labour markets to create jobs; reforming product and capital
markets to raise investment and build dynamic economies. We welcome
the initiative for an employment and economic reform pact of EU countries
to further European commitment to create the conditions for high and
sustainable levels of employment and growth.
To those who say the Government's approach to productivity is piecemeal,
I would respond that nobody is claiming there are simple solutions,
silver bullets. None of the economists and business people I have
spoken to have suggested there are. This is not a challenge which
can be met by one budget alone, or one single new act of Parliament
can meet and beat. It is a long-term challenge for every department
and for all of us working together.
Achieving the 1944 aims in the new global economy and changed labour
market also requires an employment policy that equips people to succeed
by being adaptable, flexible and educated. Our aims are high and stable
levels of growth and high and stable levels of employment. The key
insight of the 1990s is that the modernisation of the economy can
be achieved only by spreading opportunity more widely in employment,
earning power and education.
Some argue that the only role for government is further deregulation
of the labour market - that we can never strike the right balance
between minimum standards and open markets.
They argue instead for a deregulated labour market underpinned by
a minimalist welfare state which acts only as a safety net.
Others have argued that tax and benefit reform cannot improve the
working of the labour market and expand opportunity, and argue instead
for more regulation at work and for a more generous - but unreformed
- welfare state which still only compensates people for poverty and
lack of opportunity.
We must be more ambitious and tackle the underlying causes of deprivation.
Our approach is to build a new and modernised welfare state around
principles - that, in addition, to its traditional and necessary function
of giving security to those who cannot work, for those who can work,
the welfare state should promote work, make work pay and give people
the skills they needed to get better jobs.
The modernisation of our approach to the welfare state, which we
argued for in Opposition and have been implementing in Government,
is necessary because of the transformation of the labour market in
the preceding two decades:
Women are now working in far greater numbers than ever before.
The return to skills in today's labour market is qualitatively greater
than ever before and correspondingly, the penalty for lack of skills
It is a measure of the challenge we face that nearly fifty percent
of people with no qualifications are either unemployed or outside
the labour market.
The labour market is characterised by part-time working and self-employment
as never before.
And we face a problem of structural unemployment - large sections
of the population excluded from work - as never before.
When we came into office, four and a half million adults lived in
households where nobody worked, double the level of 20 years ago.
Nearly 1 in 5 children were growing up in households where no-one
is working, twice the rate of France and four times the rate of Germany.
And the reason that this issue of worklessness poses a particular
challenge for this government is that it is now the primary cause
of poverty in Britain today.
Whilst 20 years ago, it was pensioners who made up the largest section
of those in poverty, today it is those living in workless, working
And two thirds of working age households on persistently low incomes
have nobody in work, with eight out of ten having no full-time work.
The best form of welfare for these groups is work. Simply compensating
people for their poverty through benefits is not enough, the task
must be to deal with the causes of poverty. We must give people the
chance to work, if they can.
Indeed, the Treasury paper we published earlier this year, tackling
poverty and extending opportunity shows that over the period 1991-95,
80 per cent of the bottom quintile who moved into work moved
out of the bottom income group.
And our strategy has been to tackle the barriers that people face
to getting into work - the lack of work opportunity, the unemployment
and poverty traps, the lack of necessary skills.
And our measures must recognise that different groups have different
needs - lone parents, less than 50 per cent of whom are in work;
young people, among whom the unemployment rate was 13 per cent at
the time of the election, approaching double the rate for the population
as a whole; partners of the unemployed, only half as likely to move
back into work as those with partners in work; the long-term sick
and disabled, one million of whom are without work but say they
want to work; and the over 50s, among whom nearly 30 per cent
of men are either unemployed or inactive.
First, providing opportunities to work.
Unemployment when young is more likely to mean persistent periods
of unemployment when older.
On average, men who before the age of 23 have been unemployed for
12 months or more will in the following decade spend 15 times more
time out of work than those who were never unemployed.
Research now shows that while people without skills are more likely
to become unemployed, long-term unemployment also erodes people's
skills and employability.
Once long-term unemployment is entrenched, it requires much more
than traditional demand management to solve it.
By increasing the effective supply of labour - the pool of employees
and skills able to compete for work in the economy - we can increase
the sustainable level of employment, consistent with low inflation.
So I do not accept that there are a fixed number of jobs in the economy
and micro-economic policies have no effect on this.
Since we came into Government, employment has risen by well over
400,000, unemployment has fallen substantially on both the claimant
count and the ILO measure and record numbers of people are moving
out of economic inactivity.
But our aim is to deliver employment opportunity for all - the modern
definition of full employment.
If we are to maximise the effective supply of labour, it is clear
that labour market programmes must be oriented to getting people back
into work before they lose touch with the labour market - matching
new opportunities with new responsibilities for the unemployed to
take up the opportunities.
Matching rights with responsibilities is at the heart of the new
deal programme. And it is why we have made our biggest investment
in the New Deal for young people.
And while it is early to come to firm conclusions about the scale
of the New Deal's success, I think it is clear that it is showing
very encouraging results.
Already over a quarter of a million young people have joined the
New Deal and over 95,000 have found jobs - the vast majority
sustained jobs. A further 64,000 are gaining valuable experience on
New Deal options. And 47,000 employers have signed up to the New Deal.
Since the election, long-term youth unemployment has halved.
One of the most important innovations of the New Deal, in my view,
is the system of personal advisors - so that every individual is designated
an adviser with the knowledge and skills to advise them on what work
options are open to them.
We have extended this approach to the long-term sick and disabled,
partners of the unemployed, lone parents and soon, to the over 50s.
Furthermore, with the single work-focused gateway - "ONE", we are
moving towards a situation where nobody who signs on for benefit will
simply be written off, without advice and support about how they can
get back into work.
Second, making work pay.
When this Government came to power, with no minimum wage in place
and the tax and benefits system unreformed, many of those without
work faced an unemployment trap, where work paid less than benefits,
and the low-paid in work faced a poverty trap which meant that they
faced marginal tax and benefit rates of 80, 90 or even over 100 per
Now there are some who argue that improving work incentives at the
bottom end of the labour market will not make a difference to the
number of people moving into work.
This fails to appreciate the new dynamism which is developing in
the modern labour market - there are now over 3 million moves every
year from unemployment or inactivity into employment.
The Canadian self-sufficiency project examined the effects of a time
limited in-work payment for lone parents and suggested that it doubled
the likelihood that they would move into full-time work.
In addition, new research by Gregg, Johnson and Reed co-ordinated
by the Institute of Fiscal Studies, examines the actual employment
decisions made by 12,000 people over a 15 month period.
It suggests that every £10 increase in the return to work increases
the likelihood of moving into work by around 2 percentage points for
women and half that for men.
The evidence is increasingly that incentives do matter at especially
at the low-income level of the labour market.
That is why, just as we have ruled out penal tax rates at the top
of the labour market, we are taking action to make work pay and tackle
poverty traps at the bottom.
As the foundation of this strategy, we have introduced the National
Because we are determined that this commitment to making work pay
is consistent with our central objective of high employment, the minimum
wage has been set at a sensible level which will not damage employment.
And it is right that the youth minimum is set at a prudent level,
thereby ensuring that our New Deal strategy is not put at risk.
But our commitment to making work pay and to high levels of employment
can only be met by combining a sensible and prudent minimum wage with
a generous and fair system of in-work support.
The old tax system set a personal allowance that failed to ensure
that work paid, and also made thousands pay tax even as they claimed
Our goal for the new tax system, is that those who work will be guaranteed
a minimum income, and by step-by-step integration of tax and in-work
benefits this minimum income will be paid through targeted tax cuts
and tax credits. No-one who is in work should, in future, have to
go to the benefits office to receive a living income.
There will be some who say that the use of the tax system in this
way disturbs the aim of a simplified tax system.
Let me take this view head-on. The problem with the old tax system
was not simply that it was complex. It was characterised by reliefs
and subsidies not based on or justified by clear aims and objectives.
We have acted to remove reliefs in the personal and corporate tax
system which although no longer justified had remained for too long.
Whether it be taking the decision to end Mortgage Interest Relief
and Married Couple's Allowance, or Advance Corporation Tax or introducing
a Climate Change Levy, I believe that people will look back at the
first budgets of this Government as a period when major tax reform
I believe that the tax system is about more than simply raising revenue
in the simplest way, it must also help us to work towards our wider
goals - of encouraging work as well as promoting enterprise and supporting
That is why we are introducing measures to support those in work.
From October of this year, the Working Families Tax Credit will mean
that every working family with someone working full-time will be guaranteed
a minimum income of 200 pounds a week, more than 10,000 pounds a year.
No net income tax will be paid until earnings reach 235 pounds a week.
The building blocks of this new system are therefore the minimum
wage which sets a rate below which no employer can pay, and building
on this a Working Families' Tax Credit which, even this year, delivers
an hourly income of £6 an hour or more.
For those receiving this minimum income guarantee through the wage
packet, the rewards from work will be far clearer than ever before,
the duplication of receiving benefits and at the same time paying
tax will be eradicated and the damaging polarisation between taxpayers
and benefit claimants will be removed.
The next step is to extend the principle of the WFTC.
Of course, barriers to work across the workforce are different for
different groups - for families with children, those without children,
older workers and single people.
Our long-term aim is an employment tax credit, paid through the wage
packet, which would be available to households without children as
well as households with children.
As a first step in the Budget, we began the move towards an employment
credit with a minimum income guarantee for over 50s returning to work.
Nearly 30 per cent of men over 50 are outside the labour force, twice
as many as 20 years ago.
For those unemployed for six months or more, we will create a new
employment credit which will guarantee a minimum income of 9,000 pounds
a year, for their first year back in full-time work, at least 170
pounds a week.
So to make work pay we have introduced the minimum wage and a new
system of in-work tax credits. We have also reduced taxes to reward
work and encourage job creation.
The new 10p starting rate of tax, reform of employees' national insurance
to eliminate the perverse entry fee and align the starting point for
national insurance with that of income tax and reforms to employers'
national insurance to help create entry-level jobs.
This is a radical and long-overdue streamlining of the income tax
and national insurance systems. It will halve the income tax bills
for nearly 1.5 million low-paid workers, take 900,000 people out of
National Insurance and tax altogether and remove substantial distortions
in the labour market.
And we have cut the numbers facing marginal deduction rates over
70 per cent by two-thirds.
A further step in this better deal for work is to include help with
housing costs, not just help with rent but also help for homeowners
going back to work. Taking a job should not put people in danger of
losing their homes.
And the Government will be producing a Green Paper on Housing later
in the year.
Third, opportunities for skills.
We recognise that bringing out the best in people - by policies
that ensure opportunities for skills - is the best route to prosperity
in the modern world.
That is why we are committed to widening opportunities in education
and training: higher standards in our schools and lifelong learning.
And in order to raise staying on rates at schools and colleges, we
are piloting Educational Maintenance Allowances, which are available
at a higher level to those who need them most, thereby enabling us
to more effectively target resources.
About 80 per cent of people in employment today will still be in
the workforce in 10 years time. And yet only a fraction of today's
workforce are upgrading their skills - while their skills are all
the time becoming obsolete.
It is because experience shows that training while in work is more
valuable than training while waiting for work that we are emphasising
the starter job, getting back to work quickly and encouraging people
to work their way up the skills ladder.
Our proposals for Individual Learning Accounts and a University for
Industry recognise the new reality that not only should people upgrade
their skills throughout life but they should be encouraged to take
responsibility for doing so.
Breaking the cycle of poverty
Our aim is not just to deliver high and stable levels of growth and
employment today but for the future. We must recognise that our economy
can never reach its full potential unless everyone in our country
has the opportunity to develop their talents to the full.
Children are, rightly, the responsibility of the families in which
they grow up. But they are more than this - invest in our children
and we invest in the future of our country.
We say - indeed we all agree - that every child should have the best
possible start in life. And this Government sees it as a national
goal. This is why Tony Blair has said we will abolish child poverty
over 20 years.
It is not enough to tackle absolute poverty and simply prevent destitution.
We should do more. It is not fair that children should be disadvantaged
from the start of their lives because of who their parents are, what
school they go to and where they live.
Ensuring each child has good start in life takes more than just money
but cannot be done without money. We must ensure that children grow
up in surroundings which enable their needs to be met.
So Government must play its part by using its system of child support
to tackle the disadvantages that come from low incomes and poor parental
The truth about Britain today is that millions of children are born
The facts of child poverty in Britain in 1997 are that: over four million
children - more than a third of all children - lived in
low income families. And very many of them will remain poor for a
large part of their childhood - up to a quarter of all children
are persistently in low income families.
The problems of poverty and deprivation start with the very young.
Babies born to fathers in social class five are more likely to be
low birth-weight. And low birth-weight is a key fact in a child's
subsequent development and opportunity.
Furthermore, poor children are less likely to get qualifications
and to stay on at school. They start to fall behind their better-off
peers from a very young age - the evidence shows that class differences
in educational development are apparent by 22 months.
Recent research commissioned by the Smith Institute shows that
class background had as strong an impact on the academic achievement
of children born in 1970 - and reaching adulthood in the late 1980s
- as those born in 1958.
The son of an educated professional father on average achieved qualifications
two and a half levels higher than the son of an unskilled father who
left school at sixteen. And the results for the 1970 generation
are roughly the same as for 1958.
All of us have a part to play in a partnership to tackle child poverty
and help all our children fulfil their potential and we are determined
to tackle that vicious cycle of poverty, inadequate opportunities,
and low aspirations.
The evidence on child poverty shows the need for early intervention
to give very young children the best start in life and it shows the
need not only for financial support but for proper support services
to help families.
So we are investing £540 million over the next three years
in the new Sure Start programme providing integrated services for
children under four and their families to promote the child's physical,
intellectual, social and emotional development.
On the birth of a child we know that parents face particularly heavy
financial burdens, so in the Budget I announced a new Sure Start
maternity grant at double the rate of the old maternity payment, benefiting
around 250,000 families. And to encourage good healthcare at an early
age the additional amount is linked to contact with a healthcare professional.
And in both of the last two budgets - alongside our commitment
to getting people into work and making work pay - we have also
taken steps to increase direct financial support for children provided
through the benefits and tax system.
Our approach is based on two principles: we must substantially increase
support for families with children and we must do so in the fairest
As our manifesto promised, child benefit itself will remain as it
is, paid to all mothers, and rising annually with inflation.
As a recognition of its role, we have raised the level of universal
child benefit from 11.05 pounds a week for the first child
to 14.40 pounds today and 15 pounds from next April.
The new Children's Tax Credit, replacing the Married Couple's Allowance,
will provide more help for families when they need it most - when
they are bringing up children.
But because of our commitment that substantial extra resources for
children should be allocated in a fair way, the Children's Tax Credit
will be tapered for higher rate taxpayers.
And with the Children's Tax Credit added to Child Benefit, families
who were receiving 11 pounds a week in 1997 for their first child
will, by April 2001, be receiving 23 pounds a week,
1,200 pounds a year.
Finally, for the poorest families in work and out of work, we are
substantially increasing the rates of support for all children under
When we came to office, parents on income support received 8 pounds
a week less for a child under eleven than a child over eleven. But
there is no justification for this differential, particularly as families
with younger children are more likely to live in poverty.
So, with the measures we have taken in successive budgets, from next
April the under-eleven rate will have been raised to the level for
11-16 year-olds, an increase in support of over 400 pounds
a year for each child under eleven for all families on income support
The maximum support for the first child will be 40 pounds a
week, 2,000 pounds a year for families when they need it most.
Our measures so far lift one and a quarter million people out of
poverty - 700,000 of them children.
Taking all our reforms together - Working Families Tax Credit, Children's
Tax Credit, rises in Child Benefit and other tax changes - a family
on 13,000 pounds a year will gain up to 50 pounds a week, 2,500 pounds
However, building upon the foundation of universal child benefit,
we want to and will go further in improving child support and tackling
We are examining, for the longer-term, the case for integrating the
new Children's Tax Credit with the child premia in income support
and the working families tax credit- an integrated child credit. This
could allow families entitlement to income-related child payments
to be assessed and paid on a common basis.
A single seamless system, without disruptions in financial support,
would provide a secure income for families with children in their
transition from welfare to work. Such an integrated credit, for those
in and out of work, could be paid to the main carer, complemented
by an employment tax credit paid through the wage packet to working
Again as I said before, our approach is based on two principles:
we must substantially increase support for families with children
and we must do so in the fairest way.
Where we pay families an income-related benefit for children, it
makes sense to take into account the circumstances of the family when
we provide the support.
In all our reforms we will honour the important principles of independent
taxation: that we will never allow the wife or partner to be regarded
as the chattel as was the case until the late 1980s; everyone should
be treated equally in the tax system and everyone should have the
right to their own personal allowance whatever their household status.
Child poverty is unacceptable and these measures show our determination
to help all our children fulfil their potential.
I said three years ago that a new Treasury under Labour would take
its responsibility for the modernisation of Britain seriously.
That it would, be the guardian of the public finances and the guarantor
of monetary stability, but that a Labour Treasury would need to be
not just a Ministry of Finance, but also a Ministry working with other
departments to deliver long-term economic and social renewal.
To achieve this, it needed to be innovative rather than obstructive;
open rather than secretive; creating new ideas and not stifling them.
Above all, that we would underpin our economic policy with a proper
understanding of the challenges of the global economy and the modern
relevance of our values by putting a radical commitment to equality
of opportunity at the centre of our mission. Fulfilling the 1944 White
Paper aims of growth and employment and doing so to the benefit of
all our citizens.