[UK] Chancellor 'must do more' to tackle poverty gap

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Labour former Cabinet minister Alan Milburn has urged Chancellor Gordon Brown to do more to tackle the poverty gap between the well off and the poor.

Mr Milburn welcomed many aspects of Mr Brown's 10th Budget and his success in creating an economic climate almost "without parallel" in modern times.

But he called for "direct targeted cuts" in the tax burden of low income families to "spring more people from the poverty trap".

In the final day's debate on the Budget, Mr Milburn acknowledged poverty had been reduced in recent years.

"But the truth is - and we can see this in each of our constituencies - the gap remains stubbornly and unacceptably wide.

"While more people are better off, poverty has become more entrenched. There is a glass ceiling on opportunity in this country. We've raised it - but we haven't yet broken through it."

Mr Milburn recalled how Labour learned the "hard way" in the 1980s how confusion over the fundamentals of tax and spend policies could only spell electoral disaster and warned the Conservatives were stuck with the same problem over public spending now.

"In a highly competitive world every talent wasted is not just a loss to the individual but a drag on the country. Britain can only succeed economically if we are mobile socially."

Here, he said, the Labour Government had no "reason for complacency - and much to give us concern".

Living standards were rising and poverty had been reduced but the gap between the well off and the poor remained stubbornly wide.

"The biggest inequity today is not between income groups but between those who own shares, pensions and housing and those who rely solely on wages and benefits.

"That is why I believe the biggest contribution to enhancing social mobility is to establish Britain as an asset-owning democracy."

On the need for targeted tax cuts, Mr Milburn said tax credits had made a real difference in raising living standards and providing incentives to work.

Today over half a million fewer low income households than in 1997 faced "such insanely high marginal tax rates" of up to more than 100%.

"However, as the (Budget) Red Book confirms, the number facing marginal tax rates of 60% or more has increased by almost one million largely as a consequence of the workings of the tax credit system.

"The Institute of Fiscal Studies has warned that without remedial action this could worsen work incentives.

"I was brought up to believe that hard work and endeavour would be rewarded not penalised. The tax system needs to reflect those values. On fairness grounds it surely cannot be right for people towards the bottom end of the income scale to face higher marginal taxes than those at the top end.

"It's for this reason I welcome the Chancellor's plans for a review into the feasibility of aligning income tax and National Insurance contributions for low income families.

"The review, I believe, needs to consider additional ways of making direct targeted cuts in the tax burden of low income families, building on our introduction of the 10p starting rate of tax in 1999, so that we can spring more people from the poverty trap."

He warned: "The Budget is a further step in the right direction. But we need to do more to help more through the glass ceiling.

"The longer we are in government the greater the need to keep on changing to keep pace with the times in which we live. An 80:20 society where 80% do OK but 20% are left behind might be good enough for the Conservatives - but it should not be good enough for us."