Inequality under the Labour government

This Briefing Note will provide a brief analysis of changes to income inequality since the Labour government came to power in 1997.1 The most recent data from 2001-02 show that there has been little change in income inequality since 2000-01. An implication of this is that there has been little impact upon the slight upward trend in inequality that has been experienced over Labour's term in government

Employment and the labour market

Since 1997, there have been changes in rates of employment, unemployment and inactivity. These changes have coincided with the Labour government's "Making Work Pay" agenda, which has seen the introduction of in-work tax credits, the national minimum wage and various New Deal programmes. Section 2 gives details of how the rates of employment, unemployment and economic inactivity have changed under the Labour government. Section 3 begins by detailing the national minimum wage and presents evidence on its impact, and continues in a somewhat similar vein, analysing the New Deal programmes and in-work tax credits. In Section 4, we show how financial work incentives have changed since 1997, and we briefly analyse the employment proposals of the main parties in Section 5. Finally, Section 6 concludes

Sharing in the nation’s prosperity? Pensioner poverty in Britain

This commentary reviews the government’s tax and benefit reforms affecting pensioners to date, and examines the evidence from the latest official low income figures on the government’s record on pensioner poverty so far

Inequality and living standards in Great Britain: some facts

This Briefing Note is designed to provide some basic facts concerning living standards and inequality in Great Britain. Wherever possible, up-to-date sources have been given for further reading. Accompanying this Briefing Note is a spreadsheet of useful statistics relating to the income distribution in Britain. This can be downloaded from the IFS web site at http://www.ifs.org.uk/bns/bn19figs.zip. Both were last updated on 9 March 2004. Section I of this Briefing Note starts by setting out some of the issues and conceptual difficulties surrounding the measuring of living standards and inequality. A picture of the income distribution in Great Britain and many of the important trends in living standards is then presented in the sections that follow. In Sections II and III, we choose weekly before-housing-costs household equivalent income1 as our measure of living standards, as well as presenting some results on an after-housing-costs basis. Section IV then considers using weekly equivalent household expenditure (including housing costs) as a comparative measure of living standards. Section V cites research tracking the income of individuals across a number of years, while Section VI looks at work that attempts to assess how income status changes across generations. Sections VII, VIII and IX proceed by examining some of the factors responsible for the changes in inequality described, looking at the labour market, demographic changes and the impact of taxes and benefits. Section X concludes

Evaluating the labour market impact of Working Families' Tax Credit using difference-in-differences

A difference-in-differences methodology cannot identify the labour market impact of WFTC alone because other taxes and benefits changed at the same time as its introduction. However, a comparison of the change in employment rates for parents against adults without children should underestimate any positive labour supply impact of WFTC for lone parents. Using two different household surveys, we find WFTC and associated reforms increased lone parents' employment by around 3.6 percentage points (ppt). For couples with children, we find that WFTC and associated reforms had no significant effect on mothers' employment, and was associated with a -0.5ppt change in fathers' employment, with the reforms encouraging households to have one earner rather than two. Overall, these changes correspond to between 25,000 and 59,000 extra workers depending upon the data source used. Robustness analysis of our identifying assumptions is generally favourable to our conclusions for lone parents

An assessment of PenSim2

The Department for Work and Pensions (DWP)’s Pensim2 model is a dynamic microsimulation model. The principal purpose of this model is to estimate the future distribution of pensioner incomes, thus enabling analysis of the distributional effects of proposed changes to pension policy. This paper presents the results of an assessment of Pensim2 by researchers at the IFS. We start by looking at the overall structure of the model, and how it compares with other dynamic policy analysis models across the world. We make recommendations at this stage as to how the overall modelling strategy could be improved. We then go on to analyse the characteristics of most of the individual modules which make up Pensim2, examining the data used and the regression and predictions used in each step. The results from this examination are used to formulate a set of short and medium-term recommendations for developing and improving the model. Finally, we look at what might become possible for the model over a much longer time frame – looking towards developing a ‘Pensim3’ model over the next decade or so

Living standards, inequality and poverty

In this Election Briefing Note, we assess what has happened to living standards under Labour, setting out how average incomes, income inequality and poverty have changed since 1996- 97. We compare these changes with what happened under previous governments, and highlight where there have been differences between Labour's first and second terms

Did working families' tax credit work? The final evaluation of the impact of in-work support on parents' labour supply and take-up behaviour in the UK

With micro-data from before and after a major reform in 1999 to the structure and form of in-work transfers in the UK, this paper uses a structural model of labour supply and programme participation to evaluate the labour market impact of Working Families' Tax Credit (WFTC). Estimates suggest that by 2002, WFTC had increased labour supply of lone mothers by around 5.11 percentage points, slightly reduced labour supply of mothers in couples by 0.57 percentage points, and increased the labour supply of fathers in couples by 0.75 percentage points, compared with the benefit that preceded it, called Family Credit. In aggregate, these changes are equivalent to a fall of 99,000 in the number of workless families with children, and a net increase in labour market participation of 81,000 workers. However, contemporaneous tax and benefit reforms acted to reduce the labour supply of parents, and so the overall impact of tax and benefit changes introduced since 1999 is lower than stated above. Participating in Family Credit, the UK's in-work programme before October 1999, conferred a utility loss as well as a utility gain from the extra income, but we find this utility cost of participation to be lower in the final year of WFTC than it was in the last year of Family Credit for lone mothers, and no different for individuals in couples: this in itself induced more lone mothers to work

Has Labour made work pay?

A review of the Labour Government's success in improving the financial reward to work for low-income families. Since 1997, the Labour Government has instigate a series of reforms aimed at helping to make work pay more than not working, and to make work pay enough to help families avoid poverty. This report is the first to provide an overview of all such policies since 1997, and to provide an impartial analysis of the evidence of the Government's success to date. The report examines the key outcomes targeted by 'make work pay' policies, showing trends in the proportion of parents in employment, and the number of children in households where no adult is in paid work. It reviews studies which estimate the contribution that government policies made to these changes. And it provides new evidence on the impact of changes to personal taxes, tax credits and benefits on measures of financial work incentives. The authors also anticipate where this policy agenda might take the Government in the future

Poverty and inequality in Britain: 2005

This Commentary provides an update on trends in poverty and inequality in Great Britain, based on the latest official government statistics. It uses the same approach to measuring incomes and poverty in Great Britain as the government employs in its Households Below Average Income (HBAI) publication