Chancellor to announce minimum wage top-up to protect low paid from higher taxes
Larry Elliott and Michael White Monday April 15, 2002 The Guardian
The chancellor will announce a top-up to the minimum wage of between 50p and £1 an hour for childless single workers and couples in his Budget on Wednesday to protect low paid employees from the higher taxes needed to fund Labour's expansion of the NHS. In what is seen as the most important Budget of the parliament, Gordon Brown is to spend around £2bn boosting the take-home pay of the working poor after facing down strong opposition from some cabinet colleagues worried at the cost of the anti-poverty agenda when taxes are going up for Middle England.
Tony Blair used an article in yesterday's Observer to contrast Conservative "short-term tax cuts" with Labour's commitment to "investing in the future". The Tories also acknowledged the Budget's strategic importance, threatening to vote against higher taxes until they can be shown real reforms of public services.
The new minimum income guarantee for childless work ers under 25 will come into force next spring, at the same time as the chancellor's £5bn-£7bn of tax rises required to fulfil Labour's aim of bringing health spending in Britain up to the EU average.
Mr Brown plans to announce the scale of the increases in health spending for the three years from 2003-04 in Wednesday's Budget after the publication of a report into long-term NHS funding by banker Derek Wanless. It will argue that there is no alternative to an expansion of healthcare being fully funded by the taxpayer. The Tory leader, Iain Duncan Smith, and the shadow chancellor, Michael Howard, yesterday complained that the Wanless terms of reference had been rigged, and said a centralised NHS was like systems being abandoned in ex-communist eastern Europe.
Both sides believe their rival is making a fatal mistake on the NHS which could decide the next election. Mr Blair, said to be in close contact all weekend with his chancellor, said: "I have confidence we can win that political battle."
Other cabinet ministers will have to wait until the July comprehensive spending review for their cash allocations. The Treasury is likely to use the hefty increases for Alan Milburn's health budget as a bargaining tool in negotiations with ministers running "non-priority" departments.
Health spending is likely to rise by almost 10% a year in cash terms, or at least 7% when inflation is taken into account. "It's quite a lot of money," one Whitehall source confirmed. But with less than 48 hours to go the exact sums are still be haggled over between Mr Brown's team and spending ministries.
As usual, the Treasury is taking a cautious view of the outlook for tax revenues, which are projected to grow by 2.25% a year. The chancellor will say that higher taxes are unavoidable if the government is to meet public demands for better public services.
Mr Brown believes that the pressure for better schools, hospitals and public transport means that growth in public spending must at least match the 2.75% a year increase in real terms in the current three-year spending round.
That leaves a gap of at least £5bn a year, which will have to be bridged by higher taxation. Higher national insurance contributions and increases in stamp duty on higher-priced property to take the heat out of the property market in the south of England are expected to be two of the main sources of revenue. The Tories, who believe voters now suspect that Labour is "reverting to type" on tax-and-spend, believe Mr Brown's plans will jeopardise a fragile economic recovery, and plan to fight him.
It will not deter the chancellor from pressing ahead with his pet scheme, making work pay for those on low incomes. A single person employed on a 35-hour week and receiving the minimum wage will be eligible for a new working tax credit of £20 a week. A childless couple with one earner on the minimum wage will receive around £45 extra a week.
Couples with children, the focus of Labour's anti-poverty drive in its first term, will see their take-home pay boosted by around 5%, double the rate of inflation, through increases in the children's tax credit.
Mr Brown will also remove an anomaly which prevents around 100,000 students with children, most of them nurses, from claiming state benefits or in-work tax credits. From next year, they will be eligible for the children's tax credit.
Official figures last week showed that the government lifted 500,000 children above its poverty line in its first term, well short of the 1.2 million target in last year's Budget.
The Institute for Fiscal Studies thinktank said the government would need to boost spending on anti-poverty measures by £10bn over the next decade to get back on track.