My Life, Our Times

by Gordon Brown

  But first we had to win the battle over tax – winning over a country that was naturally suspicious of any tax reform and which, in particular, attached importance to tax exemption for mortgages and marriage.

  Mortgage tax relief commanded wide support because it was purported to signal our belief as a country in a property-owning democracy. It reflected the long-held belief that ‘your home was your castle’, that your property was an extension of yourself, its rising value the product of your own efforts and therefore not to be burdened by taxation.

  Married couple’s allowance had originally been offered in 1918 to married men as they returned home from the First World War. While their wives, most of whom were employed for the first time in war service, returned home to domestic chores and thus no longer in paid employment, it was seen as a form of compensation. The married couple’s allowance would enshrine and financially underpin the idea of the traditional family – man at work, with wife and children at home. In the post-1918 period no more than 15 per cent of married women were in work. As recently as the 1950s, when I grew up, the figure was only 30 per cent. But by 1997, when we came to power, 60 per cent of married women were in employment. So, even when most married women were working, we continued to pay an allowance originally designed to compensate them for staying at home.

  However, any hint of a proposed change to these taxes – other than downwards – led to letters of complaint to MPs and newspapers, a popular discontent which was reflected in opinion polls, conversations and even in the monologues of comedians. I had always remembered on my first visit to the USA in 1984 seeing the inscription on the front of the Inland Revenue Service building on Pennsylvania Avenue in Washington: ‘Taxes are what we pay for a civilized society’. It was written generations ago. I could not imagine winning unanimous support today in any part of the West for inscribing such a pro-tax motto on any government building.

  In the neoliberal lexicon, tax generally had come to be viewed less as the contribution we make towards funding a civilised society and more as an unfair restriction on a person’s freedom to do what they wanted with their own money. I may have seen a justification for tax in righting wrongs: more people, though, seemed to see it as violating their rights.

  It is part of our folklore that Britain’s first poll tax in the 1380s and the second version in 1990 both sparked resistance and uprisings. Less well known is that the first income tax did too. An emergency levy introduced during the Napoleonic Wars in 1799, it was a graduated tax set from 1 per cent to 10 per cent. It was voted out in 1816 in a Commons backbench revolt against the chancellor of the day, even after he explained that the alternative would be harsher taxes on the poor. The House of Commons told him that either it would be removed or he would be.

  Various other taxes – from the eighteenth-century window tax to VAT on gas and electricity bills – also proved unpopular. And, of course, the attempt to tax the colonies – a tax that famously included a levy on imported tea and the imposition of stamp duty – fundamentally changed the future of the British state. Colonists correctly claimed that the 1689 Bill of Rights had promised ‘no taxation without representation’, demanded seats in Parliament, and when this was refused protests, starting with the Boston Tea Party, led to the American Revolution and the creation of a United States of America – gone for good from the British Empire.

  So no government can introduce even the smallest tax rise without weighing up the potential for a big backlash. Recent examples, none of them small, abound under the Conservatives – the proposed dementia tax by Theresa May which was dropped within three days; the planned tax on the self-employed by her chancellor, Philip Hammond, withdrawn within a week; and the cuts to tax credits intended by his predecessor, George Osborne, discarded within a month.

  If anything symbolised the difficulties we had in balancing the need for revenue with the distaste for taxation it was high levels of fuel duty – the fuse that lit a set of protests which threatened to bring Britain to a halt. Even on occasions when the main culprit for the rise in petrol prices was the Organization of the Petroleum Exporting Countries – in my time in office the oil price varied from $10 per barrel to $147 – it was us, the government, that was always to blame. We had inherited a road fuel tax escalator – now raising petrol tax at 5 per cent more than inflation – to bring revenue into the Treasury and help balance the books. We risked alienating the public by raising fuel duty to 6 per cent above inflation, bringing an annual petrol tax rise close to 10 per cent a year. And while the oil price seems small in today’s terms – it was rising from a low point of just over $10 to $30 – tax now accounted for about 85 per cent of the cost of petrol. So even when we abandoned the fuel escalator in 1999 – fuel taxes would now rise no faster than inflation – the oil price rise meant drivers in the UK were now paying over 80p a litre.

  But the whole government was taken aback by the ‘Boycott the Pumps’ campaign, which kicked off on the first day of August 2000, after a Conservative-organised day of protest on 29 July. Threatening an autumn of unrest, British truck owners and farmers then adopted a traditional French way of protesting – the blockading of refineries and depots – in September. There followed an eight-day crisis when things got out of hand, with rationing and then panic buying of petrol; petrol stations closing; emergency services, including the NHS, running short and on red alert; and even the panic purchasing of food. Six of the UK’s nine refineries and the main oil distribution depot were closed. I was adamant: Budgets not blockades made the decisions on taxation. At the risk of a backlash, I stood firm. Whatever we did had to be justifiable on wider policy grounds. When the public saw garages, shops and hospitals running out of supplies, support for the blockade, which in early September had reached nearly 80 per cent, fell to just above one-third.

  With protests all over Europe, I went to a European finance ministers’ meeting in Versailles. I refused to sign up to a communiqué that said Europe was united in refusing to cut petrol prices. My European colleagues thought it would strengthen their hand with domestic audiences if the EU ruled out a cut. I had the opposite problem: I said, if it was the EU telling us what to do, it would be a disaster for the Labour government in Britain. This would be seen as a European diktat coming from on high, carrying no weight with the British people.

  Still, it was time for us to act. In my 2000 Pre-Budget Report, I spent £1 billion to cut duty on the more ecologically acceptable ultra-low sulphur petrol, froze fuel duties, radically reduced licence fees for smaller more environmentally efficient cars, cut vehicle excise duties and introduced a Brit Disc Tax for foreign lorries using British roads. The proportion of taxation in the cost of a litre of petrol subsequently fell from 85 per cent to 68 per cent. By 2010, it was down to nearer 60 per cent.

  When in 2008 the oil price moved upwards towards $140 per barrel, and petrol prices went beyond £1 per litre, we might have expected a repeat of 2000. But the British people had looked over the precipice that year and no one wanted a repeat of halting fuel supplies to hospitals and emergency services.

  We had raised fuel tax and paid a political price. Mortgage tax relief and married couple’s allowance also seemed impossible to abolish without a political cost. So sacrosanct were these two taxes that even in the most difficult of times – in the 1960s, 70s, 80s and 90s – chancellors shied away from removing them. They had seemed simply untouchable. While Nigel Lawson had hoped to persuade Mrs Thatcher to cut mortgage tax relief during the 1980s, neither he nor his successors could overcome opposition to reforming it. By the time the Tories left office it was still worth up to 15 per cent relief on the first £30,000 of home loan mortgage costs. What made it even harder to tackle was that, unlike many tax reliefs or allowances, it was easy to claim: from April 1983, the homeowner got the benefit directly in their pay cheque. It was entirely unfair to poorer families who rented their homes, and added to inflation by contributing to higher house prices – which, in turn, led to higher mortgages, negatin
g its benefits to homeowners.

  The married couple’s allowance had also been expanded – to accommodate rising divorce rates, increased rates of separation without divorce, and increasing numbers of single parents – meaning it was neither confined to those who were married nor even to couples. It was a tax credit paid at the same flat rate to married couples, single parents and unmarried parents who lived together. More perversely, far from recognising marriage, it was worth more in the year you separated or divorced because it was paid twice – at the full rate – to each partner in that year. Yet, wholly outdated as it now was, the relief was still held up as the affirmation of traditional family life that the tax system should support.

  In 1997 resistance to change of these two taxes was shared by some of my colleagues. Tony was informed by Philip Gould that the abolition of mortgage tax relief was particularly unpopular with his focus groups.

  I would have preferred all-party agreement to end these two tax anomalies. However, when we came to preparing our Budget of 1999, we found that, now in opposition, the Tories were even more dug in than they had been in government. In particular, married couple’s allowance was championed by their new leader, William Hague, as proof of the Tory Party’s commitment to the family. He made it a dividing line, trying to position the Tories as the party of the family, and Labour as the party of the permissive society. But Conservative opposition would not stop me.

  In meeting after meeting, we tested our arguments and it was only after extensive preparations that I announced in my 1999 Budget that I would abolish the married couple’s allowance from April 2000 and end mortgage tax relief. Even then I was cautious in the way I made the change: I did not interfere with the married couple’s allowance paid to pensioners, which in the 2000 Budget I raised in line with inflation. But no new claims would be accepted for the next generation of pensioners. The Tories not only vigorously denounced our change, they also pledged to reinstate the allowance in their 2001 election manifesto. And in the run-up to the 2010 general election, George Osborne would promise to legislate a new version of the married couple’s allowance – a costly, illogical and administratively difficult scheme that would be introduced in 2015.

  Was it worth taking on the traditionalists? Did it merely remind people of the Old Labour that they associated with a ceaseless yearning for tax rises, or could we show people that our arguments were based not on old dogma but on new realities? Yes, I was anxious about how Labour would be seen; and I would probably not have taken the risk of triggering a political firestorm and losing support in Middle England if I had not had in mind the larger and more compelling objective that I have described. We had to take action on child and family poverty and I was determined to show the country that the money from these two outmoded tax breaks was needed to tackle poverty.

  Child poverty had doubled under the Tory government. By 1997, one in three children were living in families whose incomes were less than 60 per cent of the national median, meaning they were officially in poverty and brought up in families unable to pay for even basic necessities. Child benefit had changed little for years and the system of supporting poorer families – family income supplement and its more recent replacement, family credit – was reaching fewer than a quarter of the 4 million children who should have been helped. By ending married couple’s allowance and mortgage tax relief, we could release £3.5 billion per year to help tackle poverty.

  I have always considered poverty an obscenity. I do not know why some images stay with you while others fade. While I recall details of meetings with some of the world’s most prominent leaders, I remember to this day more clearly the faces of the most vulnerable people I have met. We had built New Labour on the idea that, to help those in poverty, we had to reach out to those on middle and higher incomes, showing our policies were in tune with their values, rather than at odds with them. Making ourselves electable was the only way we could get a chance to do that. But, once in office, our defining test was what difference we could make to the lives of the poor. When I veered from that, as I did by not thinking through all the ramifications of eliminating the 10p tax rate, I lived to regret it.

  The poverty emergency was such that we needed to act as soon as we came to power. So, despite our commitment to freeze spending at previously planned levels for two years, I moved quickly to add £2.50 a week in child benefit for the first child, over and above the normal uprating. But child benefit, paid to every family and child, was not targeted on the poorest. While I believed there should be a universal benefit for children, I knew simply that raising child benefit would not do enough to help those most in need of help. A flat payment of what was then a little over £10 a week child benefit could not make the difference between being in or out of poverty. Even if child benefit was doubled to £20 a week – a rise that we would eventually deliver – it would still not be enough to make the difference for families in dire poverty.

  That’s why as soon as it was fiscally possible, in the autumn of 1999, I introduced the working families’ tax credit, the first in a number of tax credits to help the poor, low-paid and vulnerable. The new children’s tax credit followed in 2001, initially paid at up to £520 a year to 5 million families, offering three times as much support as the married couple’s allowance had ever given them. In 2002, we added an extra £590 for the first year of a child’s life. Then, in 2003, I replaced the children’s tax credit with the child tax credit, which, along with child benefit, provided a single and seamless system of financial support for families with children, whether in or out of work, alongside the new working tax credit for those in low-paid work. Taken together, these two measures were to save 2 million children from poverty. But, of course, this was possible only because we were building upon the minimum wage: without it, tax credits would have ended up subsidising employers for paying poverty wages.

  Our ambition to eliminate child poverty was our boldest objective and the most difficult to deliver. Why did we adopt tax credits as the way to tackle it? A team – with Dawn Primarolo working night and day as the minister in charge, and strengthened by the highly respected children’s rights campaigner Maeve Sherlock and academic expert Paul Gregg – looked at all possible ways of making our society fairer for children, and we found that even if we doubled child benefit it would not be enough to make the inroads into the family poverty we sought to eliminate. To have raised it to £20 a week for every one of the country’s 12 million children would have cost us £6 billion. The problem was we would spread resources so thinly that the poorest 4 million children would be only £10 a week better off – as, of course, would be their better-off counterparts. Targeting support through tax credits could give families with the poorest children up to £40 a week more; and, potentially, £80 more for two- or three-children families. These were the kind of sums needed to lift millions of children out of poverty.

  Similar results came when we reviewed a measure said by its supporters to be the best way of tackling poverty – lifting the income-tax threshold. But while the same £6 billion would take several hundred thousand out of tax, no one would receive more than few extra pounds a week – hardly enough to take poor families to an even basic level of sufficiency. And, of course, people too poor to pay tax received no benefit at all. Raising tax thresholds would do very little to help Britain’s poorest; indeed, much more of the benefit would flow to second-earners in the top half of the population.

  We also studied the idea of a universal basic income, but found it was not only more expensive than tax credits, it was like another proposal, a negative income tax, not well targeted at tackling poverty. Again, for the same amount of money spent, poor people would receive far more from tax credits than if it were allocated to a universal basic income. While there will always be a debate between universal and selective benefits, there is no doubt about what achieves most for the poorest: a universal benefit with additional support for those who need it most.

  Tax credits were designed not only to
lift millions out of poverty: they could also help families just above the poverty line – families not too poor to receive social security benefits and not wealthy enough to feel secure. Stretched to the limit, they needed help too. Yet, here again, neither tax reliefs nor child benefit would have much impact. What’s more, we recognised that many mothers had to give up work because they had no cover for the hours after school. For this reason, we introduced a special element within working tax credit to offset the costs of childcare. It was not to be seen as a handout; it was, rather, a genuine family income supplement to help with the costs of bringing up children. As I said at the time of its introduction, we worked on two principles: that parents or guardians had a responsibility for bringing up their children, but that, where it could, the government had a duty to help them in this difficult task.

  Tax credits mattered because they unlocked the door to achieving our boldest poverty objectives. With the mortgage and married couple’s tax reforms of 1999, we took the first steps to help Britain’s lower- and middle-income families. We then pledged to cut child poverty by a quarter in 2005 – a target which we just missed – and then halve it by 2010. Our commitment was more ambitious than that of any other government of the day and inspired a later EU strategy for poverty reduction. After a series of increases in tax credits – including promised rises we did not withdraw during the global recession – we would, by 2010, be transferring £28 billion a year to low- and middle-income families.

  Our approach on tax credits was underpinned by what I called ‘progressive universalism’: a floor of basic social rights for all, but with more support to those most in need. Our Child Trust Fund, a financial endowment payable to every child at birth, was also based on this principle. All children born from September 2002 received a lump sum of £250, and if from a low-income family, £500. The fund was ‘topped up’ by a further contribution from government when a child reached seven. Five years after its launch, the Child Trust Fund was showing real benefits: 4 million children had an open, active savings account giving them a financial springboard into adulthood, and 70 per cent of the government contribution was going to families on below-average incomes. This was social mobility in practice: we were reducing the over-concentration of wealth in our country. Until 1999, most low-income households were not saving anything at all, and the new individual savings accounts we introduced led 17 million people to buy in and would ultimately raise savings by £220 billion.