Why the 10p tax might speed up welfare reform


When Gordon Brown decided to abolish the 10p tax rate, he was calculating that there wouldn’t be much of a political fuss.

After all, a large part of the workforce that benefited from the 10p tax rate were immigrants working in low-paid, unskilled jobs: factory workers, farm hands, restaurant staff and so on. These workers are conveniently unable to vote in parliamentary elections, and lack much political clout.

They are also increasingly important to the UK economy: it is estimated that 40% of EU migrants to the UK work in unskilled jobs – 96,000 EU immigrants took up unskilled jobs in 2006 alone.

While the rest of the country seemed oblivious to Mr Brown’s 10p tax reform following the 2007 budget, migrants from the EU appear to have been quietly taking note. According to research from the IPPR, about half of EU migrants have now left the UK, increasingly unimpressed by the economic opportunities offered by Britain. This trend is set to accelerate.

However, before Migrationwatch get too excited, this exodus of unskilled labour could bring with it a host of new problems: a tighter labour market, with increased upward pressure on wages and consequently greater general inflation.

As we know, inflation clobbers the lowest earners in particular, as essentials such as food become more expensive. So yet again, it will be Labour’s core voters that bear the brunt.

Fortunately, there are some 1.1 million people of working age on incapacity benefit who could feasibly be working. These people could fill the gaps left by our vanishing migrants, thereby easing inflationary pressures.

Time to put those welfare reforms at the top of the in-tray, Prime Minister?