Tax credits: the success and failure

The history of a single New Labour policy innovation—tax credits—contains almost the full spectrum of the party's success and failure in domestic policy over the past ten years. On the one hand, in the policy's eight-year span it has directed over £75bn into the pockets of lower-paid workers (and some non-workers), helping make work pay for those towards the bottom of the pile and preventing inequality from rising far more sharply. It has become one of the anchors of Labour's new "Anglo-social model," which aims to combine relatively free markets, including labour markets, with improved social protection. On the other hand, the distortions created by the presentational politics of tax credits, the "top-down" otherworldliness of the politicians and officials who designed them and yet another public sector computer failure have combined to cast a long shadow over the policy.

The tax credit story has other elements. It is a morality tale about what happens when good intentions are not matched by a close understanding of the lives of those whom the policy will affect. It is also a story about the influence of US public policy tools on New Labour, especially those used by President Clinton. And, finally, it...