Deborah Orr: The giant delusion that lies at the heart of Brown's pledge to lift children out of poverty

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Alistair Darling says it would cost £7bn to "unpick" the foul-up whereby 5.3 million households lose out because of the abolition of the 10p tax band. Why? What's he thinking of doing? Sending a monthly courier out with top-up cash for each and every loser? If ever any figure illustrated just how much money is wasted on administering our complicated system of tax thresholds and tax credits, then this figure is it.

Anyway, according to Newsnight, it would cost a mere £2.5bn just to raise the tax threshold across the board. The great disadvantage of that, apparently, is that everyone would get to keep a little bit more of his or her income before paying tax.

That would be extremely counter-productive, because it is exactly what the national insurance changes that came alongside the 2p cut in basic rate income tax were introduced to avoid. (Though why not do it anyway, and tell the banks that they'll have to renew their confidence with just £47.5bn in sweeteners?) What was it all for? Because Just Gordon, last March, wanted to look flash, and be seen to deliver a historic cut in income tax without it actually costing anything.

One might be tempted to suggest that the move was more flash-in-the-pan. Except that the trouble piling up in advance of next Monday, when Parliament votes on the Finance Bill, is the result of an 11-year delusion, not a one-year mistake.

Last year, when Brown abolished the 10p tax band that he had introduced in 1999, he argued that this was not a U-turn. The 10p tax band had only ever been conceived as a temporary measure, in place as a short-term cushion until the tax credit system bedded in. The tax credit system, as we have all been told interminably, is the Government's strategy for "rewarding hard-working families" by "lifting children out of poverty". The concept was nonsense from the start.

How do you lift children out of poverty, without lifting adults out of poverty too? Labour, in the past decade, has preferred not to ask itself that question. Now, belatedly, it has been answered: "You don't." The bulk of the losers from the tax changes that are now beginning to bite are working people without children. They have been all along. Yvette Cooper's hasty promise this week, that the child poverty review would be extended to embrace other people living in poverty, is an admission of this truth.

For great swathes of the electorate, even now, the whole idea of poverty is bogus. No one is really poor in Britain at all, they say. No one starves. No one needs to sleep rough. No one is denied access to health care. No one is denied access to basic education. Labour is some way down this path itself, when, even now, it congratulates itself in its historic achievements in alleviating poverty, and insists that this latest debacle is just a blip.

Statistically, indeed, it is perfectly possible to argue that poverty is a movable feast. As long as we continue to define poverty as relative, then poverty will always be with us. What, though, if we define poverty in a developed economy in a different way? What if we defined poverty as a state of being which objectively necessitates hand-outs from the Government, just to pay for basic living costs, such as rent, even when one is working full-time?

Then it becomes clear that tax credits and housing benefit payments lift people out of poverty just as much as Night Nurse cures the common cold, or methadone treats addiction. Tax credits are a way of acknowledging poverty, and treating some of its symptoms. Tax credits don't combat poverty. They supplement it. Maybe, in our imperfect little world, this is the best that can be done. But let's at least have the clarity to see it for what it is.

Under this government, poverty has been supplemented in a particular way, and for obvious political and economic reasons. The supplement has been targeted as much as possible at people who work, not the "feckless", and particularly at those who work and have children. The logic behind the strategy is perfectly clear.

When Labour came to power, it did want to deliver social justice, but it was afraid of being seen as too lefty. So it clothed many of its redistributive instincts in a presentation similar to that familiar from those little envelopes from the days before chuggers hit the streets looking for direct debits, asking for money for an African famine appeal.

The alleviation of poverty would be a state-run charitable enterprise, aimed at helping the innocent, the children, those who could not be expected to fend for themselves. That way, only the heartless indeed could sneer or complain. This grand public project would lift millions of children out of poverty – with a target of eradicating child poverty by 2020. This remains the Government's most cherished goal.

I don't doubt that the prime mover behind the detail of all of this has from the start been Gordon Brown. I don't doubt either that his actions and decisions have been anything other than a compromise between his belief in fairness and equality and his need to keep employers and voters happy. But the patent unhappiness of both of these latter groups can only suggest that it hasn't worked out that way.

The one genuine policy for directly tackling poverty (apart from the brief introduction of the 10p tax band) was the introduction of the national minimum wage. Despite all the opposition to its introduction, and to the meagre hikes it has undergone since then, the minimum wage still guarantees nothing except a level of poverty wages higher than some employers might otherwise get away with. The protection the minimum wage offers is marginal.

If you are over 22, and working a 40-hour week on the minimum wage, you will gross £10,000 a year. For a long time now, the beleaguered, Daily Telegraph-reading classes have been complaining about how it is hard to manage on such a sum in a month.

The decade-old idea is that with tax credits, unless you have no dependents and no rent to pay, you won't really have to live on just your earnings at all. The reality, however, is that the problems with low pay have actually exacerbated some of Labour's most visible headaches.

Low and insecure pay make people fearful of letting go of their benefits, especially incapacity benefits. It makes a mockery of the idea that you wait until you can afford them before you have children. (The carrot, in fact, is to the contrary.) It fuels employer demand for immigrant workers, whose own less developed economies make British poverty pay seem like an attractive short-term proposition.

Not even the looniest socialist would now suggest raising the minimum wage as a means of alleviating poverty, as the world teeters on recession. But it is still a pity that Labour decided that the tax-payer should supplement poverty, because the shareholder could not possibly be overly involved in such an eminently charitable undertaking as "making work pay".

d.orr@independent.co.uk

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