Simon Wren-Lewis analyses the evidence regarding austerity and finds that government policy is creating a documented increase in poverty. However the government’s response to this growing problem amounts to little more than stigmatising the poor. 

I ended a recent post with the following: “Surely it should now be clear that this is a government with at least as strong an anti-state, anti-poor ideology as Mrs Thatcher, but with rather less honesty about what it is doing.” For someone who tries to avoid hyperbole, this is pretty strong stuff. So where is the evidence for this claim?

The anti-state side should be familiar to regular readers. Once you realise that the austerity policy has no sound basis in terms of macroeconomics, and the markets are saying ‘please supply more UK government debt’, then you look for other motives. A desire to shrink the size of the state seems to account for both the composition of the austerity programme, and the refusal to undertake a balanced budget stimulus. I have obviously focused on this macro issue, but the anti-state focus of policy is also pretty clear in the NHS reforms, and in the push (I could use a stronger term) to create academy schools.

What about the anti-poor part? This is not my field, so the evidence I present below may not be the most up to date or complete. However I think its worth setting out the evidence as I see it, because it does not get the publicity it deserves. Here I focus on the standard measure of poverty, which is the number of people with income below 60% of the median for that year.

First from a historical perspective, lets go to the latest annual study by the New Policy Institute.

Different UK groups in poverty (after housing costs)

Source: Hannah Aldridge, Peter Kenway, Tom MacInnes and Anushree Parekh, Monitoring Poverty and Social Exclusion 2012, New Policy Institute.

Poverty increased across the board in the decade of Mrs. Thatcher, although of course correlation does not establish causation. What is really noticeable since then has been the decline in pensioner poverty, which can be seen as a success story for government action.

Poverty among other groups has been relatively static. Given that the 1997 Labour government made reducing child poverty a major priority, the relatively small reduction there is disappointing, but it was not for want of trying. Researchers at the IFS estimate that had financial support merely risen with inflation, child poverty would have risen by over one-quarter to around 4.3 million by 2010.

So what of the future? The following table comes from another IFS study that tries to estimate likely levels of poverty out to 2020. It is out of date in that it takes no account of cuts in welfare provision announced by George Osborne in November last year, of which more below.

Estimates of future proportions in UK povertySource: Brewer, Browne and Joyce (2011) Child and working-age poverty from 2010 to 2020, IFS.

So poverty is going back up. This is a direct result of policy. The study estimates that “the impact of changes to personal tax and benefit policy announced by this coalition government is to increase relative child poverty by 200,000 in both 2015-16 and 2020-21, and to increase relative poverty for working-age adults by 200,000 in 2015-16 and 400,000 in 2020-21.” “The main culprit is the change in uprating benefits from the RPI to the CPI.”

Yet this is out of date. In the pre-budget report in November the Chancellor announced that uprating would be further reduced to 1% for three years. So the likely increase in poverty is even greater than these figures suggest.

As the government is creating this increase in poverty, how are they going to deal with the problem? The answer seems to be by stigmatising the poor. The Chancellor famously said “Where is the fairness, we ask, for the shift-worker, leaving home in the dark hours of the early morning, who looks up at the closed blinds of their next-door neighbour sleeping off a life on benefits.” Unfortunately this line appears to resonate with a growing hardening of public attitudes towards welfare provision. This in turn reflects a persistent tendency of particular tabloid newspapers to run stories about benefit scroungers.

For example, Randeep Ramesh writes “Stories referring to large families had more than doubled in frequency since 2003, accounting for some 7.4% of articles. The facts are that families with more than five children account for 1% of out-of-work benefit claims. Very large households with ten or more children are a staple of tabloid shock stories: there are, according to DWP, 180 such claimant households in Britain.” As Ian Mulheirn points out here, using Department of Work and Pensions research, the percentage of those claiming unemployment benefit whose previous work record suggests they are trapped in a dependency culture is pretty small. So the facts do not support the rhetoric, which of course politicians know, so the rhetoric is part of the strategy. (There is also an unwillingness within government to try and model the impact of reforms, as Alex Marsh notes.)

Thus the solution of how to ‘deal with’ poverty is to return to Victorian attitudes (HT Mark Thoma, who also has this nice historical account from the US.) There is even the suggestion that UK ministers might change the statistics to reflect the idea that poverty is a result of character rather than circumstance. Dependency is always an issue with welfare, but as Brad DeLong writes here (and James Kwak here), it does not warrant hysterical overreaction.

When the charity Save the Children recently launched its first campaign to help UK families in poverty, the reaction from conservative MPs and the right wing press was predictably to blame the messenger. Perhaps they think the rapid growth of food banks in the UK of the last few years is also politically motivated?

This article was first published on Simon Wren-Lewis’s Mainly Macro blog.

Note: This article gives the views of the author, and not the position of the British Politics and Policy blog, nor of the London School of Economics. Please read our comments policy before posting.

About the author

Simon Wren-Lewis is a professor at Oxford University and a Fellow of Merton College. He began his career as an economist in H.M.Treasury. He has published papers on macroeconomics in a wide range of academic journals including the Economic Journal, European Economic Review, and American Economic Review. His current research focuses on the analysis of monetary and fiscal policy in small calibrated macromodels, and on equilibrium exchange rates.