The Government’s July budget announced a raft of measures to reduce the welfare budget by £12 billion by 2019/20 and, more surprisingly, the introduction of a ‘National Living Wage’. But will these changes lift the living standards of the millions that fall below what the public views to be an acceptable standard of living in contemporary Britain? Joanna Mack discusses the findings of the latest ESRC-funded research into Poverty and Social Exclusion in the UK and argues that far more fundamental changes are needed to tackle the sharp increase in the numbers of those in-work falling into poverty.
The challenges facing the Government in reforming welfare and work are huge. Over the last thirty years, there has been a sharp rise in the numbers falling below a publicly-defined minimum standard from around one-in-six in 1983 to just under one-in-three today.
Through four large scale surveys – the ‘Breadline Britain’ surveys of 1983 and 1990 and the subsequent ‘Poverty and Social Exclusion’ surveys of 1999 and 2012 – levels of poverty and deprivation can be measured using the public’s views on what is an unacceptable standard in contemporary Britain. In these surveys respondents are asked which of a long list of items and social activities, from a basic diet and minimum housing decency to a number of personal and household goods and leisure and social activities, they consider to be essential for living in Britain today.
This method establishes a minimum standard based on what the majority of people think are the necessities of life, which everyone should be able to afford and no-one should have to do without. This is the nearest we have to a democratic definition of poverty. Importantly, there is near unanimous agreement across different groups in society – if a majority of men think an item is a necessity so, in the vast majority of cases, will a majority of women (and similarly for all other groupings such as age, class, education level and, significantly, political affiliation).
There has been a sharp rise in the numbers of people who cannot afford (as opposed to do not want) some of the most basic of these publicly-defined necessities. One-in-ten households live in a damp home, up from just 2 per cent in the 1990s. Those who cannot afford to heat their home adequately has trebled since the 1990s to 9 per cent of households, while overcrowding is also on the rise with the numbers of children over ten having to share a bedroom up from 3 per cent in 1999 to 11 per cent. Not only are many missing out on the most basic of contemporary needs but many lack the educational and social opportunities that most take for granted – for example, 4 million children (one-in-three) miss out on at least one or other of the family activities of holidays, day trips, and celebrations on special occasions. 600,000 children (8 per cent) are unable to go on school trips each term because their parents can’t afford to pay.
Moreover, the percentage of households who cannot afford each of the items and activities seen as necessities in 2012 and 1999 has, in nearly all cases, risen or stayed the same. For some, the increase has been large: for example those unable to afford to ‘replace or repair broken electrical goods’ has gone up from 12 to 26 per cent.
These material and social deprivations are closely associated with a range of other disadvantages, in particular financial and health – which have risen sharply. The proportion of households in arrears on at least one of their household bills – rent and mortgage payments, gas, electricity charges, council tax and loan repayments – has risen from 15 to 21 per cent since 1983. The numbers losing sleep because of worry has risen since 1999 from 19 to 31 per cent.
Accompanying this overall rise in poverty has been a sea change in the groups most at risk of poverty. The most striking shift has been the rise of poverty among those in work. In 1983 just over a third of those in deprivation poverty (lacking three or more necessities) were in a household where the ‘head’ was in full or part-time work. Today, the equivalent figure is just above 60 per cent.
The government claims that work is a route out of poverty – increasingly it is not. Britain is now a leading low-pay economy, with the proportion of the workforce on low wages almost doubling over the last thirty years. It now stands at 21 per cent, up from 12 per cent in the early 1980s, taking the UK to second place – behind the US – in the global low-paid league table for rich nations.
In this context, the introduction of a ‘National Living Wage’ is helpful – but nowhere near sufficient and accompanied, as it is, by cuts to tax and universal credits, millions in work will nevertheless be worse off. The gross increase in employment income from the higher minimum wage is estimated to be about £4 billion by 2020 while welfare spending as a whole is due to fall by £12 billion. There will clearly be more losers than gainers.
It is a slight of hand to suggest, as the Chancellor George Osborne has in his justifications for cutting benefit levels, that lower welfare can be exchanged for an increase in minimum wages. The policies simply have different purposes. Tax credits support those with low annual family incomes (some of whose members, but a relatively small proportion, will be on the minimum wage) while minimum wages support those with low hourly wages, many of whom have higher family incomes.
The ‘National Living Wage’ is more accurately seen as a rebranding of the National Minimum Wage. It is not a ‘living wage’ at all – any such calculations depend on benefit levels. Furthermore, the Low Pay Commission sets the National Minimum Wage (NMW) by market conditions not by needs. Based on the Retail Price Index, the real value of the NMW in October 2012 was less than it was in October 2004.
To lift people out of poverty through work requires much bigger changes – ones intimately linked with the erosion of labour’s collective bargaining power. Firstly, it requires a substantial boost to the share of national income going to wages. This has fallen since the 1980s to such an extent that the workforce would receive around £90 billion more in wages if the wage share returned to its post-war average.
Secondly, it requires a narrowing of the yawning pay gap between top and bottom. The real gross earnings for those at the top grew almost four times as fast as those at the bottom over the last thirty or so years.
Thirdly, there needs to be a closing of the gender pay gap. In 2013 (despite thirty-five years of the Equal Pay Act),this stood at nearly 20 per cent for median hourly earnings (excluding overtime). And finally, the rise in insecurity at work – particularly at the bottom end – must be tackled. This has made it more difficult for families to build the reserves and resilience necessary to cope with harder times, making even those whose current earnings are above the poverty threshold more vulnerable to slipping below it.
These changes would leave the benefits system with less work to do, allowing a return it to its founding purpose of a universal system that supports people according to their needs not a means-tested system supporting inadequate incomes. But such a shift in economic power is not on the agenda. Quite the reverse.
Joanna Mack is co-author (with Stewart Lansley) of Breadline Britain, The Rise of Mass Poverty, Oneworld, 2015, £9.99. She was the Open University’s lead on the 2012 Poverty and Social Exclusion study and set up the academic poverty resource www.poverty.ac.uk.
(Featured image credit: κύριαsity CC BY 2.0)
This can work. if every one play their part
Part-time employment has become the new full-time. Why? It is clear to me that whether you are a graduate who is aspirational and has just completed University studies or you’re a casualty of the recession – with losses and failings under your belt – aspirations remain strong – NOT to be forced into any role that government wants you too.
To continue with this proposal for land value taxation or LVT: there are 15 ASPECTS of LAND-VALUE TAXATION affecting Government, Land Owners, Community and Ethics
3 aspects for GOVERNMENT
1. LVT, adds to the national income. .
2. The cost of collecting the LVT is much smaller than for income tax and other production-related taxes.
3. With LVT, the national economy stabilizes and no longer experiences the 18 year housing boom and bust cycle.
6 aspects affecting LAND OWNERS
4. LVT is progressive, the owners of the most potentially productive sites pay the most tax.
5. The land owner pays his LVT regardless of how the land is used. When the land is leased to tenants most or all of the resulting ground-rent is the tax.
6. LVT stops the speculation in land prices because any withholding of land from proper use is too costly.
7. The introduction of LVT reduces the sales price of sites even though their value (or potential usefullness) may continue to grow.
8. With LVT, land owners are unable to pass the tax on to their tenant renters, due to the competition for land use.
9. With the introduction of LVT, land prices will drop. Speculators in land values will tend to foreclose on their mortgages and to withdraw their money for reinvestment. LVT should be introduced gradually. It allows investors sufficient time to transfer money to company-shares where their greater use will meet the increased demand for produce (see below).
3 aspects regarding our COMMUNITY
10. With LVT, there is an incentive to use land for production, rather than it laying idle or being partly used.
11. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper because entrepreneurs have less difficulty in starting-up and running their businesses. Demand grows, unemployment decreases
12. As LVT is introduced, investment money is withdrawn from land and placed in durable capital goods.
3 aspects about ETHICS
13. The collection of taxes directly from productive effort and commerce is socially unjust. LVT replaces this form of extortion by gathering the surplus rental income which comes without exertion. Consequently LVT is a natural system of money-gathering.
14. Bribery and corruption cease with LVT. Before, this was due to the leaking of news of municipal plans for housing development.
15. The improved use of the land will reduce the damage being done to the environment due to the sites being held unused being dumping grounds as well as the greater distances needing to be travelled between home and workplace requiring more transportation services and the associated emissions due to unnecessarily fuel use.
TAX LAND NOT PEOPLE; TAX TAKINGS NOT MAKINGS!
This whole situation is messed up. Whilst agreeing about the complication and confusion and hardship likely to be caused by the chancellor’s proposed changes, the long-term answer to poverty has nothing to do with the minimum wage nor with the allowances granted to the needy. It has to do with the lack of opportunity to find a decently paid job.
These opportunities should be equal for all and the reason why they are not is the basic cause of poverty. Two aspects are to blame:
a) unequal opportunities for children to learn–our standards for schooling need to be made more equal in all communities, indeed that of the poorest communities might be improved above those of the places where parents can and do pay for private lessons, and
b) the lack of opportunities for entrepreneurs to employ. The starting up of new companies should be less difficult than today and this problem is largely associated with the unavailability and high cost of sites for the new company to be situated.
Land prices are on the rise again and their tenants are having to pay too highly for access rights to them. This is due to the ability of present day landlords and their supporters the banks, to acquire sites and then speculate in their rising values without necessarily making proper use of these areas. How many bare sites and unoccupied building are in your neighborhood?
A wise government which seeks to eliminate poverty should stop this ability for speculation in land values by making its ownership and non-use unattractive. It can do this by TAXING LAND VALUES , and at the same time, since the government would enjoy a higher income, to reduce the taxation on ethically earned wages, purchases and property that consists of buildings and other improvements to the sites. This incentive tax would cease the landlords and banks easy way to make a living without doing any work, it would make land cheaper to buy and to rent, because there would be more of it available for use and its present high cost would drop due to the competition by land owners for obtaining the rents for use as tax payment. Anyone unable to make proper use of his land would be inclined to sell it to somebody else who would knows what to do for its full use.
This proposal was made 130 years ago by Henry George, the first of the “modern economists” to take seriously Adam Smith’s and David Ricardo’s claims about the way that land participates in the production process AS AN INDEPENDENT FACTOR and not in the way that John Bates Clark and others subsequently included land ownership as part of capitalism. This was a deliberate distortion of the way land plays a role in society. Capitalism deals with use of durable capital goods, of which land is not because nobody made it and the available amount is limited.