Bloggers4Labour Summer Essays #3 - 12 comments

The series continues! Here's Neil Harding's piece on poverty in Britain. Neil also goes on to cover income inequality, economic productivity, health, crime, and housing, so I hope to see some interesting comments on this.

Catch up on the previous entries. Meanwhile, anyone who would like to participate - you don't have to be a Labour supporter - and make a contribution of their own can find instructions here.

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Tackling Poverty in Britain

"Poor people I have met, both in my own country and abroad, are less interested in relative poverty than in whether they get enough to eat, access to decent services, and a few simple enjoyments. Those who campaign on their behalf focus instead on the gap between rich and poor. A popular definition has it that those in receipt of less than half the average income are living in poverty, and their children are 'brought up in poverty.' Others talk of the gap between rich and poor and say that if inequalities in society increase, then so does poverty.

Their surveys point to huge numbers who 'experience poverty' at some point in their lives. In their terms this is true. Many students would be included, as well as other young people struggling to get by on starting salaries while facing the costs of accommodation and travel. I have certainly been there.

But even on the relative definition, there is not a fixed pool of people 'mired in poverty.' It is a rotating pool which people move into and out of. It is also true that as society grows richer, inequalities tend to increase. If in a society of two, I earn 80 dollars and the other guy gets 20 dollars, there is inequality. Indeed, since he gets less than half the average, he is poor on the relative definition. Now if we both get twice as rich, I am on 160 dollars, while he is on 40 dollars. The gap has grown from 60 dollars to 120 dollars. So even though everyone is twice as rich as before, 'poverty' has increased. It is a poor definition which allows this.
Perhaps we should forget this relative stuff and try to make sure people get enough to eat, decent accommodation, and access to services."

This is the argument of Dr Madsen Pirie at the Adam Smith Institute. It is typical of the argument of the 'right' against the 'idea' of relative poverty.

So are they right?

If we ignore the fact that absolute poverty is currently increasing in the world and in the UK, and social mobility is low and in decline in most neo-liberal economies (despite Dr Pirie's claims to the contrary), then would increased inequality nevertheless be justified if absolute poverty were being reduced?

Dr Pirie's argument basically rests on two flawed axioms;

One is that the most efficient way to increase wealth is to increase inequality and the other is that the inequality itself is not in any way harmful to a society. I would argue that both these axioms are wrong.

Scandinavia and Germany are prime examples of why inequality has little or no detrimental effect on economic efficiency. If it did surely these countries would not have levels of prosperity and productivity in excess of countries like the UK, which has much higher inequality and lower productivity.

But more important than this, is the damage that inequality does to a society. I would argue that everyone, including the rich would benefit from a more equal society. There is a strong correlation between income inequality and crime and income inequality and health/epidemiology. Both of which affect the rich as well as the poor.

Apart from these massive empirical imperatives to reduce income inequality, there is still the 'moral' argument for the 'right' to contend with.

The 'right' often argue that any attempt by government to reduce income inequality is the 'politics of envy'. This is argued as though they are talking from the moral high ground. Lets just imagine that it is pure envy that drives the 'left' (and I don't believe this for a minute). If so, where is the moral high-ground in being extremely wealthy while others in society are poverty stricken? Their argument does not stand up to any scrutiny.

Then let me explain why it is not the 'politics of envy' to want to reduce inequality. If this inequality has come about largely by meritocratic means then maybe the 'right' would have some justification for their argument. This is something the 'right' often tries to play on, with their emphasis on the 'self made millionaire' and their lauding of the 'free market' (like it was some natural phenomenon). The truth however is that most rich have inherited rather than created their wealth and the 'free market' is no such thing, based as it is on monopolistic distortions of not just prices but also wages. How else can it be explained that someone is paid thousands or millions of times the wage of someone else? Could they possibly be this much more productive?

Now I have emphasised the importance of reducing income inequality in tackling poverty, I will look at the best ways to bring about this reduction in inequality.

Firstly, I would like to stress that we live in a world economy and though I will concentrate on how to combat UK poverty, this cannot be addressed in isolation from the rest of the world, due to the problem of 'social dumping'.

The most efficient way to tackle income inequality is through a Citizen's Income.
"A CITIZEN'S INCOME (CI) is an unconditional, non-withdrawable income payable to each individual as a right of citizenship."

The beauty of a CI is its universal nature, there is no means testing. This means huge savings can be made in cutting bureaucracy. Also the 'poverty trap' is removed as there is no financial penalty to finding work.

All other benefits and pensions would be replaced by the CI. A full CI would be enough to cover basic housing, food and utility costs. It would work something like this;

The government spends around £500 billion every year, around £170 billion of this is spent on social protection and associated bureaucracy. Why not turn this into a universal payment, (like child benefit), but to everyone. This alone works-out nearly £3000 for every man, woman and child in the country.

Scrap tax allowances and the NI ceiling and have one universal tax rate of 50%, ((50% of £4745) x 30m taxpayers + £35bn extra NI revenue + (30% of £31400) x 22m) and we raise another £230 billion, this puts our CI up to £6800 each per annum.

If we remember 20% of the population are under 16, whom we could pay a smaller amount to, of say £3400. This would mean each adult would get over £7500 p.a. (about £150 p.w.).
The tax-hike sounds a lot but, remember, every taxpayer receives the CI payment of £7500 net on top of their earnings, which means workers below median average earnings would actually be better off.

The next question would be what impact would this have on the labour market and especially the willingness to work?

People work for a variety of reasons, not just for their earnings. A CI would certainly mean that work conditions would have to improve and this would be a good thing. A CI would also mean there would be no need for a minimum wage, since people would no longer be totally dependent on an employer for income and could move about freely to the job they liked the best. In fact a lot of employer regulation could go because employees would be in a position to demand better working conditions. Employers would also have to pay a decent wage to attract people to the hardest jobs.

Because there is no penalty for working, people are in fact more likely to work than at present.

A CI could, at a stroke massively reduce inequality and therefore poverty. The problems of poverty would not disappear overnight, but over a generation this single policy could have a massive impact on society for the better, in terms of consideration for everyone's overall quality of life, which would no longer be counted purely in terms of GDP.

Of course a CI would be only part of a package of measures needed to alleviate poverty. Educational selection would also be very important and I would suggest that the brightest pupils from each state school should have reserved places at university. This would destroy the incentive for the middle class to concentrate their children in a few schools. As pupils learn just as much from their peers as from the teachers, this would be of benefit to all children. The current selection by wealth where parents 'buy' into the catchment areas of schools is fuelling the segregation of society between rich and poor and is unacceptable!

Inequality is also caused through ownership of housing and land. More low cost housing needs to be provided. It is a huge problem that housing is seen as an investment rather than just a home as this has detrimental effects on our saving and pensions industries.

The number of second homes is roughly equivalent to the number of homeless families. Couple this with the rise in single occupancy and it is not surprising that average household size has fallen from 2.86 to 2.36 since 1971. As Max Hastings in the Guardian suggests 'many British families are over housed', and it is this as much as a shortage of low cost housing which is driving the house price rise that is so detrimental to the poor.

Apart from building more houses (mostly on brown-field sites so they are energy efficient, i.e. near work places) to drive down prices, we need financial disincentives to reduce the number of people buying second homes.

Just these few simple measures would massively alleviate poverty. Poverty is not something that is with us forever, but is a deliberate policy over generations which will take generations to correct. But with the political will it could happen. I believe there is a majority of people who want inequality reduced in this way. The question is how do we harness this and turn it into pressure on politicians to make this happen? I believe electoral reform and media reform are needed for the people to be truly represented. Get these changes and equality will be much easier to achieve and poverty will be on its way to eradication.