Adam Smith Institute

There's a new publication out, a guide to journalists, called "Reporting poverty in the UK". I found it extremely instructive but perhaps not in the way that the author intended.

We do get an interesting overview though of how poverty is currently defined, the differences between the official measures of absolute and relative poverty for example. And I don't think there's anything wrong with the point repeatedly made that poverty is really about being excluded from what society defines as a reasonable standard of living. As Adam Smith pointed out, a linen shirt may not be necessary for the continuation of life but if society defines one who cannot afford a linen shirt as poor then someone who cannot afford a linen shirt is indeed poor.

There are some absurdities though, as you would expect. The cost of supplying free school meals is described as a cost of poverty. Umm, no, that's a cost of alleviating poverty. There's no acknowledgement, not even a glancing reference, to the fact that "relative poverty" is, despite the linen shirt example, more a measure of inequality than poverty. But these are almost trivial complaints in respect of the most glaring ommission.

No mention at all is made of the way in which various benefits and payments made to alleviate poverty interact with the taxation system. That one of the reasons that poverty is so persistent, that it can be so hard to climb out of, is that those who try it can face marginal tax rates of 60, 80, sometimes even over 100%, as they try to do so. That, for some at least, trying to earn more to escape poverty leads to a lower income, that for millions, an extra £50 a week, an extra £100 in market income, can mean a rise in £2, £5 in disposable income.

That's the real point which journalists need to know about poverty in the UK today. That we both pay benefits to the poor and also tax them at the same time, leading to marginal tax rates so high that no one rational would try to work out of said poverty.

It's not actually a bad guide in what it says, although it is of course leading and biased as is any good piece of polemic. But in what it leaves out it is terrible, that the best way we can help the poor is to stop taxing them.

Tax-cuts are back on the agenda. These arguments are coming not from the traditional fiscally tight Conservative Party, but the traditional 'tax and spend' Labour Party. As things stand the Conservative’s are firmly on the back foot; however, it offers the perfect opportunity for the Conservatives to strike back.

The Liberal Democrats were the first Party to raise the possibility of putting tax-cuts on the agenda as a powerful fiscal tool to help people cope in the current crisis. The popular shadow chancellor Vince Cable sounded remarkably libertarian, stating: "The fact is that millions of families are under severe financial pressure and would prefer to decide for themselves how their money is spent”.

Writing in The Independent before the Labour Party’s opening salvo, Bruce Anderson understood the tone that the opposition should be taking. He suggested that in a time in which households are economizing, the Conservatives should be calling for cutting back unnecessary government waste and the cutting of taxes. Good call. Luckily for the Conservatives, government waste is one thing we have a lot of at the moment.

Perhaps David Cameron is right not to risk too much on calls for tax-cuts or the reduction of government, instead relying upon the public’s cyclical appetite for change. But such would be a sad reflection on politicians and the public at large. The Conservative Party should be arguing now for a flat tax with an increased personal allowance to take the poorest out of 'tax poverty'. If the public isn’t ready for this now, they certainly will be once recession takes hold.

My colleague Dr Madsen Pirie had a piece on the Telegraph blog yesterday responding to the Bank of England's decision to cut interests by 1.5 percent.

He made the point that there are two ways to respond to a recession. One is for the government to "borrow up to the hilt and beyond, and spend like a drunken monkey" in an attempt to keep the economy going. This seems to be the government's favoured approach, supported by the lie that the UK is not as indebted as other countries (on which point, see the video below).

The other, better approach is to "make it easier for private borrowing to sustain business activity", which is what the bank has done with its interest rate cut. Well, that's good in as far as it goes.

But Madsen also makes the point that cutting interest rates is not enough. If the government wants to get the economy going, they need to cut taxes as well – both to put more money in people's pockets, and to strengthen incentives for businesses, investors, entrepreneurs. The key to this working, though, is that tax cuts are coupled with spending reductions – not more borrowing. Borrowing is nothing more than deferred taxation after all, and besides, there's plenty of public sector fat that could be trimmed.

Nonetheless, there's only so much that policy changes can do. As Madsen concludes:

Neither the Prime Minister nor the Chancellor seem to have learned that governments don't pull us out of recessions. If they are wise, they might make it easier for people to pull themselves out of a recession. That's all.