Adam Smith Institute

The Campaign to End Child Poverty has released a report stating, "174 constituencies in Britain have 50 per cent or more children living in or on the brink of poverty". This is nonsense. A cursory glance at the statistics used, shows that the study defines poverty as "children whose families receive the maximum Child Tax Credit". Therefore, this is not a measure of children in poverty, but families in welfare.

Campaign chairman, Martin Narey is right that "These figures show us that there are millions more children than originally thought being failed by the system", but Campaign director Hilary Fisher is wrong in "pushing the Government harder than ever to do more to end child poverty in our country" and "demanding Gordon Brown does something about it, before it is too late." The 'system' that they decry is in truth the benefits system; the Campaign to End Child Poverty wants an extra £3bn to help the poorest families. Thus, to solve the poverty of welfarism, they are calling for more welfare.

These statistics show how reliant many families and communities have become on the state for survival. This inter-generational welfarism certainly needs combating. Although welfare reform is on the agenda across the political parties, the policies do not go far enough at addressing all the root causes. James Bartholomew, in the excellent The Welfare State We’re In, shows how the welfare state envelops much of this country including health and education. Without wide-ranging radical reform – cutting back the aberrant state to its role prior to WWII – the poverty of welfare will continue.

Our 1991 report Why Not Work? is now available online. Here's a small sample of its wisdom:

To offer people the chance to work and contribute their bit to the community must be better than trapping them in a depressing state of enforced idleness that leaves them less and less able to get back to work.

Barak Obama's social security (pensions) plan looks a mess. Last month, he called for a new social security payroll tax on incomes above $250,000 a year. Currently, the tax is levied only on the first $102,000 of income. That's easily more than the wages of most Americans, but to avoid antagonizing the middle-class millions who do earn more, Obama's plan is to leave incomes between $102,000 and $250,000 untouched. So it's only the 'millionaires and billionaires' – about 3% of the taxpaying population – who will pay it.

Whoever said that politics is two wolves and a sheep deciding what to have for dinner? The argument is that the tax would be just small change for the likes of Warren Buffett. But does that make it just? Where do we end up when politicians forget the principle of equal treatment and are willing exploit minority groups one by one?

Actually, we need more millionaires and billionaries, and we need to encourage people to make themselves millionaires and billionaires. They days have gone when rich people owed their wealth to inheritance so that an extra tax really was small change for an unproductive class. But today, wealth comes principally through building up a business. You take a huge risk, but you reap a huge reward. Like the National Lottery, it's the size of the star prize that induces millions of people to take the gamble. Lower the reward and the number of players tails off remarkably quickly. Taxing 'the rich' is a counterproductive policy.

And, of course, moves like this further complicate the tax code.

The US social security system, like the UK's National Insurance, is already corrupted by this sort of expediency. In the US, the payroll tax is 6.2% – but as in the UK, employers pay a lot more (indeed twice as much, in the US, at 12.4%). That's designed to disguise the tax: employers notice it but employees don't. Until businesses find their costs rising so much that they have to lay people off, of course.

The system's rotten. The quicker we move to a compulsory, privately funded pension system the better.