The poverty we can relieve
The Joseph Rowntree Foundation (JRF) has a new report out today that takes a look at living costs for the poor and the cost of achieving a 'socially acceptable standard of living' in modern Britain. The report continues their excellent approach to poverty measurement, which looks at the cost of a basket of goods that most people would consider necessary to have a decent standard of living.
This approach is very reasonable, and does a good job of contextualising domestic poverty without being led to the sort of absurdities of straightforward relative poverty measures, which, for example, "improve" every time someone wealthy goes bankrupt or leaves the country. The JRF’s method is quite a neat combination of the best elements of relative and absolute measures of poverty.
It's important to remember that poor people in the UK are still very rich by global standards. But that's not to say that their problems aren't still important and worth trying to solve by allowing more wealth to be created. There are some things we can do to help people in poor countries, such as removing barriers to trade and migration, which would also be good for poor people in the UK, but that shouldn’t stop us caring about relatively less poor people in the UK.
The JRF is right to highlight the fact that rises to the cost of living hit the poorest the hardest. I think it's probably a mistake, however, for anyone to assume that benefits cuts are the main causes of the living standards squeeze for the poor. They might be a factor in declining or stagnating incomes (not as much as the overall economic climate, though), but they don't explain why the cost of living is rising so rapidly.
Paradoxically, things like 'affordable housing' requirements can actually end up hurting people in need of affordable housing. They disincentivise higher-end developments and cause the demand for those homes to be pent-up in the existing housing stock – so, in other words, instead of building new houses for the rich, existing affordable homes are converted to accommodate them, reducing available units for people who need cheaper homes. Liberalizing the planning system so that supply can meet demand would do a lot to reduce the cost of living for the poor.
I also think it's crazy and inhumane that we tax minimum wage workers so much. A full time worker on NMW earning just under £13,000 a year will have to pay more than £1,300 of that in tax. That's a scandal.
And of course a lot of the problems facing people on low incomes are due to the overall economic climate. If Mark Carney really does implement a nominal GDP target, the resulting economic recovery and job creation will mitigate some of the worst problems facing people at the bottom of British society.
Osborne plans to scrap benefits for wealthy pensioners—he should be scrapping the pensioners themselves
Don’t jump to conclusions: I’m not advocating a purge of the elderly. Rather, what I’m saying is that the government should get rid of its concept of a pensioner, and all the benefits which go with that. There should be no division of law-abiding adults into "working-age" and "pensioners": they should have exactly the same rights.
Of course, "pensioner" just means someone who is receiving a pension. The state definition of a pensioner as a person over a certain age completely ignores the huge variation amongst individuals. ‘Pensioner’ conjures up an image of a frail old person in need of help. While it’s clear that some pensioners are dependent on others, many are not, and it’s illogical to treat them all the same based on an arbitrary definition. One area of difference is employment: some 70-year-olds, say, are much more able and willing to work than others. If a 70-year-old is able to work, why should she be treated differently to a 30-year-old working man? And if a 30-year-old is unable to work why should she be treated differently to a disabled 70-year-old? One’s age does not itself indicate one’s need for state assistance.
A response to this would be to say that the elderly are more likely to be dismissed from their job, due to age discrimination. But I believe such dismissal or ‘compulsory retirement’ should be completely up to the employer: it is their right to employ whoever they want. Also, calling it compulsory retirement is misleading – the dismissed employee is free to take up another job. I think employers should be much freer to fire employees of any age. This would make companies more willing to take a risk in hiring people, as they could be fired if they were not suitable.
The state also ignores the varieties in wealth amongst pensioners. Only now are ministers moving to scrap benefits such as free TV licences and winter fuel allowances for wealthy pensioners. To me it seems crazy to have been handing out these benefits at all: the whole point of redistribution is to take from the wealthy and give to the poor. Taxing the wealthy and then subsidising their TV licences and bus travel is simply a waste of money. At least Osborne and co. are finally moving in the right direction.
The main justification for the benefits of state pension age (at least for poorer pensioners) is that pensioners’ lower income means they cannot afford to pay for as many goods and services as a working person can. But this lack of money is partially caused by the whole scheme. Subsidising bus fares and TV licences costs money, paid for by taxes. If people were taxed less, they would have more money, and would be able to save to pay for these things themselves, if they so desired. Also, over time, a smaller state would lead to easier business, more wealth, and cheaper goods, further easing people’s dependence on the state.
The other injustice the government causes through its ‘pensioner’ classification is the state pension, paid for by National Insurance. This is another example of the state being unwilling to leave the individual to make their own choices. If I want a pension I should be left to sort it out for myself directly through a provider or my employer. If a company requires that its employees pay into a pension pot, that is fine—if I don’t want to contribute to the pension, I can choose not to take the job. But to force me to put my own hard-earned money into a pension, with the promise of greater reward in the future, is simple coercion.
Finally, the name ‘National Insurance’ is deceptive. It is income tax by another name (around 8.5% for the average wage). It is used to pay for more than the state pension: for example, it also funds Maternity Allowance. It is yet another example of how the government takes our money dishonestly: ministers can raise National Insurance contributions and say that income tax has stayed the same.
The government’s pension age should be scrapped, and all the pensioner-benefits with it. Currently, people are taxed heavily only to be given benefits back later in life, when it would be more efficient to leave people to provide for themselves. The state pension scheme is coercive, and National Insurance is a deceptive tax which should be abolished.
Don't hate the players, hate the game
I usually agree with Mark Littlewood, Director-General of the IEA, so I was surprised by his piece in the Mail on Sunday this weekend. Mark proposes a public register of everyone claiming benefits of any kind – pensions, disability living allowance, jobseeker’s allowance, and so on. This strikes me as a very bad idea indeed.
Mark’s aim is to increase public awareness of benefits claimants who are receiving much more in benefits than most people would think reasonable. This, he hopes, will increase the public’s appetite for welfare cuts. Actually, I think people overestimate how much money individual people on benefits get, but the proposals are undesirable for other reasons.
Mark says that “This wouldn’t be a matter of ‘naming and shaming’ anyone. After all, if you are legally entitled to a particular benefit, what is there to be ashamed about? Anyone ashamed to claim money from the State maybe shouldn’t be claiming it.”
In my experience, most unemployed people are profoundly ashamed of being unemployed. Removing their privacy, exposing them to gossiping neighbours and their children to bullying classmates, will just make that even worse.
And Jobseeker’s Allowance only accounts for a small proportion of the welfare budget. These proposals would also include people on disability benefits for socially stigmatized mental illnesses and physical disabilities that they would like to keep private.
Mark says that Britons “are far too reasonable to start taking up pitchforks and burning torches and assaulting imagined benefit cheats.” I am less sure. This is, of course, the same country that saw a paediatrician being hounded by vandals who confused the word “paediatrician” with “paedophile”.
These proposals would humiliate people on benefits and rob them of their privacy. They don’t deserve it. Many (probably most) of them are dependent on welfare because of the state itself, and it is senseless to make their lives even more difficult instead of tackling the real causes of their poverty.
If you think that unemployment is largely caused by government mismanagement of the economy, it makes no sense to humiliate people for being out of work. If you think that government welfare has crowded out private charity, you shouldn’t blame people forced to rely on government disability benefits. If you blame planning regulations for the high cost of housing, you should focus on those regulations before you cut off the money that mitigates the problem for a few poor people.
I wish the only problem today was the government’s unwillingness to cut spending. In fact, that spending usually exists to relieve much bigger problems that can’t be found on the Treasury balance sheet. Often, those problems are state-made.
To me, this is one of the key messages that ‘bleeding heart’ libertarians need to get across to other free marketeers. Cutting back the state is a bit like a game of Jenga – if you blithely pull away the supports that people rely on before you take away the causes of that reliance, you’ll only end up making things worse.
Why should benefits be universal?
Ed Balls, the economic spokesman for the UK's opposition Labour party, has suggested that wealthy pensioners should be stripped of their winter fuel allowance. At present, over-60s eligible for the state pension receive £200 a year, and those over 80 receive £300, to hep keep them warm. The policy was introduced some years ago after media stories of pensioners suffering from hypothermia because they could not afford to turn on their heating. Even those in care homes get fuel payments of £100-£150.
Government figures show that withdrawing these winter fuel payments from pensioners who earn enough to pay the higher income tax rates would save £105m. Not a huge dent on an annual government budget deficit of £120bn a year, but every little helps.
The remarkable thing, though, is that a Labour politician should attack the principle of universal benefits at all. (He must, as Westminster-watchers believe, definitely be on the way out.) Giving state benefits to everyone might waste money on people who don't need it—£200 is not a lot to a top-rate income tax payer. But the argument for making state benefits universal is not just that it is administratively easier to do than trying to target the money. The argument is that universality gives the middle classes a stake in preserving the benefit system, as they gain from it too.
I have always thought it a pretty odious argument: that we should waste taxpayers' money on people who do not need it in order to buy their political support for more generous state benefits. And the result of including the middle classes is that they do very nicely out of the deal. Being articulate, politically astute and well represented in Parliament, the welfare state has elided into a system designed for them, rather than the poor. Not just cash benefits, but free healthcare, free education and all the rest – people who could well afford to pay are the biggest gainers.
We need to scrap this entire system of middle-class state patronage and replace it with a negative income tax, so that we can see clearly how much we are spending on welfare support and so that government—and political—activity is clearly focussed on those who genuinely need it.
So private charity does step in when the State moves out
I thought this was a very interesting little story:
Massive cuts to social safety nets have led to "destitution, hardship and hunger on a large scale" in Britain, with more than half a million people now forced to rely on food banks for sustenance, key poverty charities have warned in a report.
Welfare changes and mistakes by Jobcentre Plus staff are causing delays in benefits and errors or sanctions, which push vulnerable people into precarious situations, the report from Church Action on Poverty and Oxfam warns.
The charities want an urgent parliamentary inquiry. "The shocking reality is that hundreds of thousands of people in the UK are turning to food aid," said Mark Goldring, Oxfam's chief executive. "Cuts to social safety nets have gone too far, leading to destitution, hardship and hunger on a large scale. It is unacceptable that this is happening in the seventh wealthiest nation on the planet."
A number of reactions are possible: the one that they hope to engender is that we must spend more through the State to alleviate such problems. Although it has to be said that that's not terribly persuasive as they're blaming screw ups by that very State for a goodly portion of the problems.
We could also agree (as I certainly do) that in a country as rich, both compared to history and to the current globe, it is ridiculous that people, absent mental or drugs problems, are going hungry. There is indeed enough wealth around to make sure this does not happen.
The really interesting line though is this:
Food banks may not have the capacity to cope with the increased level of demand.
From which we can deduce that food banks are currently coping. Which leads us to an extremely interesting conclusion.
One of the major screaming matches in this whole "whadda we do about the poor and or incapable?" is that one group tells us that only the State can possibly take responsibility and thus we'd all better cough up our taxes and do as we're told. We also have those who insist that without the State exactions we human beans are empathetic enough that we'll, purely charitably, provide what we think those poor and or incapable need. Now look at what the argument being put forward here is:
As the State withdraws from providing some things to the poor and or incapable food banks, those purely voluntary organisations, are taking up the strain. This therefore proves that the State must provide all.
It's not an argument that works, is it? It's very much evidence for the other side of the shouting: that private charity is indeed, possibly only at times, a viable alternative to State provision. For you really cannot use the growth of private provision as an argument that only State provision can work which is what is being tried on here.
No, I don't therefore conclude that therefore there should be no State provision. Only that the existence, the recent growth in, food banks show that the alleviation of poverty, hunger, is not something that is necessarily entirely a State competence. For we've actual evidence that as the State retreats that charity does indeed move in.
Think Piece: Busting welfare myths
The welfare debate has roused emotions on both the left and right, and has led to some outlandish claims. Myth needs to be separated from reality. Here is my take on what we should and shouldn’t believe.
Myth: Welfare spending that goes on pensions is unreformable.
Reality: The state pension eligibility age has risen too slowly.
Opponents of cuts to welfare often cite the proportion of welfare that goes on pensions (48% or a total of £80bn) as proof that the colossal budget is justified. This is lazy reasoning. The problem is not that pensioners necessarily receive too much money per year, it is that they receive it too soon. Life expectancy is rising fast and people are able to contribute to the economy for longer than they used to. If the government were to raise the state pension age over the next two decades to 70 taxpayers would save hundreds of billions and all would benefit from the contribution of older workers. If this change were made by 2030 pensions would still provide for 15 years of retirement, based on experts' guesses of life expectancy then. Historically this change is long overdue – since 1948 life expectancy has risen by 16% but the accompanying rise in the State Pension age has been a meagre 1% for men and 3% for women.
Calling on the affluent elderly to send back their benefits
Iain Duncan Smith, Secretary of State for Work and Pensions, has called upon wealthy elderly people who do not need benefits to return the money to the government. His case is that the winter fuel allowance, the Christmas bonus and travel passes are handed out to the elderly without means-testing, so that some undoubtedly go to the comparatively well-off. Iain Duncan Smith's plea calls to mind the recent paper from the Fabian Society calling for older people to pay more tax, since pensioner couples are in the top half of UK income distribution for disposable incomes, with 80% of them owning their own homes.
There is no easy mechanism for the affluent elderly to return benefits, as a few celebrities discovered last Christmas when a high-profile campaign was started to encourage people to hand them back. Even if significant numbers did return their benefits, it would amount to no more than a pinprick to the department's budget, having no more impact on real-world events than the tiny windmill David Cameron installed on the roof of his house.
Not many people think the government would make a better job of spending money than they could manage themselves. Those who feel their comparative affluence does not entitle them to the benefits have the option of giving the money to a charity instead. If they choose an appropriate charity, better use will probably be made of the money than the government could manage, given its record of profligate wastage.
This assumes that a charity will be chosen wisely, of course. It should not go to a charity that spends most of the money it receives on political campaigns for more taxpayer funds, or on advertising for yet more funds to pay for yet more advertising, all in the name of "raising awareness." And of course it should not go to charities that spend huge sums on anti-business advertising instead of on actually relieving poverty. Given these obvious caveats, the chances are very high that the money will be better spent than it would be by government.
Universal credit and the poor
Today Britain gets a new welfare system. Well, one tiny part of Britain near Manchester, focused around a single job centre. It is the new Universal Credit system, the brainchild of Welfare Secretary Iain Duncan Smith, who has been thinking about such moves for over a decade.
Britain's welfare system is a patchwork quilt of benefits of different kinds, going to different people, with different qualification rules and different tax implications. Benefits have sprung up under successive governments, all determined to show their credentials in terms of helping 'poor families', often with scant regard for what is already there or what the effects might be. The result is this patchwork quilt – which is altogether too cosy in some places but full of holes in others.
The idea of Universal Credit is to shoehorn around 54 different benefits into just one. Proponents reckon that will be a lot easier all round – easier for claimants to understand, easier for the authorities to administer, and cheaper for taxpayers. Critics argue that there will be losers, and that some people will be unable to cope with the new system. Mind you, whenever you move from an irrational hotchpotch of policies to a more rational one, there will be losers. There will be well-deserving winners too, though you won't hear any objections from them, so every such change is greeted with plenty of outrage and little support. Politicians have to get used to that.
And sure, the new system basically gives people cash rather than spoon-feeding them with cash benefits here and practical benefits there, and some people may find that hard to manage. Most won't, though, and we can deal (and should) with the exceptions separately.
Critics also argue that the computer system behind the new benefit is over-complex and unreliable. That's probably a fair point, if previous government IT projects are anything to go by. Remember the NHS IT project? For what it cost not to deliver a joined-up NHS, we could have given all 1.4 million NHS workers nineteen web-enabled laptops, plus a spare for them to forget and leave on the train.
This tiny roll-out of Universal credit reflects something that PM Ted Heath tried to achieve back in the 1970s with Family Income Supplement and which the Nobel economist Milton Friedman proposed in his 1962 Capitalism And Freedom - that is, a negative income tax. Above the line, you pay tax, below the line, you get cash. Simples! And probably very efficient and effective. We will see.
Welfare cash cards are a paternalistic folly
At the end of last year, the Conservative MP Alec Shelbrooke suggested to parliament that 'Welfare Cash Cards' should be introduced to curb benefit spending. Janice Atkinson has recently suggested that UKIP adopt the policy, and a worrying number on the right seem to agree with the idea. There are two quite major problems with this policy, first, it will not deliver the intended consequences and will result in higher costs to the taxpayer, and second, it is paternalistic and ethically wrong.
I agree that government should seek to reduce costs to the taxpayer, but it is unnecessary and cruel to punish people on benefits purely for being out of work. If they are not trying to find work (and breaking their “jobseeker's agreement”), then sure, sanction them. But to punish all on benefits, purely for being such, will not help anyone. As long as people on Jobseeker's Allowance (JSA) are trying to find work, they should be supported by the government, not punished purely for trying. This is especially true in times like these, when unemployment is often involuntary and there can be hundreds of applications for every job.
Petty moralising over this problem will not deliver positive outcomes. Just like the US Food Stamps program, 'Welfare Cash Cards' will be plagued with corruption and other problems from the start, requiring police resources to deal with. Anyone addicted to drugs (including alcohol and tobacco) will find ways around the system. They might start dealing drugs, join a gang, they might resort to theft or other crimes to pay for their habit. Something that will happen will be the growth of a new industry that turns 'Welfare Cash Cards' into ready cash, taking a tidy sum in the process, diverting taxpayers money away from the intended recipients (who will be poorer as a result) straight to criminal gangs.
Government will not be good at closing loopholes or fixing other problems with the system. Are local corner shops going to be registered? That's tens of thousands of little shops. What about people who get jobs through networking in pubs? What products are allowed to be purchased exactly? Are we going to have a government register of acceptable products? Did anyone proposing this think through these problems? Of course not; small-minded moralising was more important.
This idea, like many that usually come from the left, is nothing but government meddling. It is attacking the results of various problems rather than dealing with the sources. We should instead look to legalise drugs, end high alcohol and tobacco taxes, tighten up the benefits system and tackle supply-side issues to create jobs and reduce the cost of living. Whatever the issue, misguided and petty moralising is not the answer.
A libertarian solution to the welfare state we’re in
The Coalition's welfare reforms are too timid, says economist Peter Hill. Welfare-to-work schemes have failed, and adding more state intervention will only compound the problems. What is needed is a reform package that time limits out of work benefits, turns benefits into a genuine unemployment insurance scheme, and more.
Given all the bold statements of Iain Duncan-Smith about restoring fairness and making work pay one could easily be swept away by the hype. The reforms set out by the coalition include the introduction of the ‘Universal Credit’ in an effort to streamline the cacophony of benefits and tax credits inherited from Labour, the introduction of a benefit cap of £26,000 for families on benefits, and a tightening of conditionality surrounding disability to ensure that all those capable of work do seek it.
With this swathe of seemingly radical reform taking place one would expect spending by the Department for Work and Pensions to soon reverse from the relentless upward trends seen under Labour. Sadly, this will not be the case with spending set to increase by an average of £4.29 billion per annum over the course of this Parliament comparing on marginally better than £4.43 billion per annum increase during Labour’s time in office. According to ONS data unemployment has also only fallen from 2.51 million to 2.49 million since the coalition came to power and growth remains stagnant.