Politicians need to accept the fact that like the state pension, benefits and tax credits are a central part of the economy
Over 100 years on from the Royal Commission on the Poor Law, the political debate on poverty is stuck in a time warp – and the view of poverty as a structural economic problem, not an issue of individual circumstances and behaviour, is no nearer to prevailing.
Indeed Beatrice Webb’s argument in the commission’s 1909 Minority Report, that poverty is an economic failure, seems to be losing ground. Compared to a decade ago, debates dwell much more on social than financial dimensions of poverty, and the welfare reform agenda fixates on creating new nudges, incentives and sanctions to cajole individuals to change.
Except in retirement. For when it comes to pensioner poverty, the policies of both Labour and Coalition governments have had the same ‘structural’ take. Both administrations recognised that poverty in later life can and should be prevented, first by reviving a tri-partite private pension system that works for low income groups; and second by creating a strong state pension which distributes money across generations, with payments rising in line with national prosperity.
As a result, pensioner poverty has declined very sharply and may fall further in coming years. By contrast poverty for children and non-pensioner adults is set to rise significantly in the next decade, according to projections in a new Fabian report Inequality 2030. We fear there could be 3.6 million more people in poverty in 15 years’ time.
The disparity in the long-term prospects for pensioners and everyone else arises largely because of the different ways we view their poverty. When it comes to working life, politicians ignore the plain truth that decent living standards depend on the structure of our economy – on both good market outcomes and support from the state. Benefits and tax credits are not a temporary safety-net to fend off personal misfortune, they are a central part of the economy, just like the state pension.
Even on the left it is often implied that, for people in work, tax credits and housing support are somehow illegitimate, rather than inevitable and essential tools for preventing poverty. And people out of work on benefits are derided and stigmatised, even though most are disabled, caring or looking after young children.
The Fabian research shows that by far the largest influence on the extent of poverty is the structure of the tax and benefit system. In particular, we show that if politicians chose to redistribute an ever smaller share of our national prosperity to low income families, then more people will live in poverty: it is a simple question of maths. However, this is the intent and effect of current government policy and the Labour Party has not said it will alter course.
Our report presents an alternative. We propose a major programme of labour market reforms to boost employment and increase low wages. Alone this is nowhere near enough to crack poverty; the critical step is to recycle the government revenues generated by these market reforms back to low income families.
We propose a new Prosperity Fund to do just that, in a way that places no extra burdens on the public finances. Poverty before retirement can be solved in a full employment economy, but only if the structure of the tax and benefit system is designed to ensure that low income families, just like pensioners, can share in rising national prosperity.
Andrew Harrop is general secretary of the Fabian Society and a speaker at today’s Fabian Society/Bright Blue conference ‘A Future without Poverty’ #NoPoverty