How the Tories have allowed millions to plunge into destitution

Poverty and destitution are not the outcome of some invisible hand of fate, but the that of government policies and unresponsive economic and political institutions.

Food bank

The UK government has failed to develop a strategy for exiting the Covid-19 pandemic. A key element is the economic reconstruction to provide jobs, requiring policies for reducing inequalities and ensuring that people have good purchasing power. 

Yet even before the pandemic, the government was heading in the wrong direction. Its obsession with austerity, wages freezes and cuts to public services increased poverty. 

Young people, despite rising education levels, are beginning their career on low wages and insecurity. In the era of weak trade unions, workers’ wage bargaining strength has been eroded. Many skilled jobs have been replaced by a low wage service economy. 

In February 2020, the average UK weekly wage reached £474 compared to £473 in March 2008, a real reduction in income for most workers. Meanwhile the price of food, gas, water, electricity, housing, transport and other essentials rocketed. Poverty is the inevitable outcome.

In 2020, there were over 1.05 million people on zero hours contracts compared with 896,000 in 2019. Since 2000, that number has increased by 820,000.

This week the European Trade Union Confederation reported that from 2010 to 2019, there was an increase in the number of ‘working poor’ i.e. workers whose incomes are below the poverty line. 

There was a 51% increase in the UK, the second worst in the EU. The proportion of the UK workforce living in poverty in 2019 was 10.3% compared to 6.8% in 2010.

The Joseph Rowntree Trust has reported a massive increase in destitution in the pre-Covid period. More than a million UK households experienced destitution at some point in 2019, even though people were employed. These households contained 2.4 million people, including 550,000 children. 

The destitution levels are highest in the North East, London and the North West. The most vulnerable are single people and lone parents, mostly women. The chilling conclusion is that the number of children experiencing destitution in 2019 has risen by 52% compared to 2017.

At the other end of the economic spectrum, fat-cattery remains unchecked. The High Pay Centre reported that at FTSE 100 companies, the chief executive officer’s (CEO) remuneration was equivalent to the average wage of 70 workers. For FTSE 350 companies, the CEO/median employee pay ratio was 53:1 whilst at least a quarter of their workers received less than £20,000 per year on a full time equivalent basis. 

The highest average CEO/median employee ratio of 140: 1 was in the retail industry, often with higher concentration of female workers. At Ocado, the CEO/median employee ratio was 2,605:1 i.e. for every £1 paid to workers, the boss collected £2,605. 

The other notable offenders are JD Sports, 310:1; Tesco, 305:1; Morrisons, 217:1 and 201:1 at WH Smith. The income of many of the impoverished workers is topped by social security benefits, effectively a subsidy to big corporations and the big pay packets of their CEOs.

The above provides a glimpse of the pre-Covid economy. The pandemic, if anything, is likely to have widened inequalities and pushed more households into poverty and destitution.  

The government has provided subsidies for employees and self-employed affected by the pandemic, but millions have received little or no financial support. It could have introduced a universal basic income to prevent more people becoming destitute, but did not do so. 

It provided an increase of £20 a week in Universal Credit to help the less well-off, but has failed to confirm whether that would become the new norm. If not, its withdrawal will erode the income of some 6.2 million families by over £1,000 a year.

Poverty and destitution are not the outcome of some invisible hand of fate, but the that of government policies and unresponsive economic and political institutions. 

Too many people are unable to afford decent food, housing, education and healthcare to realise their full potential. Consequently, economic recovery will be slow and difficult.

The government needs to adopt progressive policies. A good level of universal basic income (UBI) can lift millions out of poverty. With the cushion of UBI, more people would be willing to start businesses. 

A living wage, rather than a minimum wage, is needed to lift millions out of poverty and reduce their reliance on food banks and social security benefits. There should be a ban on taxpayer-funded contracts for companies denying workers their right to collective bargaining.

The company executives’ ability to pay low wages to workers and huge bonuses to themselves must be checked by democratising the workplace. Workers of all large companies need to be empowered to vote on executive pay. 

Bosses paying pittance to workers should not be able to secure big pay packets from themselves. Public services, such as free school meals and free broadband links for all, funded by taxes on corporations and the rich are means of redistributing wealth and can increase employment opportunities and stimulate durable economic recovery.  The government needs to meet those needs.

Prem Sikka is a Professor of Accounting at the University of Sheffield and a Labour member of the House of Lords. He tweets here.

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