Are one-in-five Britons really living in poverty?

A new book casts a sceptical eye at today’s poverty claims, and offers some thoughts on how people might be made wealthier.

Rob Lyons

Topics Books

It is no surprise that the issue of poverty has come back with a vengeance in the past few years in the wake of the global recession. Millions of people are unemployed. Many, particularly the young, seem to be stuck on welfare benefits and are reliant on the state to survive. Work for many people, if it is available, is often temporary and badly paid. The howls of protest at the decision by the UK chancellor of the exchequer, George Osborne, to limit welfare-benefit rises to just one per cent per year for the next three years is an example of how poverty has become something of a cause célèbre.

After decades of progress in reducing poverty, the proportion of the British population that is deemed poor seems to be rising. How can the UK – the seventh-richest country in the world, with a GDP per capita of over $36,000 per year – still allow the existence of poverty?

In a new monograph for the Institute of Economic Affairs (IEA) – ‘the UK’s original free-market think-tank’ – Kristian Niemietz offers a counterpoint to the discussion of poverty. Niemietz’s aim is to challenge today’s conventional view of poverty, the understanding of its causes, and the assumption that it is a problem that must be solved by government action.

To start with, we need to ask ‘What is poverty?’. The fact that shocking poverty once existed in Britain is unquestionable. The work of Seebohm Rowntree and others showed that many people lived in pretty desperate conditions well into the twentieth century. Niemietz quotes descriptions of people’s living conditions from Rowntree’s 1922 book, Social Theories of the City. For example: ‘No.33. Field labourer. Married. Two rooms. Two children, school age or under. Very dirty and untidy. Seven houses in this yard, and one water tap. There are supposed to be two closets, but one of these is blocked with deposit and filth, and has been unusable for some time; the stench is unbearable…’

Yet by 1950, in Rowntree’s last such study, only a very small minority of people suffered absolute poverty, even according to a slightly broader definition. As Niemietz says, the discussion of poverty all but stopped, only to re-emerge in the 1960s in a different form – not as a measure of the physical difficulty in surviving but as ‘impeded social participation’.

Thus, ‘absolute’ poverty was replaced by ‘relative’ poverty – usually defined as having a level of income below some percentage of an average income. Today, for example, the usual measure of relative poverty is something like ‘the number of people earning less than 60 per cent of the equivalised median income’. On this kind of measure, according to Oxfam Great Britain, ‘nearly 13million people live in poverty in the UK’ – that’s one in five of the population, including 3.8million children, 2.2million pensioners and 7.2million working-age adults.

The notion of relative poverty, however, produces some rather peculiar outcomes. Clearly, many poor people today are as well off as middle-income people were a few decades ago. In some ways, the modern poor are better off than the well-off of old because they have access to technologies – like mobile phones, televisions, refrigerators and microwave ovens – that either didn’t exist or were only affordable to a small minority in past eras. Moreover, by making the measure of poverty a relative one, it is perfectly possible for everyone in society to get richer and yet for poverty to increase. If median incomes rise and the incomes of lower-income households also rise, but more slowly, then there will be more people who are ‘relatively poor’.

However, Niemietz is also critical of the suggestion that once absolute poverty has disappeared, we can all just relax, as if the modern poor are not ‘really’ poor. There is something important in the notion of being able to participate in society at some basic level. His argument is that any ‘poverty line’ should be based, not on some arbitrary percentage of average incomes, but on the income required to obtain the various items and services deemed to be required to have a decent minimum standard of living. What items and services should be included? The best thing to do is to survey the wider population every once in a while and find out what people think. This at least gets around the problem of having experts or officials decide what is good for us.

People below the income level required to obtain this agreed basket of goods and services would then be regarded as in a state of ‘consensual material deprivation’, the level of which will change over the course of time. This avoids the peculiarities of relative measures of poverty and the insensitivity to social change of absolute measures.

Having established a sounder basis for assessing poverty, Niemietz turns to the real issue: how to tackle poverty. The contemporary debate about poverty in Britain tends to focus on income. In this view, the cause of poverty is either a lack of jobs providing decent pay or an insufficient flow of funds from the government to support the poor. But one of the strengths of basing conceptions of poverty on material deprivation is that the cost of these material needs becomes a factor, too. Poverty could be reduced either by increasing incomes or reducing the price of the various items required for a decent standard of living. Both of these things have occurred in the past. By opening the issue of expenditure, not just income, this approach provides some concrete opportunities for government policy. Furthermore, a focus on cutting costs benefits everyone in society, not just the poor.

For example, while the prices of most goods and services have fallen very significantly in recent decades, relative to incomes, the cost of housing has shot up. We’ve been living in a bubble economy where cheap credit has been combined with restricted supply. Hence, the housing-benefit budget looks dangerously like getting out of control. This Guardian graphic shows that housing benefit (£16.94 billion per year) costs more than income support (£6.92 billion), incapacity benefit (£4.94 billion), and jobseeker’s allowance (£4.91 billion) combined. Instead of sterile debates about ‘strivers’ versus ‘skivers’, reducing the price of homes would be more useful and less divisive. If the government took steps to increase the supply of homes – for example, by reducing or removing regulations on how and where homes are built – then housing costs should fall.

Similarly, Niemietz points out that there are many costs that hit the poor hard that are directly the responsibility of government. For example, taxes on alcohol and cigarettes – and the fizzy-drinks tax proposed by a coalition of campaign groups this week – are regressive in that they take a much bigger share of the incomes of poor people than those of the well-off. Again, these are things on which anti-poverty groups tend to remain silent, presumably because their members and supporters are also interested in sustainability and public health – two ideas that seem increasingly disinterested in the welfare and freedom of people.

Niemietz also has much to say about the way the benefit system is currently organised, which tends to create all sorts of disincentives to self-reliance and paid work. One simple example: discrimination against two-adult households. For the purposes of benefits, means testing is done against household income. However, for tax purposes, allowances are provided on an individual and non-transferable basis. So, if one partner in a relationship works, they pay tax as an individual but the welfare system will assume they are supporting the other adult in the relationship. The result is an incentive to live separately (or at least, to claim to live separately). Of course, people may choose to live separately for all sorts of reasons, but should the tax and benefits system act as a disincentive to live together? Why not allow partners to share tax allowances if only one is working?

The general reliance on the state, which is promoted by many anti-poverty activists, is not only expensive – it also creates all sorts of problematic distortions. For a supposedly ‘Anglo Saxon’, neoliberal economy, the UK is surprisingly focused on state transfers of wealth. As Niemietz points out, ‘the extent of redistribution through state welfare systems is as great as that in Sweden. Furthermore, we have now reached the position where at least 68 per cent of all households with children in Britain are in receipt of one form of major transfer payment other than universal child benefit.’ Quite apart from the implications for dependency, with the implication that most of society cannot stand on its own feet, this leaves far too many families at the mercy of changing political fashions.

This book is an important contribution to the poverty debate. Of course, no government policy is a substitute for a vibrant economy that can provide well-paid jobs and affordable housing. But by questioning accepted wisdom about the causes of and solutions to poverty, Niemietz at least provides us with a route out of a frequently dead-end debate where the interests of the poor are endlessly posed against those of the wealthy in a zero-sum game. One thing the government can certainly do to reduce poverty is to stop causing it.

Rob Lyons is deputy editor of spiked. His book, Panic on a Plate: How Society Developed an Eating Disorder, is published by Societas. (Buy this book from Amazon (UK).) Read his blog here.

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Topics Books