Having Talked the Talk, Which Way should we Walk?

Professor Glen Bramley
Professor Glen Bramley

Drawing on new research for the Joseph Rowntree Foundation, Professor Glen Bramley considers what policies would substantially reduce poverty in the UK. 

A lot of people claim to care about poverty and doing something about it in the UK. Let us start with our new Prime Minister…

Britain still needs a Government that is capable of delivering a programme of serious social reform and realising a vision of a country that truly works for everyone.

The evidence of this need has been known to us for a long time. If you’re born poor, you will die on average nine years earlier than others. If you’re black, you’re treated more harshly by the criminal justice system than if you’re white. If you’re a white, working-class boy, you’re less likely than anybody else to go to university. If you’re at a state school, you’re less likely to reach the top professions than if you’re educated privately. If you’re a woman, you still earn less than a man. If you suffer from mental health problems, there’s too often not enough help to hand. If you’re young, you’ll find it harder than ever before to own your own home. These are all burning injustices, and ….  I am determined to fight against them.
(Theresa May, Campaign Launch speech, 30 June 2016, repeated on assuming office on 13 July 2016.)

For Labour leader Jeremy Corbyn, the key narrative has been about economic insecurity and the way this is being exacerbated by ‘austerity’ public finance policies.

…. How dare these people talk about security for families and people in Britain?  Where’s the security for families shuttled around the private rented sector on six month tenancies – with children endlessly having to change schools? ….. Where’s the security for the carers struggling to support older family members as Tory local government cuts destroy social care and take away the help they need?  Where’s the security for young people starting out on careers knowing they are locked out of any prospect of ever buying their own home by soaring house prices?….. Where’s the security for the hundreds of thousands taking on self-employment with uncertain income, no sick pay, no Maternity Pay, no paid leave, no pension now facing the loss of the tax credits that keep them and their families afloat? And there’s no security for the 2.8 million households in Britain forced into debt by stagnating wages and …..the longest fall in living standards since records began.
Jeremy Corbyn: Labour Party Conference Speech, 29 September 2015.

So, to be against poverty, whether seen in terms of immediate want, economic insecurity or longer term life-chances, is to be in good company. The differences are, apparently, more around the means than the ends. But even then, the political debate can seem confusing, as the parties engage in gamesmanship and try to steal their opponents’ clothes. We saw some striking examples of this in the 2015 Summer Budget, for example when George Osborne promoted a ‘National Living Wage’. However, the ‘Brexit’ vote in the EU Referendum has acted like a large ‘Reset’ button on much of British politics, not least ‘Austerity’ and all that, so that we can think about  all sorts of policy options which might have been deemed unthinkable in the cautious politics of ‘triangulation’  a couple of years ago.

So if we really do want to end poverty, or substantially reduce it, what policies would actually be likely to achieve that, or at least move us substantially in the right direction? The Joseph Rowntree Foundation (JRF) have asked just this, in developing their plan  ‘Solve UK Poverty’, the full fruits of which will be on display shortly [Link]. However, published this week is one piece of the extensive research underpinning this exercise, a study entitled What Would Make a Difference? Modelling Policy Scenarios for Tackling Poverty in the UK. [1]

The motivation for this particular element is to overcome criticism of past strategies that they did not attempt to demonstrate the quantitative impact of policies on poverty over time, and also that they did not take account of how different policies could interact with one another. In order to meet this challenge, this project developed and adapted existing models to enable a simulation of different suggested policies under different contextual assumptions. It entailed linking an existing Sub-Regional Housing Market Model to a ‘micro-simulation’ based on the UK Household Longitudinal Survey ‘Understanding Society’. This method enables us to look at the likely impacts of different policy changes and/or contextual scenarios over a period of 25 years into the future, in terms of key poverty, equality, demographic, and housing outcomes across the different parts of the UK.

Inevitably, our forecasts are conditional on a raft of assumptions, including the stability of relationships established in a base period, as well as the appropriateness of some key parameters imported from other research. Nevertheless, we believe they do go some way to meeting the challenge posed and  provide valid insights into some of the key processes and interactions which will affect future poverty, for example the changing demography of households, the regional patterns of economic prosperity and housing market conditions, the changing balance of housing tenures, changes in workforce participation, and the way these will interface with Universal Credit and other aspects of the tax and benefit systems.

So what would make a difference? The report looks at around  40 individual policy or contextual scenarios as well as combined packages. Most of these make some difference, but in quite a number of cases this is small and/or ambiguous in terms of effects on different poverty outcomes. A smaller number of policies make a sizeable difference. There is no single magic bullet, and to make large inroads into poverty would require concerted action on a number of fronts.

If asked to ‘pick the winners’, I would highlight the following policies as making quite a large positive impact on poverty reduction:

  • Family policy, particularly flexible quality childcare packages score highest in terms of reducing key poverty measures, and also appear likely to have a positive net fiscal impact [2] by enabling parents to work at all or to work longer hours or in better jobs. This is all quite apart from the longer-term benefits in terms of happier childhoods and improved educational attainment and greater future earning power. A further positive element would be measures – counselling, mediation, mental health, substance treatment, offender rehabilitation – which led to reduced rates of relationship breakdown.
  • Closing the gender pay gap comes high in the pecking order, underlining the extent to which poor households are female-headed. This too is fiscally positive, even allowing for the impact on the public service paybill.
  • Introduction of the full version of the Living Wage [3] plus positive indexation of benefit levels and minimum wage levels, so that they increase more than median earnings, comes next in line, and is also fiscally positive even after meeting the higher benefit and wage bill costs
  • Regional growth convergence, in the context of higher overall economic growth, would have substantial impacts on employment rates and therefore on some poverty measures. The overall fiscal cost of this is likely to be significant allowing for the additional infrastructure, industrial investment and R&D support and training programmes which would be required to make a reality of this. UK politics post-Brexit make some form of regional industrial strategy almost imperative, but there may still be tensions between a focus on world-leading innovations and a focus on the most lagging regions.
  • Universal Credit: the main recommendation here would be to reverse recent cuts and actually raise rates and allowances, while securing progressive improvement through indexing. This would both help those with disabilities and long term health conditions who may not be able to work while also facilitating the general move to higher employment rates yet still raising the incomes of many of the poorest.

On the other side, it is instructive to highlight policies which, while attractive in otherways, may not actually impact much on household poverty as conventionally understood. Examples could include raising part time pay (mainly helps second wage earners), or reducing non-takeup of benefits (mainly helps people on the margins of entitlement, who are often not poor). As a housing academic interested in housing affordability, I was intrigued with the outcomes of a number of housing-related strategies tested. While some of these scenarios (particularly increased general or social housing supply) do achieve positive outcomes in terms of housing objectives (improved affordability or access or reduced needs), they are relatively neutral or mixed in their impacts on household poverty. A key factor here is that such improved housing opportunities trigger significant additional household formation by people who are often on the margins of poverty – they will choose to live separately, even if that pushes them over the margins of poverty, rather than go on living indefinitely with parents or others.

Reforms to property tax may increase incentives for efficiency in the housing market, and contribute to equity in some dimensions, while at the same time worsening the position for particular poorer groups (e.g. tenants in London). German-style rent regulation [4] helps insiders at the expense of outsiders and, as likely to be implemented here, has barely any bite relative to established patterns of rent setting in the market.

Can we actually end poverty in the UK, using all the weapons in the armoury? Well, the answer appears to be ‘not easily, given the range of policies tested and the level at which they have been applied. The best combined favourable package exemplified in the report reduces relative low income poverty by 20%, ‘combined poverty’ (material deprivation and low income) and workless families by over 40%, but sees a nearly two-thirds reduction in the ‘Minimum Income Standard Gap’ and ‘Severe Poverty’ measures [5]. You can buy further tranches of improvement in the middle measures of about 6-7% points by spending an extra £20bn on more generous UC rates.

The study may present an over-sanguine view of the starting point – as the common phrase goes, ‘I wouldn’t start from here’. One scenario labelled ‘Brexit plus austerity’ suggested poverty would be between 6% and 26% worse than baseline, depending on the measure used.

The usual objection to this kind of strategy is ‘realism’ about public finances, but arguably this is misplaced, particularly in the changed post-Brexit climate. Overall, the strategy is likely to have a net fiscal cost, but it is difficult to say what the overall balance will be as it also depends on other critical assumptions concerning any negative impacts on GDP and employment and also on the overall distribution of income among taxpayers. Quite apart from short term revenue gains and benefit savings from higher workforce participation, there is the prospect of longer term savings in public spending as we unwind the ‘Cost of Poverty’ counted in our recent study [6].

So will the poor always be with us? On some poverty measures, based on fixed reference points, it is possible to envisage largely ending poverty; however, using the more popular relative low income measures, it is extremely hard to end poverty completely, although one could reasonably aspire to get this down to ‘Scandinavian’ levels . It would certainly be necessary to embark on a more radical attack on a wider range of sources of inequality, as discussed by Prof Tony Atkinson (2015) in his recent book Inequality: what can be done? [7]. This addresses issues going beyond those examined in this study, such as technological change and innovation, institutional frameworks governing the rights of organised labour and social partnership, full employment policies and job guarantees, national savings products, a universal capital endowment, a sovereign wealth fund, more progressive taxation of income, wealth, inheritance, universal child and ‘participation’ income (or social insurance).  Whether one is going for the more attainable absolute target or the more challenging relative one, it is quite clear that strong and sustained political will is required.

Notes and References

[1] Glen Bramley with Chris Leishman, Paul Cosgrove and David Watkins (2016) What Would Make a Difference? Modelling Policy Scenarios for Tackling Poverty in the UK, Report of Research for the Joseph Rowntree Foundation. I-SPHERE (Institute for Social Policy, Housing and Equalities Research), EGIS, Heriot-Watt University, Edinburgh, UK.  https://pureapps2.hw.ac.uk/portal/en/publications/what-would-make-a-difference-modelling-policy-scenarios-for-tackling-poverty-in-the-uk(7d7451f8-e7ec-45ec-bd41-af0f2ffae786).html

[2] ‘Net fiscal impact’ is assessed by taking the change in public spending cost including Universal Credit and deducting the forecast change in direct taxation receipts, including income tax, national insurance contributions and Council/local tax.

[3] The Full Living Wage differs from the ‘National Living Wage Supplement’ announced in July 2015 by applying to the under-25 age group and having a higher rate in London, while we also link it to indexation 1% pa above median earnings after 2020.

[4] Giving greater security to private tenants, possibly  after an initial period, while limiting rent rises within a tenancy to maximum possibly related to general inflation; an approach of this kind has recently been introduced in Scotland.

[5] ‘Relative low income poverty’ refers to households below 60% of the median net income ‘equivalised’ for household composition, the main basis for government targets from the mid 1990s to the early 2010s; ‘combined poverty’ means lacking three or more material essentials (from a list agreed by a majority of UK adults) and having below 70% of median income; the ‘Minimum Income Standard’ (MIS) has been developed and updated for JRF by Abigail Davis, Katherine Hill, Donald Hirsch and Matt Padley (2016) A Minimum Income Standard for the UK in 2016    (https://www.jrf.org.uk/report/minimum-income-standard-uk-2016  ), the ‘Gap’ being the shortfall of income from that level; ‘Severe Poverty’ is defined as having less than 40% of median income after housing costs, 3+ material deprivations, and being in financial difficulty (problem debts), following Fitzpatrick et al (2016) Destitution in the UK , York, Joseph Rowntree Foundation.

[6]  See Glen Bramley, Donald Hirsch, Mandy Littlewood and David Watkins (2016) Counting the Cost of UK Poverty York: Joseph Rowntree Foundation.  https://www.jrf.org.uk/report/counting-cost-uk-poverty

[7]  Atkinson, A. (2015) Inequality: ~What can be done? ISBN 9780674504769 Harvard University Press.