It says in The Bible that the poor are always with us. As
the fallout from the bursting of the Great Debt Bubble continues to spread, we
begin to realise just how many people in western societies are indeed poor.
Obviously, we cannot compare poverty levels to those of Victorian Britain:
There have been significant improvements in public sanitation, health and
education which have lifted millions across the world out of the desperate
poverty which prevailed at the end of the nineteenth century. It is treated
today as a relative problem: Those earning less than 60% of the national median
income are defined as “poor”. It seems, however, that there are a lot of them
about.
There has long been a puritan streak in western societies
which blames the poor themselves for their lot. You see this in large sections
of the British press, which has for many years called for an end to state
distributed largesse – a view which has percolated into the mainstream of the
Conservative party. You see it in Germany, where the terms imposed on the Greek
debt bailout were designed to bring the Greeks to their senses so that they
would not fall from the path of fiscal righteousness in future.
Yet it is not always easy to determine where to draw the
line between offering self-help and financial support, primarily because people
find themselves struggling for different reasons. An alcoholic and a divorcee
may face very similar financial problems but very different personal
circumstances. Moreover, lack of money is not the only cause of poverty: Social
exclusion is a powerful factor reinforcing the downward spiral. How often do we
hear tales of people who lose their job and end up living on the street?
(Answer: More often than we should in a developed economy).
There are those who argue that UK government policy, which
has hacked away at the welfare bill in order to get public finances under
control, threatens to exacerbate the UK’s poverty problem. This is not wholly
without foundation but also not the whole truth. The Labour government of
1997-2010 did try to reform the welfare system to simultaneously get more
people into work whilst providing support for the poorest in society. But by 2013,
the UK was spending more on family benefits as a percentage of GDP than any
other OECD nation. Moreover, the system was extremely complicated, relying heavily
as it did on a series of tax credits and a variety of taper rates with welfare
support progressively withdrawn as individuals entered paid employment.
There is general agreement that the system needed reform and
the Conservative-Lib Dem coalition government of 2010-15 began the process. Its centrepiece was a system called Universal
Credit which was designed to replace a number of other benefits whilst also being
less generous than the previous system. But although it was announced in 2010,
it still has not been fully rolled out and as the Institute for Fiscal Studies
has pointed out, “changes to its future design
have been … apparently at chancellorial whim.” Furthermore, one of the
government’s first policy actions in 2010 was to restrict access to Legal Aid –
a state supported means of financing access to the legal system to those who
would otherwise be unable to afford representation. Combined with rising legal
costs, this has contributed to restricting access to the justice system (see
here
for a summary of the Bach Commission analysis).
A less generous welfare system, coupled with implementation
delays and restricted access to the legal system means that voluntary
organisations such as Citizen’s Advice have been overwhelmed, with the majority
of their cases dealing with debt-related issues. CA reckons that one in every
five pounds on disputed debt which they deal with is owed to government (here).
Indeed, Council Tax arrears (a local tax) are now the most common source of personal
debt. This is partly the result of national reductions in benefit payments but
also local council cuts in discounts offered to vulnerable groups and reliefs to
low-income residents, which in turn is the result of funding cuts by central government.
Moreover, CA “found
evidence of poor practice, including a lack of consideration given to whether
people can afford repayments and people forced to pay a debt when it is under
dispute.” Whilst government would doubtless argue that the debts they are
trying to reclaim (such as Council Tax) are classed as priority debt that can result
in serious legal action if not settled, the net result is to push people further
into debt. It is hard to avoid the conclusion that the system is creaking at
the seams.
It is no wonder that anger is rising amongst the so-called just-about-managing
(JAM) households. A policy of getting benefit dependent households back into
work, as the government desires, is laudable. But what sorts of jobs are available
for them? Globalisation has wiped out the decently paid jobs for low-skilled
workers, many of whom feel that work does not pay. At the same time, benefits
are being squeezed.
Whilst from a macro perspective the policy is being
conducted for the right reasons, it is also leading to a series of unintended
consequences. As one case worker said to me, “it’s as if the government does
not really understand the magnitude of the problems which the JAMs face.” That
being the case, failure to get to grips with the social consequences of fiscal austerity
measures could have far more profound political effects than the Brexit
decision. And the fact that this problem is being repeated to a greater or
lesser degree in many other industrialised countries is a matter of great
concern.
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