Life at the bottom in the 21st century

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.