Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday, 12 July 2014

Hitting the poor and the disabled

In the UK, Wales has a degree of regional autonomy. This has helped shed some light on two aspects of UK government policy: taking income from the disabled and the working poor.

The Welsh government asked the highly respected Institute of Fiscal Studies (IFS) to examine the cumulative impact of the coalition government’s tax and benefit reforms up until April 2015. Ideally we would like such an assessment for the UK, but the government has said this would be ‘difficult’ and ‘meaningless’. However there is no reason why findings for Wales should be very different to the UK as a whole, and the Welsh government - run by Labour - had no inhibitions asking the IFS to do this for Wales.

In terms of income distribution, the report’s findings are summarised in this chart.


Summary of gains and losses across the income distribution, 2014–15 prices. From “The distributional effects of the UK government’s tax and welfare reforms in Wales: an update” by David Phillips, IFS.

The chart speaks for itself, except to say that UC and PIP stand for the new Universal Credit and Personal Independence Payments schemes, which will not have their full impact until beyond 2015.

The study also looks at how this breaks down among particular groups. Pensioners fare relatively well, losing only 0.5% of income as a result of all these changes. In contrast the working age disabled are hit relatively badly, suffering on average a 6.5% loss. Yet this loss may pale into insignificance compared to the fear that has been created by the government’s new assessment procedures, contracted out to private firms whose methods are confidential. (See also these case studies by Demos, and Alex Marsh and the Economist on the government’s welfare reform in general.)

You might cynically think that this kind of thing is an inevitable result of austerity, where help to the poor and disabled is considered a luxury that society can no longer afford. Certainly the UK is not alone here. However the second policy has nothing to do with austerity. As part of its drive to reduce ‘red tape’, the government abolished the Agricultural Wages Board (AWB), the last surviving wages council which set minimum terms and conditions for agricultural workers. The government’s argument was that the Board hindered ‘flexibility’ in the labour market, and that it duplicated the role of the national minimum wage.

The last argument is simplistic. Although the AWB set a basic hourly rate very similar to the national minimum wage, it also set overtime rates, which as anyone living near a farm will know are particularly relevant to farm workers. The importance of this can be found from the government’s own impact assessment of abolition, which suggests a transfer of as much as £33.4 million from farm workers to farm owners as a result of abolishing the AWB. (Farm workers are poorly paid on average: in 2011 the average wage was £8.17 per hour, compared to a minimum wage of £6.08.)

As to the need to increase market flexibility by reducing external intervention, this is particularly rich given the scale of public subsidies received by this sector. This government has fought hard to maintain the subsidies from Europe that go to large farms, so no free market there. Farm workers themselves are particularly powerless compared to their employers, which is why the AWB was the one wages council that the previous Conservative government did not abolish in 1993.  

What has this got to do with Wales? The Welsh government argued that it had the power to keep an AWB for Wales. The UK government disagreed, and took this all the way to the Supreme Court, but last Wednesday it lost. So Welsh farm workers will retain some protection.

I would love to say that these two cases are isolated examples, but they are not. Conservative ministers have recently proposed additional restrictions on the right to strike, requiring over 50% of all eligible members to vote in favour of strike action before a strike can be called. As Steven Toft says, this is a strikingly stupid idea, and is essentially just an attempt to further weaken an already weak trade union movement. In terms of the future of the welfare state, the Chancellor’s plans for future austerity require yet further reductions. With pensions protected, this means the disabled will be in the firing line once again.   

4 comments:

  1. "But in the case of the farmer and the labourer, their interests are always the same, and it is absolutely impossible that their free contracts can be onerous to either party", Burke's Thoughts and Details on Scarcity (1795).

    BBC 19 October 2010 Profile: Work and Pensions Secretary Iain Duncan Smith by Mary Ann Sieghart:

    "IDS left the Army against his father's wishes after just six years, and joined the defence company GEC-Marconi. His Conservative Party biography claimed he was a director, which was not correct. And his own biographical notes said he studied for a degree at Perugia University, when he only did a language course in that city."


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  2. What you report is *extremely popular*. What the chart above does not show is the impact by gender and age, and (of course being limited to Wales) across the UK.

    There are other studies that show that the impact is not just on the poor or disabled; it is targeted largely at the poor or disabled who are young, or or male, or Northern.

    The middle aged middle or older voters, especially retired Southern female property owners, consider any spending on Northern, male, younger, poor people as a waste.

    A cut of some billions to those categories is celebrated by median marginal voters in swing seats as punishing exploiters and parasites.

    Welfare worth hundreds of billions for Southern/City hard working producers is unremarkable as highly productive big rentiers deserve every help they can get, as they have helped smaller rentiers create and cash in massive tax free capital gains in property, the just reward of their hard working productivity :-).

    The usual quote on the popularity of punishing exploitative parasites among the poor, young, male. Northern, unemployed, disabled, from The Times, 2011-09-17, by Janice Turner:

    «The C2 women who voted Conservative last time did so because they, in low to middling-paid roles such as nurses, secretaries and carers, believed welfare had grown too generous, that benefits rewarded the do-nothings while they toiled. They hoped the Tories would crack down.»

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  3. As to the regional impact, the maps in this study are rather clear:

    http://www.cpes.org.uk/dev/wp-content/uploads/2013/08/5-fothergill-Welfare-reform-Cambridge-talk.pdf

    Also I was just reading that the Australian government have gone even further in their desire to please swing voters:

    http://bilbo.economicoutlook.net/blog/?p=28114
    «The changes are as follows:
    1. An unemployed person under the age of 30 now has to wait six months before they can receive unemployment benefits. Income support payments are no longer that. [ ... ]
    2. While waiting for the income support, the person will be required to apply for at least 40 jobs a month (and keep detailed written records of this). They will receive no income support though.
    3. They will have to attend a monthly meeting with a privatised employment service and produce evidence of their job search endeavour (including the documentation of applications, etc).
    4. If they fail to do this they will be penalised. Their non-income period will be extended for 4 weeks for every infraction.
    5. Once they reach the six month period, their pitifully low income support payment will begin but they will be required to work for 25 hours a week in return.
    I have documented the treatment of unemployment benefit recipients and the fact that the payment is now well below the poverty line in a series of blogs available at HERE.»

    The narrative by the UK and Australian government is that the young, male, disabled, unemployed, Northern, non property owning welfare recipients have gotten too used to decadent lifestyles of grotesque parasitism, splurging their benefits, well above average family earnings, on large mansions with many bedrooms and many other luxuries; that welfare recipients have been an extractive, wasteful elite disdainful of work and uncaring of the strained budgets of ordinary workers.

    Thus the UK Government plan to downsize a bit the luxurious lifestyles of welfare recipient, into smaller mansions with fewer bedrooms and reducing their fabulous benefits cut to the level of those of an average family.

    Thus both the UK and the Australian government have fully persuaded the rentier middle and upper class, middle aged and older, mostly female, swing voters, that if they agree to sacrifice the poor, non property owning, young, male, disabled, Northern, unemployed, that sacrifice will be rewarded with the ability to boost credit and keep interest rates down resulting in more massive tax-free capital gains on property cashed in with cheap remortgages.

    Thus as George Osborne said, fiscally conservative and monetarily aggressive.

    ReplyDelete
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