Poverty in the UK: radical social re-engineering

There was a revealing exchange between Krishnan Guru-Murthy and a Treasury minister after Channel 4 led with the UN Special Rapporteur’s report on UK poverty. After the minister trotted out various statistics about trends in poverty and inequality, Guru-Murthy said something like you have just proved the report right when it says the government is in denial. The Treasury minister was right about some of the things he said: the poverty statistics are not getting noticeably worse and might even be getting better if you choose your dates carefully, and increases in the minimum wage have helped the poor (see the IFS here).

But Guru-Murthy was also right. Under the Labour government the aim was to reduce poverty by a significant amount, and if poverty had only fallen by a small amount that was regarded as a failure. In contrast, the Conservatives have no interest in trying to reduce poverty, and many of their policies make poverty worse, and are expected to make child poverty noticeably worse. It is this change in attitude that is crucial.

Philip Alston’s report is very good, and I encourage people to read it. He makes an interesting argument that may surprise some people, but I think is correct. Here is a long quote.

“Although the provision of social security to those in need is a public service and a vital anchor to prevent people being pulled into poverty, the policies put in place since 2010 are usually discussed under the rubric of austerity. But this framing leads the inquiry in the wrong direction. In the area of poverty-related policy, the evidence points to the conclusion that the driving force has not been economic but rather a commitment to achieving radical social re-engineering. Successive governments have brought revolutionary change in both the system for delivering minimum levels of fairness and social justice to the British people, and especially in the values underpinning it. Key elements of the post-war Beveridge social contract are being overturned. In the process, some good outcomes have certainly been achieved, but great misery has also been inflicted unnecessarily, especially on the working poor, on single mothers struggling against mighty odds, on people with disabilities who are already marginalized, and on millions of children who are being locked into a cycle of poverty from which most will have great difficulty escaping.”

Blaming austerity for continuing poverty leads people in the wrong direction because it is too easily justified by ‘we had to take hard decisions’ and so forth. The key point is that the neoliberal Conservative party have no interest in making poverty reduction a major target, and their press backers have considerable interest in demonising the poor. That is not a partisan statement but a fact. For example raising the tax thresholds is not an efficient way of reducing poverty, because much of the benefits go to people who are clearly not poor.

There is another point worth exploring in that interview I noted at the beginning. Most people will be surprised to hear that aggregate poverty is not getting noticeably worse when it seems like it is. I think this paradox can also be explained by a feature of Conservative policy that Alston notes in that quote, and that is to destroy the state’s role as providing a safety net for the poor who fall on hard times, and indeed to often force them itself on to hard times. There may be a very limited role for benefit sanctions, but current policy has made them pervasive and downright cruel.

There is an obvious parallel here with immigration. In both cases the state is turned into a Kafka like organisation, that makes decisions that are not explained, are sometimes inexplicable and sometimes simply malicious. Getting bad decisions changed is costly and often requires help. There is a strong link between benefit sanctions and foodbank use. The Conservatives have known about this for some time but have done very little to change anything. And benefit sanctions are just one example. To quote the report once again.

“British compassion for those who are suffering has been replaced by a punitive, mean-spirited, and often callous approach apparently designed to instill discipline where it is least useful, to impose a rigid order on the lives of those least capable of coping with today’s world, and elevating the goal of enforcing blind compliance over a genuine concern to improve the well-being of those at the lowest levels of British society.”

There is so much more I could mention (about how disabled people are treated for example). But I will just make one final point. We have a profound change in UK policy that seems little noticed by much of the media, and it takes someone from outside to point it out.

Small states, economics and food banks

I often know I have hit a raw nerve with one of my posts when I get responses of the ‘surely an economics professor at Oxford should know’ type. As an example, here is Tim Worstall responding to this post, where I suggested that statements from small state people that the cuts that have already been made have been achieved at little cost seemed to fly in the face of evidence. I used welfare cuts and the increasing use of food banks as an example.

In fact I was quite careful about the point I wanted to make. I did not claim that the fact that half of those using food banks said they did so because of problems with benefit payments proved that welfare reform had not worked. All I needed to show was that assertions by small state people that the cuts had been achieved at little cost seemed to ignore this obvious evidence which appeared to suggest otherwise.

Tim Worstall says that evidence should be ignored, as anyone with any knowledge of economics would know. Food banks offer free food. The demand for a free good is potentially limitless. So lots of people taking advantage of free food proves nothing. He says “it’s odd for an economist (even a macroeconomist) to miss this”. Worstall is not alone in discovering the reason for the popularity of food banks in elementary economics. Here is Lord Freud, Work and Pensions minister, making the same point.

Now this idea raises a little puzzle. Why exactly are the people running these food banks spending time and effort obtaining food from supermarkets and members of the public only to give it away free to people who do not really need it? That is not a question Mr Worstall asks, but not to worry, economist Paul Ormerod is on hand to provide the answer. “Some of those who set up food banks are undoubtedly sincere, and think their efforts are needed. But an opportunity exists for others to show conspicuously their concern for the poor, and at the same time demonstrate opposition to austerity.”

Well perhaps it is because I’m an economist (even a macroeconomist) that I would never make such silly economic arguments. How many times has Mr Worstall been down to the food bank to get his free food? It costs nothing after all, so it would be pointless for him not to at least see what they had on offer. Actually for most food banks you cannot just turn up - you have to be referred by another charity or by a local job centre. But still, if it’s free, why doesn’t he get himself referred by some obliging charity? I’m sure he wouldn’t mind pretending to be hungry - after all he is suggesting lots of other people do just that.

The less important reason why most people do not go to such efforts to get free food is that it is not free - you have to spend time and effort to get it, and that is a cost. For most people this cost far outweighs any benefit. In fact it is quite possible that the only group where the cost does not outweigh the benefit is those who would go hungry otherwise. The more important reason is that most people are quite ashamed to get food from a food bank, or to pretend they are hungry when they are not just to get a few bags of free food. Economists are allowed to take account of such feelings, even if sometimes they fail to do so. That is why the Financial Times says:

“Multiple case studies show people only turn to a charity for food if they have no alternative. Such visits are often described as a humiliating experience undertaken as a last resort. It is neither a lifestyle choice nor a wheeze to save a few pounds on tins of soup.”

Once you understand this, there is no need for Paul Ormerod’s rather contrived explanation of why people run food banks. They run them because it helps people who would go hungry otherwise. [1]

You might think that these arguments are so poor that they are hardly worth addressing. But I think they are indicative, and there is a danger that they end up giving economics a bad name. Anyone can misuse economic ideas, and small state people like Tim Worstall are no exception. Yet ironically by pretending that the rapid growth in UK food banks over the last decade is not a problem, they only reinforce the conclusions of my earlier post. Small state people are in danger of living in an imaginary world, while in reality the policies they support do serious harm.        

[1] While his idea might be applicable to millionaires at American style charity events, as an explanation for those working in food banks it seems both unlikely and insulting. 

The imaginary world of small state people

“In the end, you are either a big-state person, or a small-state person, and what big-state people hate about austerity is that its primary purpose is to shrink the size of government spending.”

So said Jeremy Warner (assistant editor of the UK’s Daily Telegraph) last year. Jeremy is a small state person, and I think many other small state people think like this. But the statement is wrong. There are a large number of people - I suspect the vast majority - who do not have any prior view about the size of the state.

In many ways the bipolar view harks back to a bygone age, where - at least in Europe - there actually was a large constituency on the left that wanted a large state as a matter of principle. In the UK that constituency lost all its influence with Margaret Thatcher and New Labour, and it has also lost its influence in the rest of Europe. However this decline in the influence of big state people on the left was matched by a rise to power on the right of those who want a small state as a matter of principle. George Osborne’s plan for the UK over the next few years is the apotheosis of this neoliberal view.

I think I’m like the majority of people in not having any fixed ideological position about whether the state should be large or small. The state is clearly good at doing some things, and bad at doing others. In between there is a large and diverse set of activities which may or may not be better achieved through state direction or control, and they really need to be looked at item by item on their merits.

My first major problem with small state people is that they are not prepared to look at these items on their merits. Instead they have a blanket ideological distaste for all things to do with government. The evidence that government is ‘always the problem’ is just not there. The idea that private sector activity is always welfare enhancing and is best left alone was blown out of the water by the financial crisis. My second major difficulty with many small state people, like George Osborne, is that they are using fear of a debt crisis (a possibility which for the UK and US is non-existent) to achieve their ends. This is political deceit on a grand scale. My third major problem follows from the second: reducing government spending during a liquidity trap recession does real harm. It wastes resources on a huge scale.

For the UK, the OBR estimates - conservatively - that austerity reduced GDP by 1% in 2010/11, and by a further 1% in 2011/12, so GDP was 2% below what it could have been in 2011/12. As there has been no offsetting fiscal stimulus in later years, and because monetary policy has been constrained by the zero lower bound, this waste of resources will not necessarily be eliminated in subsequent years. So the cumulative cost of 2010 austerity could easily exceed 5% of GDP. That is a colossal sum to waste. The estimated numbers in the Eurozone, where the austerity squeeze continues, are even worse - nearer 10% territory and counting. As I argue in this new short piece for the Economist, the fact that Osborne risks doing the same thing again from 2015 onwards is a sufficient reason not to give him the chance.

Which brings me to a final problem I have with small state people, which is their disregard for the evidence. It is true that most people are bad at acknowledging counter evidence, but those with an ideological conviction are worse than most. A common theme among small state people following Osborne’s Autumn Statement is to ask what all the fuss is about. In his rant at the BBC, Osborne says “I would have thought the BBC would have learned from the last four years that its totally hyperbolic coverage of spending cuts has not been matched by what has actually happened. I had all that when I was interviewed four years ago and has the world fallen in? No it has not.” He remembers it well, because he tried to intimidate the BBC back then as well. The claim of hyperbole is nonsense of course, as Tony Yates sets out, but I want to focus on the ‘world fallen in’ point.

Here is Janan Ganesh in the FT making the same claim in spades:

“[Osborne] has also made the spending cuts he promised without the country turning into a medieval wasteland. This is a deeper intellectual wound to the left than we currently understand; it will change the terms of debate about the proper size of the state long after Mr Osborne has gone.”

With both Osborne and Ganesh the intended meaning is that cuts have been achieved at relatively little cost. They clearly hope this idea will become received wisdom in the media. But is it true? Take the one area that Osborne has earmarked for further cuts: welfare. [1] The argument that the cuts made so far to welfare have been achieved without significant costs flies in the face of the evidence. The number of food banks in the UK has grown massively over the last five years. The Trussell Trust estimate that more than half of their clients were receiving food because of benefit delays, sanctions, and financial difficulties relating to the bedroom tax and abolition of council tax relief. As James Harrison relates in this excellent long article, the government simply denies the evidence. The Economist notes: “Welfare reform was intended to be one of the big achievements of the coalition government. But almost all of the radical ideas promised are turning out to be duds.” These are duds that create real misery. Now maybe this is all just teething problems, but the prima facie evidence is hardly that cuts have been achieved at little cost.

So how can small state people have the audacity to claim otherwise? Perhaps it reflects the power of an ideology that its protagonists want to see no evil. Perhaps it is because those hurt by austerity somehow do not count. But the claim that Osborne’s cuts have been such a success that they will cause a “deeper intellectual wound to the left than we currently understand” is simply delusional. These are fantasy ideas from those living in an imaginary world, while in reality the policies they support do serious harm.

[1] I choose welfare only as an example. It does not appear to be an isolated one. Here is an account of Chris Grayling, prisons and the Howard League, or see Alex Marsh on the UK justice system more generally. Or think of those who suffered from flooding as the government cut back money for flood prevention, while the government still pretends there were no cuts.

The Conservatives and the ghost of Christmas past

In October 2002 Theresa May, the then Chairman of the Conservative Party, said to her party’s conference: "There's a lot we need to do in this party of ours. Our base is too narrow and so, occasionally, are our sympathies. You know what some people call us – the Nasty Party." That tag owes something to the contrast between the public images of Margaret Thatcher and Tony Blair: the Iron Lady compared to Blair’s easy informality. In terms of policies it is not totally clear that the label was deserved. Poverty increased, but the poor were not denigrated. Unions were broken, but many felt the unions had become too powerful and selfish in their use of power. The state was reduced by privatising utilities, but the welfare state was not seriously diminished. Unemployment rose substantially, but inflation had to be brought under control. But whether deserved or not, I think May was right in her observation.

David Cameron also appears to have believed that the Conservatives had this image problem, and in opposition he aimed to create the idea of a modern compassionate Conservative Party. Hoodies were to be hugged, environmental goals embraced, and most tellingly of all, rather than deny the relevance of ‘society’, he wanted to create a ‘Big Society’. I am not concerned here about how real or radical these changes were, but instead just note that he felt a change of image was necessary to end the Conservative’s run of election defeats. The fact that they did not win the 2010 election outright perhaps suggests the strength and toxicity of the nasty brand.

What a difference a few years make. As the government finds it more and more difficult to cut government spending on goods and services, it aims austerity at welfare spending. There is plenty that has already happened, some well known, some not. As to the future, here is Paul Johnson of the IFS talking about the implications of the latest Autumn Statement. The scale of cuts he is talking about for welfare are huge (particularly if state pensions are ring fenced), yet they appear to be Osborne’s preferred option. The Conservative’s current Party Chairman  and an influential MP have recently suggested restricting benefits for those with more than two children, to encourage ‘more responsible’ decisions about procreation. Never mind the impact this would have on those children.

Changes to welfare already introduced, together with falling real wages, have led to a huge rise in the use of food banks in the UK. Here is data from the Trussell Trust, one of the main operators of voluntary food banks. 346,992 people received a minimum of three days emergency food from Trussell Trust food banks in 2012-13, compared to 26,000 in 2008-09. Of those helped in 2012-13, 126,889 (36.6 percent) were children. The Red Cross is to start distributing food aid in the UK, for the first time since WWII. A letter from doctors to the British Medical Journal talks about a potential public health emergency involving malnutrition. It is undeniable that benefit changes are a big factor behind these developments, yet the government seems intent on hiding this fact. 

Actions are of course more important than rhetoric, but rhetoric can help define image. It is undeniable that ministers, including the Prime Minister and Chancellor, have attempted to portray the poor and unemployed as personally responsible for their position due to some character failure. Even a proud institution like HM Treasury cannot resist being part of this process. (‘Hard-working families’ looks like going the same way as ‘taxpayers money’, becoming a routine slight against either the unemployed or the poor.) Both Cameron and Osborne will be too careful to emulate Romney’s 47% moment, but too many Conservative MPs appear to share the attitudes of some of those on the US right.

So what accounts for this U turn from compassion to disparagement? The recession is one answer, which has hardened social attitudes. The success of UKIP, the political wing of the majority of UK newspapers, is another. [1] Yet it seems incredible that a political calculation that appeared valid before 2010 can have been so completely reversed in just a few years. Even Theresa May, whose speech started this blog, has joined in on the act. There are those vans of course, but asking landlords to check the immigration status of tenants is an incredibly stupid and harmful policy. We will see in 2015 whether it pays to be nasty. [2]

Yet even if the strategy works in the short term, and even recognising that politicians often do questionable things to gain votes, this just seems a step too far. It is one thing to create hardship because you believe this is a necessary price to improve the system or reduce its cost. Perhaps you really believe that cutting the top rate of tax at the same time as cutting welfare will benefit everyone eventually. But it is quite another thing to try and deflect any criticism by unjustly blaming those who earn too little, or who are trying to find work. That just seems immoral.

I suspect Cameron as the Compassionate Conservative would have agreed. He would have also noted that, although nastiness might accord with voter sentiments today, at some point in the future voters in more generous times will have no problem forgetting this, and just remembering the Conservatives as the nasty party. As Christmas approaches, this tale from Charles Dickens seems apt. 

[1] For those who are offended by this sentence, let me say this. There are two obvious explanations for the correlation between UKIPs policies and the views of the Telegraph, Mail and Sun. One involves the causality implied by the sentence and the post that it links to. The other is that newspapers just reflect the concerns of voters. But if the latter is true why do they (with the odd exception) just reflect the views of voters on the right, rather than those on the left? And why do the mistaken beliefs of voters tend to correlate with the impressions created by these newspapers, as I note here?  

[2] Even if it does, I strongly suspect one casualty will be the LibDems. If their leader spoke out as Vince Cable has done, they might just have a chance of not being associated with these policies and attitudes. But he has not, and as a result the party is in serious danger of losing many votes and I suspect much of its activist base.