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A
new leaflet for students
Fifteen
years ago the Citizen's Income Trust published a very popular
leaflet for students. Several generations of students have
passed since then and we thought that it really was time
that we repeated the exercise.
On
one side of the new A3 poster-type leaflet is a history
of tax and benefits in the UK, and on the other an introduction
to a Citizen's Income.
If
you are a student of social policy, economics, or related
topics, or a lecturer teaching such subjects, then please
let us know how many leaflets you require. (Please order
two for each student)
Editorial
Employment
incentives
The
editorial in our last edition referred to research by the
Joseph Rowntree Foundation into employment disincentives
suffered by many families, and particularly by those seeking
employment of a few hours a week.
An
article published recently by the Institute for Fiscal Studies
1 reports on a study of the different tax and benefits systems
of Germany and Austria and on the different employment patterns
found among mothers with young children in the two countries.
The researchers write: 'Based on our empirical results,
we … conclude that part of the differences in employment
patterns can … be explained by the different work incentives
created by the tax-benefit system. ….'. 2
It
is a pleasure to find the Chancellor of the Exchequer taking
on board the message that high marginal deduction rates
damage work incentives. In his recent budget report he suggests
that 'the poverty trap occurs when those in work have limited
incentives to move up the earnings ladder because it may
leave them little better off. Marginal deduction rates (MDRs)
measure the extent of the poverty trap by showing how much
of each additional pound of gross earnings is lost through
higher taxes and withdrawn benefits or tax credits. ….'.
3 Quite so.
It
is an even greater pleasure to find Mr Darling doing something
about the situation. The two relevant lines in the budget
report are these:
'increasing
the first child rate of Child Benefit to £20 a week
from April 2009, reinforcing the Government's commitment
to Child Benefit as the foundation of financial support
for all families; … disregarding
Child Benefit in calculating income for Housing and Council
Tax Benefit from October 2009, improving work incentives
for many of the lowest-paid families and boosting their
incomes.' 4
Child
Benefit is important because it isn't withdrawn as other
income rises. Until now, though, Child Benefit has been
effectively withdrawn by taking it into account in the calculation
of other benefits. Ceasing to take it into account when
Housing Benefit and Council Tax Benefit are calculated will
reduce the marginal deduction rates for many low-earning
families and, as the Chancellor correctly predicts, have
a big impact on child poverty: both because the change will
increase net incomes and because it will create greater
incentives to increase earned income.
The extension of the virtues of Child Benefit to adults
in the form of a Citizen's Income would have equally virtuous
effects.
1
Helene Dearing, Helmut Hofer, Christine Lietz, Rudolf Winter-Ebmer
and Katharina Wrohlich, 'Why are mothers working longer
hours in Austria than in Germany? A comparative microsimulation
analysis', Fiscal Studies, vol.28, no.4, pp.463-495
2 p.488
3 Budget Report 2008, paragraph 4.15.
4 Budget Report 2008, paragraph 4.17
News
In
April the Joseph Rowntree Foundation published 'The
impact of benefit and tax uprating on incomes and poverty'
in its Findings series. The researchers conclude that: 'Uprating
policies have big effects over time. For example, it will
be virtually impossible for the government to end child
poverty if payments for families with children rise more
slowly than average household incomes. Over 20 years, the
consequences of current uprating policies, other things
being equal, would be to:
- Almost
double the rate of child poverty, from 18% to 33%. However,
it will have little effect on pensioner poverty because
pensioner benefits will be largely earnings-linked from
2012
Reduce the value of benefits and tax credits, relative
to earned incomes (benefit erosion)
- Increase
the percentage of incomes taken in tax revenues, by raising
tax thresholds more slowly than earnings (fiscal drag)
- As
a result, improve the public finances by an amount equivalent
to 3.6% of national income (£47 billion at today's
levels)
- Reduce
disposable incomes (relative to earnings), but far more
for the poor than for the rich. The poorest households
would lose on average 17% of disposable income; the richest
households 5%.'
The
researchers' graph reveals the extent of redistribution
from the poor to the rich:
For
comparison, the following graph shows the redistribution
which would occur if a £25 Citizen's Income were to
be paid for by reducing tax allowances and means-tested
benefits. The poorest 10% would see a 25% increase in net
income, and the wealthiest 10% a 5% fall. We leave it to
our readers to draw their own conclusions about the best
way to go about reducing child poverty.
In
January the Institute for Fiscal Studies published
its 'Green Budget', which examines the options available
to the Chancellor of the Exchequer as he approaches his
budget announcement. The report says that 'the tax and benefit
reforms since 1997 will have increased the incomes of the
poorest tenth of the population by 12.4% (£1,300 a
year) and reduced those at the top by 5.5% (£4,200
a year)', but that those changes to be implemented this
April 'will not reduce the very high marginal tax or deduction
rates faced by those with the weakest work incentives' (p.268).
On simplification: 'The government has reaffirmed its commitment
to simplify the tax system, but attempts by this and previous
governments to deliver real and long-lasting reductions
in complexity have usually come to nothing and the volume
of tax legislation has grown inexorably. The rewrite of
direct tax legislation, initiated under the last Conservative
government and still in progress, uses simpler language
but at much greater length and without resolving any of
the underlying complexity in the legislation. … Real
simplification is difficult to achieve without more fundamental
consideration of what, who and how we tax. Tackling complexity
requires that we recognize what is complex and why, and
focus on what can sensibly be done about it,' (p.260).
At
the first World Social Security Forum held in Moscow
from the 10th to the 15th September 2007, Michael Cichon,
the Director of the International Labour Office's Social
Security Department, made an appeal for immediate action
to reduce global insecurity and poverty. Presenting supportive
evidence from Europe, he underlined that social security
has helped reduce poverty levels by around 50 per cent.
This same result should be possible for all countries, he
insisted. And it was affordable. What was lacking, however,
was political will. To make his case, Mr Cichon set about
debunking three myths: that poorer countries cannot afford
social security, that social security expenditure acts to
undermine economic growth, and that the benefits of national
economic growth are automatically shared by all. As a response,
Mr Cichon argued that a basic package of universal social
security benefits should be possible for all countries.
This would cost no more than 5 per cent of national GDP,
he emphasised.
The
Institute for Public Policy Research has published
a report entitled Working out of Poverty, http://www.ippr.org/publicationsandreports/publication.asp?id=581.
The report identifies a low National Minimum Wage and the
disincentive effects of in-work benefits as two of the reasons
for there being so many working families who remain poor.
The authors make recommendations in relation to the National
Minimum Wage, and they also suggest changes to Tax Credits:
'We recommend the introduction of a Personal Tax Credit
Allowance (PTCA). A PTCA would give all individuals in eligible
families their own personal allowance - allowing them each
to earn up to £99.84 a week (or £5,210 a year)
before their families' Working Tax Credit entitlement started
to be withdrawn. For a dual-earner family this would mean
a combined allowance of almost £200 a week. …..
Where families responded to this improved incentive, and
a second adult moved into work, it would bring savings to
the state in virtually all cases' (p.50).
The
European Centre for Social Policy and Research in
Vienna has published an assessment of the UK's tax credit
system: Tax Credit Policy in the UK and its lessons for
Austria: http://www.euro.centre.org/detail.php?xml_id=1109.
The report concludes: 'Taking the long-term view, the problems
encountered in the tax credit policy in the UK were worth
the pain. Despite all its flaws, tax credit policy has played
an important role in the outcome that, during the last decade,
600,000 children have been lifted out of poverty (compared
to the doubling of child poverty that occurred over the
previous 20 years). The question is whether it was necessary
to use a system with an almost 15% inaccuracy rate to achieve
this. Perhaps not. If Austria were to introduce such a policy,
it has to measure how such wastage could be avoided or kept
to a minimum. The conclusions with respect to work incentives
of the British schemes are mixed. There is definitely a
strong incentive for single parents to return to work. One
particular area of weakness is the work incentives for a
'second' earner in the family: the eligibility conditions
for a couple are the same as for a single person (even though
the poverty line is 30 per cent higher for couples). There
are also weaknesses in providing incentives to increase
working hours beyond what ensures entitlement, and this
is mainly because of the fact that other benefits (particularly
Housing Benefits) are withdrawn rather quickly once income
from work starts to rise. …… The main challenge
to the WTC [Working Tax Credit] in the United Kingdom has
been its administrative difficulties towards responsiveness
to income changes.'
The
Pensions Policy Institute has published a report,
Maintaining consensus: long-term goals for the UK pensions
system and options for ongoing policy review: http://www.pensionspolicyinstitute.org.uk/news.asp?p=294&s=2&a=0.
It concludes that the UK's pensions system should be:
- Adaptable:
a system that adapts to changes in the social and economic
context and fits with societal values, which may change
over time.
- Adequate:
a system that ensures an adequate income for all, in terms
of preventing poverty, meeting individuals' expectations
and minimising income shocks.
- Affordable:
a system that is financially viable for the state in the
short term and in the long term.
- Clear:
a system from which people can understand what they can
expect to receive when they retire, and what actions they
need to take themselves.
- Fair:
a system that is fair between groups, across generations
and strikes an appropriate balance of responsibility between
individuals, employers and the state.
- Robust:
a system that can withstand, and respond appropriately
to, economic shocks and political changes.
- Trusted
and builds confidence: a system that builds trust and
confidence among the public and other stakeholders.
The
Joseph Rowntree Foundation has published Monitoring
poverty and social exclusion 2007 by Guy Palmer, Tom MacInnes
and Peter Kenway. The report concludes that 'the period
of slow but steady progress in reducing poverty has now
come to an end, arguably around three or four years ago.
In particular, overall poverty levels in 2005/06 were the
same as they were in 2002/03. Child poverty in 2005/06 was
still 500,000 higher than the target set for 2004/05. In
addition, the unemployment rate among the under 25s has
been rising since 2004 while the rate for those 25 and over
stopped falling in 2005. The proportion of working-age people
who are economically inactive but want work (a group not
classified as 'unemployed', a majority of whom are disabled)
also appears to have stopped falling. Tax credits are taking
greater numbers of children out of poverty - around a million
in each of the last three years - but the number of children
in working families whose earnings and Child Benefit are
insufficient by themselves to escape poverty is also rising.
Half the children in poverty belong to working families.
And while inequality in the lower half of the pay distribution
is narrowing, and women are catching up with men (but are
still well behind), pay inequality in the upper half of
the pay distribution is growing. Overall earnings inequalities
are widening and the beliefs that sustain them remain unchallenged.
…. As the value of social security benefits for working-age
adults without dependent children continues to fall ever
further behind earnings, the ten-year-old question of 'what
security for those who can't (work)' remains unanswered'
(pp.9-10)
Parliamentary
report
From
Hansard for the 5th December 2007: the Parliamentary debate
on the House of Commons Work and Pensions Committee's report
Benefits Simplification
(Column
903) Mr. Rooney [MP for Bradford North]: We put forward
two additional recommendations for consideration. One is
the concept mentioned by Fraud - sorry, Freud; a Freudian
slip - of a single working-age benefit. There is an air
of utopia about that - the hon. Member for Weston-super-Mare
(John Penrose) will probably say a lot about it. But there
is potential, and the embryo of an idea, which might give
us the simplicity that we want. There are all sorts of problems
with introducing it - there will be arguments about winners
and losers and so on - but it is an idea.
As
to the other recommendation for consideration, we reflected
on the success - first in analysis, then in presentation
of solutions and then in public acceptance - of the Turner
commission on pensions, and suggested that perhaps it was
time for a welfare commission. Beveridge assessed what sort
of society we would have post-war, and what sort of social
security system we wanted for that society. There has been
no real consideration of the fundamentals since 1945 - it
is 60-odd years since Beveridge published his report. There
are serious grounds for going back to basic principles,
and saying, 'This is the society, labour market and mobility
- or lack of it - that we have. What sort of benefit system
do we need that allows that society to function but that
also removes all barriers and disincentives to people to
work?'
We are firmly of the view - I evangelise about this - that
this country has enough people with sufficient credibility,
academic rigour and intelligence to staff a commission such
as the Turner commission. They could take two, three or
four years - I am not bothered - but they would present
for public debate and to Parliament a possible model for
where we will be in 10, 15 or 20 years' time.
I
repeat: this Department affects about 25 million people
and has a £120 billion budget, which represents the
largest slice of Government expenditure. We are duty bound
to try to simplify it as much as possible.
(Column
916) John Penrose [MP for Westcon-Super-Mare]…
we also need to bear in mind that making things tidier is
not just an academic exercise; there are also serious and
vital advantages to having a simplified benefits system,
and it is worth reminding ourselves about them because they
are the prize at which this debate is aiming. They are simple,
and there are far fewer of them than the causes of complexity-there
are three or four at most.
First,
we can reduce error. We can do that on behalf of staff.
They need a PhD to understand most of what is going on in
the system at the moment; it is therefore understandable
that mistakes are made-and that is before we move on to
the problems caused by computer systems, ... The complexity
is also a problem for claimants, because as we have just
heard, they cannot be expected to understand the entire
system. They are even less likely to understand it than
the people who work as benefits experts within the system.
Inevitably, claimants will make mistakes. That makes life
hard for them and potentially exposes them to accusations
of fraud even if they make a mistake in good faith.
The
second advantage to simplification is that we can improve
take-up. It is striking that child benefit, one of the simplest
benefits, has one of the highest levels of take-up of any
of them. It is one of the most successful, and the impact
on poverty and on reaching the Government's stated objectives
for the benefits system would be profound if we could improve
the take-up of other benefits in the same way. That might
cost more, but I understand that the Government have reserves
in their financial estimates. …..
(Column
919) John Penrose … there are at least two things
that are seriously worthy for consideration as a thought
starter, which might lead to the building of a
consensus. One is the idea that we should combine working
age tax credits, jobseeker's allowance, income support and
the new employment support allowance in one overall benefit,
with the condition placed on it that a person would have
to be willing and able to work before it was paid to them.
That may or may not be a good idea, but it is seriously
simpler than what we have at the moment, and it avoids an
enormous amount of the problems related to change of circumstances
and to the cycle of people going in and out of work that
I described before. It also avoids the problems relating
to the linking rules.
We
proposed a marginal deduction rate as a clawback mechanism
to avoid the problems of means-testing, where anyone who
went into work would have their benefit withdrawn at a particular
rate to be decided by the Government. Such a system would
be an awful lot faster and simpler to administer than the
current tax credit system, because it would simply require
the Department for Work and Pensions to inform Her Majesty's
Revenue and Customs of a single number for every person
earning a wage, which would then be withdrawn through their
tax code. Again, that may be a good idea or it may not,
but all we wanted was a constructive and considered response
from the Government. I am sad to say that that is not what
we got. On page 18 of the Government's response, they afforded
the entire idea only this:
'The Committee's model is more radical - a form of Citizens
Income' - incidentally,
it is not.'
Then
went on to say: 'As described it appears, at least at first
sight, to carry a risk of both very high expenditure and
reduced work incentives.'
Full
stop, end of response.
As
an attempt to start a debate, that is absolutely pathetic.
I am sad to say that it is not just pathetic, but also intellectually
lazy, complacent, arrogant and weak, and I believe that
it shows that the Government are scared. I know that we
need to do better, and I sincerely hope that the Minister
will say how the Government proposes to do better.
Miss
Anne Begg (Aberdeen, South) (Lab): I intend to speak
for only a few moments because I do not want to repeat all
of the points already made by other hon. Members. We all
agree that the benefits system in this country is extremely
complicated. We all agree that it should be simplified,
and I suspect that we all agree that we are not quite sure
how that might be achieved. Achieving that end will probably
be a lot more complex than it first appears. The hon. Member
for Weston-super-Mare (John Penrose) was perhaps slightly
modest in not explaining that most of the ideas in annex
A, which he has just outlined, were his own, but he is right
to say that the rest of the Committee bought into them.
I
have been attracted to the concept of a single working-age
benefit since I joined the Select Committee on Work and
Pensions in 2001. However, the longer I have looked at how
it might work in practice, the more I have realised that
a single working-age benefit would be much more complex
than some of those who propose it lead us to believe. It
is superficially attractive because it seems simple and
clear, but we need to ensure that those who lead complex
lives or have complex needs continue to get the support
that they do under the present system, despite its complexities
and all the forms that individuals have to fill in. As a
country, we need to decide a way forward, and work out the
best way to simplify the benefit system in order to get
the son of Beveridge; 60 years on, our country is a different
place, and we need a very different benefit system.
The
proposal in the Select Committee report for a welfare or
benefits commission along the same lines as the Turner commission
on pensions is the right way forward. There has been a unified
voice in the Chamber this afternoon, saying that that would
allow the Government to take time, stock and even a step
back and begin to consider the benefits system as a whole
rather than its individual pieces, and instead of tinkering
with improvements and reforms here and there. We all know
that reforming one part of the benefits system often has
unintended consequences and knock-on effects on other parts.
Therein lies the problem and the complexity.
Often,
for the best of reasons, attempts have been made to simplify
benefits, but we have ended up with historic rights, which
the Chairman of the Select Committee mentioned this afternoon.
For all the reasons to which he referred, and because we
still operate systems to ensure that individual claimants
are not worse off in cash terms, we have a complex system.
The Government now have an ideal opportunity to act because,
for the first time in several years, a brand new benefit
is being introduced - the employment and support allowance.
The basis for that allowance could be the basis on which
a single working age benefit could work. Some of the groundwork
has already been done, but we need a much broader investigation
into what a benefits system in the 21st century should be
and how the different elements should interact.
I
honestly believe that a commission, led by someone of the
stature of Lord Turner - I do not think that he would necessarily
take it on - could build political consensus. In the same
way as we needed political consensus for a pensions system
that would last not for 10 or 20 but for 50 years, we need
to build a welfare system today that will, like that of
Beveridge, last for 60 years. We cannot do that without
all-party support, or without engaging with not only people
in this place but those who depend on the welfare system,
and wider society.
I
genuinely encourage the Minister to consider seriously the
proposal to set up some sort of welfare or benefits commission
to ascertain whether we can progress and have holistic change,
which makes sense. That would ensure that we were not back
here in five years -
Chris
Ruane (Vale of Clwyd) (Lab): I hope we are back here
in five years.
Miss
Begg: Yes, I, too, hope that we are back in five years,
but talking about the commission, not still discussing how
awful and complex the benefits system is and how it continues
to fail the most vulnerable people in society. I hope that
the Minister will take our comments and the proposal for
a commission seriously.
Conference
report
Tackling
Child Poverty - A European Challenge, 29 June 2007, Edinburgh
A roundtable discussion seminar organised by The Poverty
Alliance, Glasgow, on behalf of the European Anti-Poverty
Network UK
The
Social Protection Committee of the EU is consulting Governments
across Europe on their approach to tackling child poverty,
leading up to the publication of the Joint Report on Social
Inclusion and Social Protection by the European Commission
in 2008. This event was an opportunity to discuss the UK
Government's response to the consultation (DWP, Working
for Children, March 2007). It was chaired by Catherine Stihler
MEP.
After
initial contributions by Chris Brunton of the Child Poverty
Division, DWP, and Professor Adrian Sinfield of the University
of Edinburgh, this event was divided into three roundtable
sessions. The first, 'Incomes and work', was led by Sian
Jones of the EAPN, Brussels. The second, on 'Children at
special risk of social exclusion', was led by Jana Hainsworth,
Secretary General of Eurochild. The last was about 'Education
and Access to Services', and was led by Tam Baillie, Assistant
Director for Policy and Influencing, of Barnados
Chris
Brunton's talk, 'Tackling Child Poverty: Future Challenges',
looked at alternative definitions of relative poverty and
of current causes of poverty, and identified the groups
most at risk. In 1997, 1 in 3 children in the UK, i.e.,
between 3 and 4 million, lived in poverty. This was one
of the worst records in Europe. In 1998/9, the Government
set targets to reduce child poverty by a quarter by 2005,
by a half by 2010, and to eradicate it by 2020. Brunton
outlined the three-fold strategy adopted to tackle the problem,
through greater employment, financial support in the form
of Child Tax Credits, and the provision of high quality
public services for all families.
Professor Adrian Sinfield was scathing about the UK Government's
record on tackling child poverty, pointing out that there
was no framework for such a policy, that there was no guaranteed
adequate income for families with children, and that the
Government's first target had not been met. The government
criticises the population's 'poverty of aspirations', but
does not recognise its own poverty of aspirations for tackling
poverty. Government benefit levels are even lower than their
own poverty benchmarks. The Government should attack poverty,
not the poor. Sinfield emphasised the need to prevent poverty,
not just to plug the holes after the event. As with clean
water or clean air, so with benefits; prevention is better
and cheaper than cure. He cited the gender pay gap, and
the undervaluing of service sector work, as being linked
to child poverty. He pointed out that if only the respect
now shown for wealth and money-making (where annual incomes
of £100,000 and over are growing by 7-10% pa, according
to Anthony Sampson) were accorded to the problems at the
lower end of the scale, they would soon be solved.
The
roundtable discussions were interesting, with many well-informed
contributions. The Nordic countries, Denmark, Sweden and
Finland, with their lower inequality rates, together with
Belgium, have managed to cut their child poverty rates to
less than 10% and came out of the discussion well. While
Child Benefit was the most successful benefit that the UK
has ever implemented, Child Tax Credit, the current Government's
preferred option, has become part of the problem. The problem
of in-work poverty was discussed. Only one third of poor
families is jobless. The need was recognised for a family-friendly
industry, countering the culture of long hours in the UK
and providing flexible working for parents. A much larger
set of groups of children who are at risk of poverty was
identified than those mentioned by Chris Brunton, including
children-in-care, young carers, and children with disabilities.
Reference was made to The UN Convention of the Rights of
the Child, (signed by all countries except Somalia and the
USA), which advocates the promotion of the well-being of
the child. It accords with my own view that, while an appropriate
benefit system with adequate benefit levels is a necessary
condition, it is not sufficient by itself, and that other
services, including access to affordable childcare and decent
work opportunities, education, housing and health services,
are also necessary to create 'the good society'.
Anne
Miller
Reviews
Brian
Steensland, The Failed Welfare Revolution: America's
Struggle over the Guaranteed Income Policy, Princeton
University Press, Princeton, 2008, hardback, 069112714X,
£13.98
Hard
as it is to believe today, there was a brief period when
the United States government seemed inevitably bound to
adopt some form of guaranteed income. The idea seemed to
emerge from nowhere in the mid-1960s, when it was suddenly
discussed by most major political actors. President Nixon
proposed a watered-down version of the guaranteed income,
which overwhelmingly passed the House of Representatives,
only to be narrowly defeated in the Senate. The idea continued
to be discussed during the Ford and Carter administrations,
but by 1980 it was out of mainstream politics.
Brian
Steensland is a professor of sociology at the University
of Indiana. His new book, the Failed Welfare Revolution:
America's Struggle over the Guaranteed Income Policy, chronicles
the history of the guaranteed income movement of the 1960s
and 70s, examining how and why it sprang up so suddenly,
took on its air of inevitability, and as quickly disappeared
from the political mainstream.
Steensland's
work is extremely thorough. He seems to have found every
speech and article by every politician, pundit, columnist,
union leader, nonprofit director, and political activist,
who ever spoke or wrote on the issue. He discusses the internal
squabbles of the Nixon administration from which the administration's
version coalesced into 'the Family Assistance Plan.' He
reports on which Senators and Representatives supported
or opposed the bill in committee, who changed their minds,
when and why. His thoroughness makes the book tough going
at times, but serves a worthy purpose. Steensland paints
a vivid picture. Reading this book I feel as though I know
what happened, what went wrong, and what opportunities were
lost.
The
guaranteed income emerged in policy circles in the mid-1960s
as the confluence of several events, among them the growth
in political attention to poverty, the belief that something
must be done about the welfare system to help reduce poverty,
and the endorsement of the guaranteed income by widely divergent
policy experts. The guaranteed income briefly became the
consensus view of economists, who put it forward as the
scientific solution to poverty. The guaranteed income faced
the prospect of being able to attract broad support from
both left and right. For those on the left, the guaranteed
income offered greater freedom and less supervision for
the poor and a breakdown of the distinction between the
so-called deserving and undeserving poor. For those on the
right, it offered greater incentives for people receiving
public assistance to enter the labor force and greater support
for the working poor-usually believed to be the most deserving
of all.
Instead,
the Family Assistance plan managed to alienate critics of
the welfare system from both left and right. Many welfare-rights
activists viewed the plan as a reduction in welfare benefits
for the most needy; and many conservatives viewed it as
a major expansion of the number of people 'on the welfare
rolls.' The defeat stemmed largely from Nixon's failure
to capture the rhetoric. His speeches largely played into
the hands of the plan's opponents. Even so, the defeat was
extremely narrow. Had Nixon been willing to expend more
political capital on it, to make the right promises, and
to twist the right arms, he may well have got it through
the Senate in 1970. Instead, critics of the plan took the
initiative and created new policies, such as the Earn Income
Tax Credit, that incorporated some aspects of Family Assistance
Plan, but reinforced the distinction between the so-called
deserving and undeserving poor.
By
the late 1970s the opportunity was gone. The 'welfare mess'
remained a political concern, but poverty did not. By the
time Ronald Reagan was elected in 1980, poverty was no longer
seen as a problem in need of a better solution. The welfare
system was seen as the problem, and the most popular solution
was for government to do less to address poverty.
Karl
Widerquist
Michael
Hill, Pensions, Policy Press, 2007, xiii + 183
pp, pbk, 978 1 86134 851 7, £12.99
This
book is the first in a new series designed by the Policy
Press to guide the reader through hotly debated topics:
and where better to start than with pensions.
Very
sensibly a glossary is placed at the beginning. This introduces
the reader to essential terms and enables them to make sense
of what follows. What follows is clear and well-organised
- and particularly clear about the complexities resulting
from policy inevitably being shaped by compromises based
on previous compromises.
The
author's early chapters contain histories of pensions and
of pensions policy in the UK, and these parts of the book
will be useful to students of the subject. What emerges
is government preference for means-tested and asset-tested
pensions (now in the form of Pensions Credit) rather than
for uprating the contribution-based basic state pension.
It is interesting that Hill defines Pensions Credit as the
'first tier', followed by the National Insurance pension
and the State Earnings Related Pension Scheme (SERPS) as
the 'second tier', with a third tier being that of occupational
and private provision. A more traditional listing would
have put the National Insurance pensions first. Hill's listing
relates well to the Government's preference for means-testing
and also to OECD policy which is expressed using the same
three tiers in the same order. (The International Association
for the Study of Insurance Economics employs a listing different
again: the first pillar is both means-tested and contributory
state pensions; the second is occupational pensions; the
third is private pensions; and the fourth is income earned
after retirement age. *)
Then
follow chapters on pension scheme adequacy (a wideranging
and thorough discussion, particularly in relation to the
often competing aims of income replacement and poverty reduction);
alternative pension models (based on the first two tiers
previously listed, and leading to a discussion of a selection
of different countries' pension systems); pension age and
retirement age (and the complex relationship between them);
the alleged 'demographic time bomb' (Hill challenges the
theory); and facing the future: the funding obsession. (The
trend towards funded schemes is being driven by the alleged
crisis, whereas Pay As You Go state pensions still have
much to offer).
A
chapter on pension reform worldwide questions whether current
UK policy to improve SERPS and encourage private provision
will do enough for carers (who 'work' but are not 'employed'
and therefore get little out of a contribution-based system).
A
Citizen's Pension appears in the glossary and then frequently
in the book as an option for reform worth studying, and
Hill is surprised that the Government's Pensions Commission
didn't visit the Netherlands to study their Citizen's Pension
(p.97). The fact that it does work in the Netherlands suggests
that the Government here should not have been so quick to
dismiss the option in their recent White Paper (p.164).
Hill argues that today's means-tested system (which the
White Paper does nothing to alter) discourages private provision
for old age, and he advocates a Citizen's Pension on the
grounds that it will encourage both saving and older people's
labour market participation.
We
can only agree.
*
International Association for the Study of Insurance Economics
(The Geneva Association), newsletter 40, March 2007.
Paul
Spicker, The idea of poverty, Policy Press, 2007,
viii + 175 pp, pbk, 978 1 86134 888 3, £15.99, hbk,
978 1 86134 889 0, £55
This
is a book for undergraduates studying social policy. It
is accessible, wide-ranging, and well organised, and text
boxes offer definitions and discussions of particular concepts
and issues. (Given the market clearly envisaged, it's a
pity that chapters don't end with suggestions for further
reading and with questions to provoke thought on what the
student has read).
Part I is titled 'understanding poverty' and contains chapters
on definition, poverty in different societies, and statistics.
Then follow sections based on particular definitions: 'poverty
as material need', 'poverty as economic position', 'poverty
and social relationships', and 'poverty as a moral concept'.
The final two sections are on 'explanations for poverty'
( - on why people are poor, and on why some countries remain
poor) and 'responses to poverty'.
The
style is often combative, and in the final section it is
sometimes particularly so. Thus in relation to the slogan
'teach a man to fish and you feed him for life': 'This is
staggering arrogance ….. Why do we imagine that people
in developing countries do not have the basic skills for
survival? Could we survive under the same constraints? Do
international organisations really know more about fishing
than people who spend their lives doing it?' (p.135).
Spicker is equally clear in his verdict on social protection
systems:
Social
protection is not targeted on the poor, then, and it is
debatable whether a focus on poverty is even a primary
consideration. It is perhaps surprising, then, to discover
that some of the national welfare systems which are most
effective in dealing with poverty, like those in Northern
Europe, have been based on the principle of social protection
rather than poor relief. The schemes which do best, like
provision for older people in Sweden, are the ones which
provide for people regardless of need. Schemes which offer
a 'safety net' do not do so well in securing a minimum
income. If a system is based on support for everyone,
poor people will also be helped. If it supports only the
poor, some are likely to be excluded (p.136).
When
Spicker asks 'What works?' (p.143) he discovers that what
works is generally policy which improves things for everyone
rather than for a particular class of poor people (because
that risks 'musical chairs', as Spicker puts it, i.e., some
people take the relative positions which other people used
to have).
This
book both recognises the complexity of the situation and
at the same time expresses the situation simply: real virtues
in a textbook. A clear example of the combination appears
on the final page:
There
is an argument for focusing on policies which have a generally
beneficial effect, and limited movement is better than
none; but most strategies based exclusively on one or
two factors have failed, and no single element in policy
can possibly deal with all the issues. At the very least,
poverty has to be understood as relating to material need,
economic circumstances and social relationships: no policy
which fails to take each of those into account is going
to address the main issues. Strategy needs, for the same
reason, to be broadly conceived. Policies which look only
at part of the problem might succeed but they will not
satisfy the aspirations and concerns of different people
if those concerns are simply ignored (p.151).
Viewpoint
The
Lump of Labour Fallacy Revisited
by Conall Boyle
1.
The Theory: Lump of Labour Fallacy (LoLF)
A
couple of years ago, Samuel Brittan, a long-time supporter
of CI, sounded off (1) about the Lump-of-Labour Fallacy
(LoLF):
Basic
Income has now become linked...sadly with the 'lump of
labour' fallacy that asserts that there are not or will
not be enough jobs to go round and so some other form
of support is necessary.
Perhaps
we ought to refresh our minds about this, to avoid falling
into this trap again:
This
is what Samuelson's Economics (2) , a textbook
used by millions of students, has to say about it:
The
lump-of-labor argument implies that there is only so much
useful remunerative work to be done in any economic system,
and this is indeed a fallacy. It is more correct to say
that an economy can adjust to create jobs for willing
workers. In the longer run, as prices and wages adjust
to changes in technology and tastes, to supplies and demands,
jobs will come to workers or workers will move to jobs.
And in the short run, this process can be lubricated by
appropriate macroeconomic policies. A look at history
or across countries shows that there is no fixed lump
of labor to be distributed-there is no need to ration
out scarce work among the army of unemployed workers.
The
Economist (the magazine of choice for the decision-makers)
website (3) gives some more information about the origin
of this theory:
In
1891, an economist, D.F. Schloss, described such thinking
as the lump of labour fallacy because, in reality, the
amount of work to be done is not fixed. Government-imposed
restrictions on the amount of work people may do can actually
reduce the efficiency of the labour market, thereby increasing
unemployment. Shorter hours will create more jobs only
if weekly pay is also cut (which workers are likely to
resist) otherwise costs per unit of output will rise.
Not all labour costs vary with the number of hours worked.
Fixed costs, such as recruitment and training, can be
substantial, so it will cost a firm more to hire two part-time
workers than one full-timer. Thus a cut in the working
week may raise average costs per unit of output and cause
firms to buy fewer total hours of labour. A better way
to reduce unemployment may be to stimulate demand and
so increase output; another is to make the labour market
more flexible, not less.
This
view of the LoLF has remained unchallenged (indeed virtually
unmentioned) from within academic economic circles, although
some outsiders do not accept the full logic of the case.
(See for example what Tom Walker of Seattle has to say 4).
Even Samuel Brittan accepts that in the short-run, adjustment
may require sacrifices by workers, and Samuelson acknowledges
that for some groups of workers job-sharing may make sense.
So the academic, theoretical case seems pretty water-tight:
It is wrong to say that the number of jobs is fixed. Given
flexible markets, the amount of paid employment can be expanded
to equal whatever number is required by those willing to
work.
2.
The 1980s apostasy: Thatcher falls for LoLF?
When
the Basic Income Research Group (as it was then called)
started back in 1984, I, like most of the others in at the
start, was concerned by the appalling rise in the numbers
of the unemployed. 'Instead of wasting billions keeping
huge armies in idleness, wouldn't it be better to pay them
an unconditional weekly income, and let them find something
useful to do?' was an obvious reaction, and so the idea
of Basic Income took off. Hermione Parker actually called
her 1989 book on CI Instead of the Dole. We too,
it seems, had fallen for LoLF. If so, we had some strange
bedfellows: the Thatcher government, composed of convinced
free-market believers. When market liberalisation failed
to cure mass unemployment, the 1980s Tory government moved
directly to reduce the Lump of Labour:
- Early
retirement was encouraged in the public services, like
teaching. (Pension funds were raided to pay for this wheeze)
- Disability
allowances (the so-called bad-back payout) where workers
were declared unfit, expanded several-fold, with government
connivance. There are still 2.75 mn workers in receipt
of this payout
- Higher
education places were expanded, with little extra funding.
- Youth
training schemes abounded. None lasted long. None gave
much real training, but all managed to keep large numbers
of young people out of the labour-force.
- The
Community Programme/Enterprise Allowance which offered
£50 per week for a year to do something, with few
questions asked. This proved very popular, a million took
it up, many new business ideas were tried out. Again,
the numbers were subtracted from the labour-force, but
this crypto-proto-CI was stopped for being 'too popular'.
Some
of these 'lump-of-labour' reduction programmes are still
in action today. Generally, those of us in BIRG disliked
the deceit involved, but accepted that the Government was
doing something to alleviate a problem. In effect the Government
had conceded that there weren't enough jobs to go round.
We would have preferred an open declaration to that effect,
followed by a Basic Income for all as a better solution.
We may have fallen for a LoLF, but so it seems had the Thatcher
government.
3.
A 'Failed' European attempt to reduce unemployment: the
35-hour week
During
the 1990s, the governments of France and Italy proposed
cutting their legal working week to 35 hours as a way to
reduce unemployment by sharing jobs more widely. This was
one of the moves taken by EU countries to harmonise and
reduce working hours, and it was supported widely by trade
unionists. Did reducing working hours and job-sharing lead
to less unemployment? The short answer is 'No'. The evidence
for this can be found in the economic literature (5):
Our
empirical analysis does not provide support for the proposition
that work-sharing would reduce unemployment. The results
(do) show a positive direct effect on employment of a
reduction in working hours.
At
least the move to work-sharing through shorter hours did
not make unemployment worse, and perhaps the civilising
effect of more time off work has been a worthwhile human
achievement.
4
The UK proves them wrong? Absorbing a new lump
The
following graph summarises the success of 'New Labour' in
producing a job-creating economy (6).
To
increase the total number of jobs since 1997 by more than
two million is very impressive. Broken down into men's and
women's jobs, the numbers have increased by about one million
for each. In the longer term (over 30 years) the picture
is different: since 1971 the number of jobs for men has
decreased. For women the story is one of almost continuous
increase, with 50% more jobs in the same period. The major
social change whereby women choose to participate in the
labour market, rather than stay at home as housewives, produced
a large new lump of labour. The flexible UK labour market
could cope by absorbing them in large numbers, creating
millions more new jobs in the process.
Abandoning
social protection, or at least not repairing the damage
done to it during the Thatcher years is one of the main
reasons why the extra lump of labour has been absorbed.
Another is the extra public spending under New Labour. This
has translated directly into many public-sector jobs. And
of course, following the Phelps theory of an irreducible
'Natural Rate' of unemployment, Gordon Brown has introduced
subsidies: The WFTC working families tax credit is seen
as a means of creating extra low-paid jobs, more than the
economy, left to its own devices would have produced.
5.
Lump of Labour or is it Lump of Jobs?
Not
surprisingly, Sam Brittan is correct when he draws our attention
to the LoLF. But there are a few points to remember:
(i)
To demonstrate that the LoLF is indeed fallacious requires
dismantling many employment protection rights.
(ii)
The effect takes time. Should a new lump of labour become
available, such as mass layoffs in an industry, they can
all eventually be absorbed into jobs.
(iii)
LoLF is only concerned with one form of work - paid
employment. This reflects the economists' curious doctrine
of a work-leisure substitution effect. (7) Rational workers,
they claim, make a calculation of how many hours they
wish to work, for how much money, weighing this up against
their time free off the job, which can then be devoted
to 'leisure'.
The
economists' belief that only those in a job do any work,
and that all else is leisure is of course outrageous. Those
not in a job are labelled 'inactive', which seems a nasty
way to describe the efforts of parents caring for children,
to take one example of this 'inactive leisure'. Perhaps
it would be better to rename the LoLF as the 'Lump of Jobs
Fallacy'! In the brave new economic world of de-regulated
and free-moving labour markets, the total lump of low-paid
jobs can eventually be expanded to mop up all those who
want a job. Whether that represents a triumph for the human
spirit, I leave the reader to decide.
Conall
Boyle had a job teaching economics to building and surveying
students at UCE Birmingham. Having retired to South Wales,
is now researching 'Who gets the prize: the case for random
distribution in non-market allocation'. More about this
on www.conallboyle.com
Notes
1
Samuel Brittan reviews Promoting Income Security as a Right:
Europe and North America, Guy Standing (ed), London: Anthem
Press, 2004 in Citizens Income Newsletter No 2, 2005
2
Samuelson, Paul & Nordhaus, William (1989) Economics13e
McGraw-Hill New York. p687
3
http://www.economist.com/research/Economics/alphabetic.cfm?LETTER=L
4
http://maxspeak.org/mt/archives/lump%20of%20labor.pdf
5
Arie Kapteyn, Adriaan Kalwijb & Asghar Zaidi The myth
of worksharing Labour Economics 11 (2004) 293- 313 This
paper is one of the rare occasions when the phrase 'lump-of-labour'
appears in the economic literature. Also available at http://www.econ.ox.ac.uk/research/WP/PDF/paper032.pdf
(in 2000)
6
Source ONS Labour Market Statistics
7
again see Samuelson, p680
From
the press
From
'Making poverty history', Tom Clark's interview with Peter
Townsend in The Guardian, Wednesday 2nd April 2008:
He
retains a passionate belief that pension and child benefits
should be paid as of right, rather than through the complex
means-tested credits that Gordon Brown prefers. The prime
minister says the money available has to be targeted so
that the poorest get the most. But Townsend rejects the
terms of that argument, insisting that a tax hike on the
better-off would be a straightforward way to increase
the size of the cake, to the point where all young people
and older people get a decent slice of benefit automatically.
A
Citizen's Income Trust Seminar Series
A
Citizen's Income for All in the UK
January
to March 2009
In
early 2009 the Citizen's Income Trust is planning a series
of academic seminars throughout the UK, in close collaboration
with six major universities. The series aims to draw attention
to Citizen's Income as a genuine, universal alternative
for the current selective work and means-tested approach
to welfare policy in Britain.
From
January through to March 2009, leading academics in the
fields of politics, philosophy and social policy will discuss
the prospects of introducing a Citizen's Income for each
UK citizen in the post-Blair era. Participants include Prof.
Bill Jordan (University of Plymouth), Dr. Tony Fitzpatrick
(University of Nottingham), Dr. Louise Haagh (University
of York), Prof. Ruth Lister (Loughborough University), Prof.
Guy Standing (University of Bath) and Dr. Stuart White (University
of Oxford).
The
seminars will be hosted by the Department of Politics, Philosophy
and International Affairs (Queen's University Belfast),
the Centre for Applied Philosophy and Public Ethics (University
of Brighton), the Centre for Social Ethics (University of
Newport, Wales), the International Centre for Public and
Social Policy (University of Nottingham), the Department
of Politics (University of York), and the Department of
Politics (University of Reading). All seminars will be open
to the general public.
Further
information can be found on the CIT website at www.citizensincome.org/seminars2009.shtml
or
contact the organisers at seminars2009@citizensincome.org.
Contributing
financially to the Citizen's Income Trust
The
Citizen's Income Trust relies entirely on voluntary labour
and on individual donations to carry out its work, and we
are very gratefully to those who contribute financially.
It
is now possible to use your credit card to contribute to
the Citizen's Income Trust's funds by going to:
www.mycharitypage.com
It
is still possible to contribute by cheque, of course. Cheques
payable please to 'Citizen's Income Trust'.
©
Citizen's Income Trust, 2008
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