Labour’s Ambition of Poverty

A tabloid-style pun as a headline. Who says I'm a boring wonk, eh?

Yesterday, Ed Miliband made a very interesting, very ambitious, policy move in his National Policy forum speech on Saturday.

Naturally, nobody really paid much attention to it. Perhaps this is because National Policy Forums posess a catatonic effect on political reporters, which can only be counteracted via a good old fashioned faction fight.

Perhaps it's because when politicians make big, bold declarations of intent, the common reaction now is to check the specificity of the pledge, and file the promise under "windy rhetoric" if it does not come wih a target and a timescale.

Yet as Labour has just finished reviewing the Policy Review (Thankfully, the review of the review is getting rave reviews) it's difficult for us to make policy pledges that run after 2015.

Indeed, beyond the broad principles,(and as I've argued elsewhere, the Fiscal Architecture that will help deliver a sensible, cautious deficit reduction programme) it's probably a bad idea.  We don't know whether the economy will be in recession, whether unemployment will be increasing or decreasing, whether debt interest payments will still be at their current historic lows.

This can be a bit frustrating, I imagine especially so for NPF delegates, who've had more NPF chairs than concrete policy positions to consider.

However, we're now shaping Labour's policy priorities for government. So now is the time to take "Aspirations" as seriously, and to tease out what they might mean in practice.

On this sourt of Agenda-setting, Ed's speech was both ambitious and precise. To take just one example, Ed said: 

"We know what the good economy looks like. I believe nobody who works should be in poverty.

But today in our country we know that millions are." 

This is a pretty clear stateent of direction. A focus on reduction of poverty for all those in work,

I doubt that anyone in the left would dissent from these ambitions. Reducing Poverty is, as Ed, correctly says, a core Labour value.

Yet this straighforward statement of Labour values, that no-one in work should be in poverty, points to the practical challenges the policy review process will face. What would achieving this progressive ambition look like?

To answer that question, lets look at the latest available poverty figures for working age adults.

First of all, we have to decide what we mean by poverty. The current generally accepted definition is 60% of equivalised median income, either before or after housing costs and tax.¹ Let's assume that we will stick with that definiton of poverty.

What does that mean in real terms? It means that there are a range of poverty income levels for different family types. I don't have the current figures to hand, but a couple of years ago, this translated to an income, AFTER TAX DEDUCTS AND HOUSING COSTS of "£119 per week for single adult with no dependent children; £206 per week for a couple with no dependent children; £202 per week for a single adult with two dependent children under 14; and £288 per week for a couple with two dependent children under 14".

So, if we were to take a literalist approach to a "No Poverty in Work" policy, we would be arguing that these would effectively become our target minimum income levels, after housing costs and tax. At the very least, we would be looking to move everyone who works closer to these disposable income levels, fairly rapidly. 

This is a significant group of people, looking at the data, you can see that in the words of the ONS "because the majority of working-age adults lived in families where at least one adult was in work in 2010/11, around half of all working-age adults living in low income were living in families where at least one adult was in work. This was true for both relative and absolute low income."

Further, the government says "Despite their lower risk of relative low income, working-age adults in households where at least one adult was in work (including those where all adults were in work)
made up around three fifths of the total number of working-age in relative low income, Before and After Housing Costs. This is because working-age adults in households where at least one adult was in work made up
such a large proportion (around 85 per cent) of the total number of working-age adults."

So to eliminate this altogether would be huge step, effectively halving the numbers in poverty in the UK.

What characteristics do those households in work and low income have compared to the population as a whole?

You can see this in the following chart, where it's clear that of households with someone in work, poverty is far more frequent among those where only one adult is working, where people are self employed, or where one or both adults are working part-time.

A substantial proportion of the "working poor" are classified as self employed, as part time workers, or as being in a household with only one income. So, there is a structural question. When we say, No-one in poverty who works, do we include part time work and self employed work?

If we don't the scale of the challenge is much lesser, but we will leave significant numbers of "workers" still in poverty.  What about families where only one person works? Is our response there to lift their relative incomes, even if this reduces incentives to work, or to encourage greater availiability to work in a jobs market that is already fairly weak? What does these mean, for the choices of working mothers, for example?  Further, lifting some of these these groups out of poverty will likely require direct cash subsidy, and may have distorting effects (Why take a full time job, if you can work "self-employed and/or Part-time then claim significant state income support?)

Second, as well as the structural question of what "being in work" means, there is the issue that poverty rates vary significantly by age, family status and so on.

Take a twenty-two year old man, who has moved out of his family home, is renting a small flat, and has found work as a driver. After Housing costs, he is classed as being in poverty. Is he as much as a public priority for poverty reduction as a thirty-something couple with two children?

Over the last decade, Labour politicians would probably have argued no. The young man's prospects were reasonably good, he had no children, and reducing child poverty was a bigger priority. As a result, the data shows that while poverty among families with children has fallen, a similar reduction has not occurred for single and childless couples (I suspect mostly do to benefits and tax credits, not lower work income). However, if you took a different approach, you could argue that this was an unfair political choice. Why should his poverty be less important than a families?

In practical terms then, linking poverty to work, rather than familiy type and work, would mean a sustained attempt to significantly increase the incomes of single full time workers, those in part time work and those with only one family member in work. 

You might argue for a significant increase in the minimum wage (which would naturally be opposed by many Business owners).

You might argue for something like a "single income supplement" so that a dual-person household with a single iincome recieves specific support from the state.

You might argue for the abolition of the Young Worker rate.

You might create some sort of citizen's minimum working income through state supplement, though practically this might require a significant reduction in Tax Credits available to lower income families. 

Another approach might be to discourage the numbers in these 'working but in poverty' social groups.

You might discourage single men living alone, or favour full time over part-time work via regulation, or encourage two person working households through tax incentives. I mention this, not because I think it'd be a preferred policy route for Labour, but because it would likely be the easiest way of hitting reduction targets, and the distorition effects of Targets can be a real issue. Instead of income being distributed widely through part-time work, which would leave some people in work in poverty, you'd be able to concentrate that income among fewer ful time workers. However, you might then have more people in workless households all together, and you'd lose the benefits some argue are sustained by people maintaining a presence in the job market. In addition, you'd probably end up masculinising the workforce.

But however you cut it, the simple statement that no-one who works should be in poverty carries with it a huge number of policy implications.

If we were to make reducing poverty for all in work our priority, it would likely mean a focus on lifting incomes of the self employed and part time workers, of lifting the incomes of the young, the single and the childless. This can be done directly (by lifting the minimum wage substantially) or indirectly, by (focussing state income support on thee groups).

Doing this might require a lower emphasis on the "working family", who have benefitted from past policy support to get them over the current poverty threshold. It might mean structural change to the Labour market. It might even mean increased unemployment, (or rather, more concentrated employment) as we reduce the numbers in part-time work, casual work and "small" self-employment.

Politics is complicated. Now is the time for ambitions, but it's also the time for carefully examining the consequences of our ambitions, and how delivering our promises will relate to our rhetoric.

 

¹ Many on the right object to this definition of relative povery, but lets leave that debate for now.