Tuesday, 30 June 2015

Welfare 'dependency' - cart before the horse?

A new report published today by the right-wing think tank Centre for Policy Studies presents some interesting statistics on 'welfare dependency'.

In a new Economic Bulletin,  Adam Memon, Head of Economic Research reveals that 51.5% of households still receive more from the state than they pay in tax.
 
The report also shows that:
 

  • Net dependency of the middle fifth of households has fallen by 27% since 2010/11.
     
  • The poorest are still suffering from high taxes.
     
  • Deeper welfare reform is needed to reduce dependency and raise incomes.
     
  • Inequality is now lower than at any time under New Labour.
The report draws its statistics from the office for National Statistics.  You might think then that this is an 'objective' assessment.  But it requires a note of caution, not about the statistics themselves, but the assumptions. 

Adam Memon, the report author says:
 
“Welfare dependency is an economically destructive phenomenon which tears at Britain’s social fabric. It reduces the incentive to work and earn more whilst keeping people trapped in a cycle of low aspirations, low productivity and low pay. The welfare state must protect the vulnerable and encourage self-reliance but for too many households it has become a permanent trap.
 
Net dependency at 51.5% is still too high. Simply attempting to alleviate difficult economic conditions with welfare payments can only ever be a short term fix. Indeed, the case for making a further £12 billion of savings in the welfare budget rests not only on the need to reduce the budget deficit but also on the need to reform welfare to boost employment and encourage growth in real wages. The Government must press ahead with deeper welfare reform.”

The use of the word 'dependency' is in vogue.  We hear it from across the political spectrum. It conjures images of a malaise or an addiction, as if the poor are addicted by benefits. It makes the assumption also that such 'dependency' can be 'cured' by withholding the benefits - a kind of welfare cold turkey.  The poor will of course suffer withdrawal symptoms but in the end all will be well.  Their dependency will be cured. 

It also puts the cart before the horse.  What drives 'dependency' is low pay and poor prospects.  Of course welfare might push wages down, but the assumption, presented by the Prime Minister that miraculously wages would rise if the government cut welfare is economic nonsense.   If the government wants to reduce the need for benefits, then it should ensure that wages rise and there is a reduction in zero hour contracts.  Simply cutting benefits will drive more into poverty. 

The report emphasises another statistic so often ignored, or rarely stated.  The poorest pay proportionately more tax than do the rich. 

The report points out that the richest fifth of households paid £29,200 in tax over 2013/14 which equates to an average tax rate of 34.8% of their gross incomes. The poorest fifth of households paid £4,900 in taxes over the year. Whilst this is much less in absolute terms, at 37.8%, it is proportionately
even higher than paid by the richest households.

Monday, 29 June 2015

We need a new narrative on social justice

When my interest in politics blossomed in the 1960s it was driven by a gut instinct that there was something fundamentally wrong with a society predicated on  vast inequalities not just in the distribution of wealth but also of opportunities. The society in which I grew up was palpably unfair.  Much has changed since, but the vast inequalities of opportunity persist.  The Labour party must once again find a clear voice to address poverty and inequalities of opportunity. Social justice must once again form the core of what Labour is about
Labour is nothing if it is not a crucial part of the movement that challenges that unfairness, or as Harold Wilson put it a 'crusade' against poverty.  But whilst the problems are old, old solutions will no longer work - not least because voters won't accept them. A simplistic message of tax and spend is not one voters will support.  This presents a dilemma for Labour, and whoever wins the leadership election will have to address this conundrum.  It cannot be addressed by ignoring the problem. 
Mr Cameron is right for all the wrong reasons.  Tackling poverty is predicated on a growing economy and wealth creation. That is necessary; but it is not in itself sufficient. Unless there are profound structural changes in the economy, then a growing economy simply makes the rich richer. 
What is worse is growth predicated on cuts in welfare. That is simply making those with the greatest need pay for the wealthy - a further redistribution from the poor to the rich. This has been the approach of the coalition government and now the Tory government. Trickle down economics if successful at all is simply that, a trickle, a drop in the ocean whist the gap between the rich and the poorest grows ever greater. We don't need trickle down. We need a fundamental change in the balance of power and privilege. We need a society predicated on fairness, and not one predicated simply on 'wealth creation'. 
This is why we need to hear more about our social aspirations - better educational opportunities for all our children, better housing for all our families, better hospitals and social care for all our people. The dragon that will not roar is taxation. Labour needs the courage to talk about redistributive policies. Tis does not mean punitive taxes. It means fairness in the tax system.  Austerity has meant that the poorest have paid the price for the banking collapse.  That is unfair.  A further £12 billion of cuts in benefits will hit them further.  This is unnecessary and unfair. 
Wealth creation and redistribution are not mutually exclusive. Labour needs to develop a distinctive message that will appeal to a broad section of voters who I believe are fed up with our politicians dancing on a pin head. 'They're all the same' should be countered with 'oh no they are not'. 
This is not a question of 'left' versus 'right'. Labour has become trapped into avoiding the central issues they should be challenging because they it has been afraid of being seen to shift left. But I have met many people who want to tackle unfairness, injustice and poverty and who would not regard themselves as 'left wing' or even socialists. 
I recall a seminar at Balliol College Oxford back when the 'gang of four' had set up the SDP breakaway from Labour. The invited speaker, Shirley Williams,  made the point that the problem with Tony Benn was that he wanted an irreversible shift in the balance of power and privilege. She regarded the 'irreversible' bit as indicative of an undemocratic society. It was an interesting point of political philosophy. Yet surely the Labour party of she had once been a leading member did want to bring about a fundamental shift in the balance of power and privilege.  But what kind of democracy is it that is based on an effectively irreversible inequity in the balance of power and privilege? What kind of society is it that can allow the poorest to get poorer whilst the rich get richer? 
All this is why Labour must challenge the premise that massive cuts in benefits are necessary to 'cut the deficit'. They are not. What is necessary is to increase revenue. Making the poor poorer in the end increases the burden on the health service. It is the cuts in social care in the last five years that have produced the biggest strain on the NHS. To blindly target £12 billion of cuts in benefits without having considered where they would fall and what the consequences would be is a shocking indictment of the government strategy. Labour should have none of it. Labour needs a clearer message and voice for that message.
The Liberal Democrats are also struggling once again to find their voice.  There is a great sense of betrayal they have now to address. I think it was a big mistake for the Lib Dems to have locked themselves into the coalition for the duration of parliament. Once they did that, their capacity for challenging the Tory policies was limited. As the article points out it was a mistake to accept the Tory narrative on the economy and the attacks on Labour. The latter was a ruthless attempt to damage Labour. To that extent it was successful, but it also gave up on any chance of an alternative narrative on the economy and on welfare.
The Lib Dems abandoned the support from the left of centre they had spent so much time building since the Iraq war. Those who felt betrayed by 'New Labour' now felt bitterly betrayed by Clegg. It was a kind of double whammy of betrayal. As for tuition fees, the problem was not the u-turn but the cynical way in which the pledge was made when at that time Clegg and others believed it was wrong. For that they deserved to be punished. The Lib Dems succeeded in making themselves irrelevant other than as a prop for a Tory government pushing policies their core supporters did not support. Cable should have pulled the plug on it. We are now stuck with the Tory narrative on the economy. It is all very well for the likes of Shirley Williams to wring their hands now. Once, there was a dream of a new realignment of the centre left. At a stroke they destroyed that dream. Their actions have been reckless and self serving.
Yet Labour needs the Liberal Democrats to recover.  There needs to be a new narrative on the economy and on social justice.  Labour cannot do this alone. There needs to be cooperation from opposition parties on creating that new narrative and combating this government's further attacks on the poorest and least able.