Force, fraud or goodwill?

In February the Zacchaeus 2000 Trust published a Memorandum to the Prime Minister on Minimum Income Standards, challenging the Government's proposed poverty thresholds and calling for the establishment of a minimum income standards commission. The Memorandum's co-editor, Peter Ambrose, describes his research in Brighton and argues the case for basing income support payments on real levels of need as revealed by budget standards studies.

An international comparison
Why so much poverty in Britain?
The Brighton and Hove study
'Low Cost but Acceptable'
A positive finding
New definitions of poverty
The current dispute and the issues

In 1865, when the mid-Victorian drive to relieve poverty and improve urban living conditions was well advanced and Chartism long dead, Gladstone referred in a private letter to some of the difficulties facing government. He wrote: '…we have to govern millions of hard hands' and that '…it must be done by force, fraud or goodwill'. [Footnote 1] Which of these options identified by Gladstone, or what combination of them, is being applied to 'govern' the current level of poverty in the United Kingdom?

First, what needs governing? How much poverty persists and how goes the drive to eliminate child poverty by 2020? A recent report on poverty and social exclusion showed that in 2001/02 12.5 million people in the UK were living in low-income households at or below 60 per cent of median income. [Footnote 2] This compares with about 13.4 million in the mid-1990s, so some limited progress has been made. But the figure compares badly even to the Thatcher era in the mid-1980s when 'only' about 10.0 million were in poverty. In the latest figures children (3.8 million) and pensioners (2.2 million) are over-represented in low-income households. The remaining 6.5 million are working-age adults.

The TUC has drawn attention to the recent changes in the composition of household types living in poverty in a submission to the Treasury Review on Child Poverty. [Footnote 3] In 1968 24 per cent of households with just one person working in a low-paid job were poor. In 1996 that proportion had risen to 53 per cent. By contrast, the incidence of poverty among the workless and pensioners, although high, had hardly increased over the period. This finding hardly confirms that the 'work route out of poverty', much advocated by the Government, is an effective solution to the problem. Clearly much depends on wage levels.

An international comparison
The European Community Household Panel Survey in 2000 found that if one disregards Mediterranean countries, which have a different welfare history from those of northern Europe, only Ireland and Finland ranked above the UK in terms of the percentage of households living below 60 per cent of median income. This percentage was 15 per cent in the UK – but because children are disproportionately present in poor households this degree of relative poverty affects 21 per cent of UK children. All these measures are 'before housing costs' and, as this article goes on to show, measurement on this basis cannot be relied upon when making international comparisons in view of the uniquely high and variable nature of housing costs in the UK.

Why so much poverty in Britain?
It is important to sketch out some of the main factors underlying the high incidence of poverty in the UK. Unless there is some clear grasp of the range of factors at work it is likely that anti-poverty policies, and the accompanying rhetoric, will be directed at superficial manifestations not underlying causes. Two factors are global in scale:

• The globalisation of capitalist organisation (some local effects are set out in the section on east Brighton below).
• Acceleration in the rate of technological innovations (which operates regressively as surely now as when Tolstoy powerfully argued the case in the 1880s ).

Others derive from conscious UK government policy preferences:

• A refusal to make direct taxation more progressive and to raise the highest rate above 40 per cent.
• A refusal to recognise inequality, as distinct from poverty, as an issue that needs addressing.

Others derive from wage dispersion in the labour market:

• Every year since at least 1987 the earnings of the top decile of full-time workers have grown faster than those of the bottom decile. [Footnote 4]
• Inevitably growing dispersion in incomes leads to growing dispersion in wealth.

Others derive from the particulars of British housing history:

• The physical separation out of rich and poor that occurred virtually throughout the twentieth century have led to 'area effects' which reinforce differences in life chances.
• For much of the period between the 1920s and the 1990s the pattern of housing subsidy was highly regressive in its favouring of owner-occupancy over local authority housing.
• The massive and unregulated expansion of housing debt [Footnote 5] has produced house price rises that have had capricious, but on the whole regressive, effects.

Several of these factors, especially the last three, can be grouped under the heading of 'The Great Undiscussed' since they are rarely mentioned in political debates about poverty and the initiatives designed to reduce it.

The Brighton and Hove study
In January 2003 UNISON commissioned a report from the Health and Social Policy Research Centre at the University of Brighton on the effects of living on low pay in Brighton and Hove, an area notorious for high living costs and low wages. Globalisation had serious impact on the town in the mid to late 1970s. Creeds were at that time the major producer of teleprinters in the country and they employed about 2,500 workers on an industrial estate in east Brighton. The replacement of mechanical by electronic processes and the assimilation of the company by STC and then by the multi-national ITT led to the closure of the local plant. [Footnote 6] Similarly, Gross Cash Registers, then the only British-owned producer of cash registers, employed nearly 1,600 workers on the same estate. In the late 1970s they also fell victim to rapidly developing electronic check-out technology and the internationalisation of production. [Footnote 7] There were several other important plant closures in the immediate area and the overall effect was the loss of 6,000-7,000 local manufacturing jobs in east Brighton. This had very serious effects on the incomes and welfare of residents across the town.

To compound the problem, a high proportion of the local workforce is in sectors of employment, such as the retail, hotel and restaurant sectors, where pay is below average. [Footnote 8] The 2000 Index of Multiple Deprivation showed that over 58,000 people were living in households deemed to be 'income deprived' in that they were entitled to means-tested benefits – this translates into perhaps 20 per cent of all local households. The 2002 New Earnings Survey shows that national average earnings were £26,449 in 2002 and had risen 6.0 per cent over the previous year. By contrast, the average earnings in Brighton and Hove were £23,051 and had risen by just 1.8 per cent over the previous year. In short, together with the Isle of Wight, Brighton and Hove has the worst low pay problem in the entire south east region.

Housing costs in the area are very high and rising sharply. In 2001 an average earner first-time buyer on a 95 per cent mortgage could afford something like £55,000, but the average price of one-bedroom flats at about £102,000 was nearly twice that figure. The price position has worsened since then – house prices have risen in the area by 126 per cent over a five-year period and the average ratio of average house prices to average earnings has increased from 6.7 in 2001 to 7.9 in 2002 (compared with the national ratio of 5.9 in 2002).

'Low Cost but Acceptable'
The Brighton study [Footnote 9] used a methodology called 'Low Cost but Acceptable' (LCA) which had been used previously in York, east London and Swansea. LCA identifies the minimum quantities of goods and services required to live a reasonably safe and healthy life, prices them locally and then arrives at required income levels for households of specified sizes and types. The methodology was developed in the York 1998 study, financed by the Zacchaeus 2000 Trust, and now needs rebasing since currently it does not take into account a number of important factors related to poverty, such as debt levels. It therefore understates the true extent of poverty.

In Brighton and Hove the LCA pay level necessary to avoid any dependence on means-tested benefits for a household with two adults and two children (one adult working full time) worked out at £7.83 per hour. This is only marginally lower that the figure found in the east London study. [Footnote 10] Clearly the national minimum wage (£4.20 per hour at the time) provides virtually no protection in this situation.

As part of the project, 24 workers in the care, teaching assistant and tourism sectors were interviewed about the way low pay affects their lives. Their average rate of pay was £5.95 per hour. The effects of low pay showed clearly in poorer health, poorer diet, strains on family life, inability to get involved in recreation or take holidays, reduced personal safety and very low levels of neighbourly and community involvement. Many of those interviewed were, or had been, in serious debt. As the report made clear, all these conditions are not only personally demoralising but are also extremely costly to the NHS, other key services and the economy generally. In some cases the cost in means-tested benefits alone exceeded £15,000 per household per year. Florence Nightingale was before her time in pointing out that '…it is always cheaper to pay labour its full value…'. [Footnote 11] Of course, 'cheaper for whom?' is the issue.

A positive finding
One positive finding of the Brighton study was that the difference between the income support/jobseeker's allowance level and the LCA minimum identified had actually narrowed from about -£39 in the 1998 York LCA study to under -£1 in Brighton and Hove in 2003. On this evidence progress is being made in reducing poverty. It should be noted that this effect could not have been identified in any way other than carrying out 'budget standards' studies.

The findings from the series of LCA studies were taken up by the London-based Zacchaeus 2000 Trust (Z2K). This organisation is leading a coalition of 66 non-governmental organisations (NGOs) in a campaign to urge government to set up a minimum income standards commission (MISC), one of whose tasks would be to finance and undertake more work of this kind. The coalition includes all the major churches; the Muslim Council of Great Britain; the main charities connected with child and pensioner poverty; the British Medical Association, Royal College of Nurses and other professional health organisations; and the TUC and UNISON.

After a meeting with Tony Blair in September last year a Memorandum [Footnote 12] was sent to the Prime Minister and publicly launched in February.

New definitions of poverty
One aim of the Memorandum was to challenge the proposed poverty thresholds outlined in the Department for Work and Pensions' (DWP) document Measuring Child Poverty, produced in December 2003. This argued that a poverty line can be drawn using as a key indicator a household income of £210 income per week for a couple with one child before housing costs.

The Z2K coalition Memorandum argues that this measure, and its use for comparative purposes with other EU countries, is grossly misleading. It entirely ignores the sharp variation in housing costs and council tax around the country (and between the UK and elsewhere). Moreover, it can be shown, based on the reply to a recent parliamentary question, [Footnote 13] that if such a figure is 'equivalised' for households of different size the consequence is that the larger the household the less is left over for other essential spending after housing costs – a bizarre consequence of using econometric top-down measurements that do not relate to the hard cash needed to live. It is clear that it is the income available after rent and council tax that is the crucial measure of poverty.

In February Andrew Smith, the Secretary of State for Work and Pensions, was questioned about the DWP's proposed new indicators by members of the Work and Pensions Select Committee inquiry into child poverty, all of whom had been sent a copy of the Zacchaeus Memorandum. The Committee also questioned the Secretary of State on his views about budget standards work and the value of a minimum income standards commission. The Department's general line, as expressed by the Secretary of State, was that LCA and similar methodologies are 'subjective', not well capable of adaptation to varying situations and cannot be relied upon for making comparisons through time.

The subsequent report of the Select Committee took issue with the Secretary of State. [Footnote14] It pointed out that the 60 per cent of median income measure is deficient in many respects, that there was a lack of clarity and consistency in measures recently adopted by government and that 'before housing costs' indicators '…would mask the true extent of child poverty' since in 2002/03 the child poverty rate was 21 per cent before housing costs (BHC) and 28 per cent after housing costs. CPAG argued to the Committee that '…at a stroke the (BHC) measure has 'removed' 900,000 children from poverty'. The Committee concluded that '…the decision to adopt only the before housing costs measure is mistaken'. It recommended that the next public service agreement target for the base year 2004/05 should be derived from the 60 per cent of the median 'after housing costs' measure.

The Committee's report also challenged the Secretary of State on his dismissal of the value of budget standards work. While conceding, given political realities, that such work alone could not be expected to determine rates of social assistance the report urged the Department to reconsider its attitude to budget standards studies since they provide '…an important input into deciding appropriate poverty standards…' and could help '…to fix poverty standards for the future strategy on child poverty.'

It remains to be seen whether the arguments advanced by the Z2K coalition, in common with many other organisations such as CPAG and the Institute for Fiscal Studies, will convince the Government of the need for 'after housing costs' poverty measures that take full account of the uniquely high and variable housing costs faced by poorer people, and many not so poor, in the UK.

Meanwhile, continuing pressure will be exerted on government to consider the setting up of an independent minimum income standards commission whose tasks would include the promotion and support of more budget standards work and the urgently needed exploration of the costs attaching to poverty on the scale experienced in the UK. The Memorandum arguing the case for an MISC is being widely circulated.

The current dispute and the issues
The current dispute is about how best to measure poverty. On one side stands the DWP; on the other the Work and Pensions Select Committee and the Z2K coalition of 66 NGOs comprising charities, faiths, health professionals and trades unions with a total membership of 10 million people, backed up by respected academics in a large number of universities who have carried out a massive body of research on poverty, nutritional and heating needs, housing costs and health outcomes.

The issues are somewhat broader:

1. Can minimum acceptable household incomes for healthy and safe living, for varying household types and sizes and taking account of local living costs, before and after housing and council tax, be reliably determined (as they are in other developed nations)?
   
   
2. Should these income levels be prime factors in setting the levels of benefits, tax credits, the national minimum wage and state pensions (as they are in other developed nations)?
   
   
3. What 'exported costs' from poverty-related ill health in the NHS, educational underachievement in schools and poverty-related crime in the administration of justice flow from the large numbers of households currently living below this line?
   
   
4. How significant are the upward redistributional effects of some of the factors grouped as 'The Great Undiscussed' above and what policies might begin to reverse these effects?
   
   
5. How might the costs of bringing all households out of poverty compare with the savings on 'exported costs' that would result from this?

It is absolutely essential on grounds of morality, community cohesion and cost-effectiveness in the use of public resources that future anti-poverty strategies be informed by fuller answers to these questions. It has taken decades to get to the level of bifurcation in society that we observe around us. It could well be that a few more decades along this track will land us with a social, political and fiscal disaster that cannot be averted by the limited anti-poverty measure in place at the moment. The whole range of poverty-inducing factors identified earlier must be faced more realistically. They will not be fully faced if governments are allowed to implement the second of Gladstone's strategies and seek to reduce the reported extent of poverty by crude attempts at redefinition.

Peter Ambrose is Visiting Professor in Housing Studies at the Health and Social Policy Research Centre, University of Brighton

Copies of the Memorandum can be obtained from Inkwell, 713 Seven Sisters Road, London N15 5JT. Cheques for £12.50 (including p&p) should be made out to Zacchaeus 2000 Trust.

Footnotes
1. Quoted in J Saville, The Labour Movement in Britain - a commentary,1988, p9 [back to text]
2. New Policy Institute, Monitoring Poverty and Social Exclusion, NPI, 2003 [back to text]
3. TUC, Eliminating Child Poverty, TUC Submission to the Treasury Review of Child Poverty [back to text]
4. Social Trends, 2003, Figure 5.6 [back to text]
5. See note 1, Appendix 1 [back to text]
6. Brighton Labour Process Group, A Case Study of Creeds, unpublished, 1976 [back to text]
7. Brighton Socialist Economists Group, Gross: the anatomy of a bankruptcy, unpublished, 1977 [back to text]
8. Social Trends, 2003, Table 5.9 [back to text]
9. P Ambrose, Love the Work, Hate the Job: low cost but acceptable wage levels and the 'exported costs' of low pay in Brighton and Hove, Health and Social Policy Research Centre, University of Brighton, 2003 [back to text]
10. J Wills (ed), Mapping Low Pay in East London, UNISON, 2001 [back to text]
11. Cited in A Wilson, The Victorians, Arrow Books, 2003 [back to text]
12. Memorandum to the Prime Minister on Minimum Income Standards, Zacchaeus 2000 Trust, 2004 [back to text]
13. Asked by Andy King MP of the Secretary of State on 21 January 2004 (PQ/04/147423) [back to text]
14. Work and Pensions Committee, Child Poverty in the UK, H of C Papers 2003-2004, 85-1 [back to text]

Poverty 118, Summer 2004