One of the commonest mistakes people make about the welfare state is to believe that taxes and benefits have failed because we still have poverty. This section sets out the facts showing that this belief is mistaken - without taxes and benefits this would be a far more unequal country, with much more poverty. This section also looks at the current government's welfare reform plans and the reason why the TUC is very concerned about them. Parliament is debating a Welfare Reform Bill that will create a major new benefit, called Universal Credit, that will replace many existing benefits; many low-paid workers will be worse off as a result.
What effect do taxes and benefits have?
Taxes and benefits make a huge difference to relative poverty and inequality. There is a very good official article, updated each year, on “The effect of taxes and benefits on household income.” The latest edition shows that, in 2009/10:
- For the poorest fifth of the population, cash benefits are worth Â£6,883,
- 59 per cent of their gross income;
- For the richest fifth, they are worth Â£1,992,
- 2.5 per cent of their gross income;
- The poorest fifth pay Â£4,160 in direct and indirect taxes;
- The richest fifth pay Â£26,941;
- In addition, public services and other “benefits in kind” are worth Â£7,555 to the poorest fifth,
- 50 per cent of their final income;
- They are worth Â£5,123 to the richest fifth,
- 9 per cent of their final income
The TUC has produced a three minute video, setting out what these figures mean.
The government’s strategy
The government has published A New Approach to Child Poverty: Tackling the Causes of Disadvantage and Transforming Families' Lives - their new Child Poverty Strategy. The last government’s strategy promised investment in early childhood development, to narrow the gap in educational achievement between the most and least disadvantaged children, to deal with problems in the transition from childhood to adulthood and to work closely with local authorities.
En route to the new strategy, the current government commissioned a report from Frank Field MP on poverty and life chances. This report tended to downgrade the importance of incomes as a factor determining poverty and called for a “Foundation Years” strategy, shifting resources to the first five years of children’s lives. The TUC has published a commentary on the Field report, arguing that it makes important points about the importance of a child's very early years for their future life chances. Unfortunately, the way the report downplays the importance of income for anti-poverty measures means that it will be used to justify cuts that will hit the poorest hardest.
The TUC published our own recommendations for the new child poverty strategy. We emphasised the importance of the Child Poverty Act, the need to continue to concentrate on poor families’ low incomes and the significance of in-work poverty as a contribution to overall poverty.Â Â
The new strategy is based on a decision to “broaden out the agenda from a narrow focus on income to a broader focus on life chances” and concentrate instead on the “root causes of poverty”. This means “greater emphasis on early intervention and on whole-family and whole life-course approaches”. The strategy promises to address “some of the most entrenched issues: educational failure; worklessness; family breakdown; severe debt; and health issues, such as alcohol and drug addiction.”
On income poverty, the strategy is not entirely clear. The new strategy claims to have a “wider focus” than the last government’s, and there is a claim that the government will “remain committed to meeting the income targets in the Child Poverty Act” but ominously this isÂ Â “with due regard to the current fiscal and economic circumstances.” (All quotations from page 63 of the strategy.)
“Ministers can’t really call this a strategy as it doesn’t have the comprehensive measures needed across government to impact on children’s lives. It is not enough after a year in power to still be setting out mood music. Families are facing growing hardship today and you cannot tell them to wait another generation.”
The government’s child poverty strategy has to be seen in the context of other government policies. The plans to introduce a Universal Credit and carry out other welfare reforms will make people on benefits (including low-paid workers getting in-work help) worse off than they are at present and the cuts will overwhelmingly hit people in poverty. It is not likely that the numbers in poverty will fall between now and the next election.
Issued: 28 July, 2011