Why the Conservatives’ long-term economic plan must also reduce poverty

30th Sep 2014

In the second of a series of blogs during party conference season, Katie Schmuecker says the Conservatives’ focus on the economy must have poverty reduction at its heart.

An economic plan that’s working, and taking action to reduce the benefits bill: these were the twin messages at the heart of Chancellor George Osborne’s speech to the Conservative conference yesterday. But one thing his wide-ranging speech lacked was a clear and long-term strategy to reduce poverty and ensure everyone is able to afford to meet their basic needs in the UK. The economy, of course, is central to tackling poverty. As the Chancellor rightly points out, it is economic growth that creates jobs and helps build houses.

While economic growth has a contribution to make to poverty reduction, reducing poverty will also help the UK fulfil its economic potential. Not only does poverty scar people's life chances, leaving their potential untapped, the consequences of poverty also cost us dear. Tax revenues fall and welfare spending actually increases to address rising need through a failure to tackle poverty. Child poverty alone costs the UK £29 billion a year: £5.9 billion is spent on benefits and lost in tax revenue, £15 billion on public services dealing with the consequences of poverty and a further £8.5 billion is lost in earnings to individuals. This is money the Chancellor could spend more productively on boosting economic growth through updating infrastructure and investing in skills.

So as recovery takes hold, we also need to think about what sort of economy is being created. Mr Osborne has previously stated an ambition for full employment. But simply creating more jobs will not be sufficient – there also needs to be better-quality jobs. Forecasts for JRF show even with 1.5 million new jobs in the economy, the rate of poverty will increase by 2020 – thanks in large part to changes to welfare, but exacerbated by the nature of work at the bottom of the labour market.

A job should of course provide a route out of poverty for most people. But the UK’s high proportion of low-paid, low-skilled jobs – too many of which fail to offer security and sufficient hours – contributes to a growing problem of in-work poverty. Now, more than half the people living in poverty in the UK live in working households.

This is a longstanding problem, not simply a symptom of the recession. But seeking to address these problems by holding down the welfare bill risks dealing only with symptoms rather than causes. To reduce poverty sustainably – and in the process ensure the UK’s economy is able to draw on all the resources available – will require a long-term plan beyond simply relying on economic growth.

As JRF sets out in A UK without poverty, what we need all the parties to deliver – working with businesses, markets and civil society organisations – is a comprehensive approach.

This means not only creating a more productive economy with better jobs and higher wages, but reforming the tax and benefits system: Universal Credit goes some way to improving work incentives and its nationwide rollout in the New Year is welcome progress. But it should be improved further to ensure that work really does pay and have a transformative impact for people on low incomes.

At the same time, we’d like to see further action to bring down the cost of essential goods and services. Joining these strands together will help ensure people and the economy are able to reach their full potential. On this basis should the success of Mr Osborne’s plan be judged.

  • JRF is attending all three party conferences.