Will further devolution help to reduce poverty in Scotland? Jim McCormick examines the Smith report to find out.
Ten weeks after Scotland voted to remain in the UK, the Smith Commission has reached agreement between the five parties at Holyrood on further powers to be devolved. It’s the start of the next phase, not an ending. Draft legislation will follow in January and it will be for the next UK government to enact the Smith plan.
JRF’s response sets a central purpose test – will further devolution drive poverty reduction? It proposes further tests, including enhancing social and economic union, alignment with current powers and clearer incentives. Thus, the costs and benefits of investing in better jobs, training and childcare should flow to the Scottish budget. How does the Smith report fare?
Progress depends on in-work poverty falling and employment rates rising. The Work Programme will be devolved when current contracts end. Previous JRF evidence shows how, in other countries, prospects for those out of work for a long time have improved through better commissioning and accountability of local and regional employment services. Greater flexibility will be needed for those who face additional barriers to work, including fluctuating conditions and lack of adequate childcare, and better in-work support will be needed to support sustainable employment.
The flaw in the Smith report is the decision to leave conditionality rules with Westminster. These cover the range of carrots and sticks associated with participation. So, the Scottish Government will fund the Work Programme and be accountable for its performance, but providers will be expected to apply the UK sanctions system run by the Department for Work and Pensions. That’s a jagged edge that fails the JRF tests of alignment and incentives. It should be changed at the legislative stage.
On housing, Smith proposes devolving the power to vary housing costs in Universal Credit (UC), plus the ability to change frequency of UC payments, vary who receives UC in the household and pay landlords direct. Together with devolution of discretionary housing payments (DHPs), these changes address major concerns in the Scottish housing sector. Retaining the integrated nature of UC is an important feature of the plan. In time, rebates for a future alternative to Council Tax might be included as well. Increasing the supply of affordable housing should be the first priority when new borrowing and bond-issuing powers come into use.
Joint arrangements for development and delivery of UC will be established between Scottish and UK governments. There are no plans for other elements of UC to vary.
While substantial divergence at this point would be premature and expensive, there’s one very significant omission: support with childcare costs. Costs reflect a mix of public and private services, are high by international standards and rise much faster than inflation. A better approach to controlling costs, improving flexible supply and raising quality has to be embedded in any poverty reduction strategy. It’s remarkable that not a single mention of childcare is made in the Smith report. And yet, here’s a crystal-clear example where both closer alignment with the Scottish Government’s childcare offer and stronger incentives to invest more are needed. The answer should be to empower the Scottish Government to vary childcare allowances via UC, on the same basis as housing allowances. A more generous approach to childcare for low-income families is needed across the UK and Scotland could test out how to do that. The Commission appears to have ducked this challenge in the final stages of negotiation.
It may still be possible to pursue a social investment cycle, through support for childcare and skills, if the overall balance of rewards and risks is linked sufficiently to Scottish budget decisions. And the Commission offers the welcome power to design a coherent set of benefits and services for people who are disabled or sick. But as it stands, the Smith proposals land someway short of a great leap forward for poverty reduction in Scotland.
CBI proposals to improve living standards for low-income families are welcome, says Katie Schmuecker - but could employers be doing more?
“Improving lives by making growth work for everyone” is the strapline for a Confederation of British Industry (CBI) report published today, which also urges a focus on the lowest-income families whose living standards have been hardest hit. These are goals we would wholeheartedly agree with, and it is good to see one of the UK’s leading business organisations taking seriously the living standards of the UK’s low-paid workers. But how do their proposals stack up?
There are two recommendations that have stolen the media headlines:
1. Extending free childcare to all one and two year olds: this would help low-income families manage the extra costs that come with being a working parent, and tackle head on what is a barrier to work for some. However, as a universal measure it is an expensive way of helping the worse off; the tax credit (or, in time, Universal Credit) system would prove a more targeted approach.
2. Increasing the threshold at which employees start paying National Insurance contributions (NICs): while the income tax threshold has received a good deal of policy attention, the NICs threshold remains unmoved. As such, increasing the NICs threshold will certainly benefit low-paid employees more than further rises to the income tax threshold. However, as JRF has argued, attention needs to be paid to how the tax system and benefits system interact. At present, low-paid employees receiving Universal Credit will only get to keep around a third of the value of such a tax cut.
However, there is much more to the report than just these two recommendations. It also sets out ideas for tackling the education attainment gap; to boost productivity in order to increase pay; and helping people to progress to better-paid jobs.
Each of these goals will be good for individuals – providing routes to earning enough to lift themselves and their families out of poverty, and minimising the time spent stuck in low-paid work. Importantly, the report also notes that they will be good for business too.
The final area where the report makes recommendations is on how businesses can use their fringe benefit package to support employees to save for a rainy day. This is a good idea, but there is scope for greater ambition. Discount and voucher schemes, help with travel and childcare costs, sick pay and flexible working are all areas where employers could do more through their fringe benefit packages to support their low-income employees, according to JRF research.
But of course there is something of an elephant in the room here. The CBI is right to say rising productivity is the primary route to higher pay and improved living standards. Nonetheless, as part of Living Wage week it was announced there are now over 1,000 accredited Living Wage employers in the UK. This number has more than doubled in the last year, but are we really to believe that this is the extent of the employers that can afford to pay it? As well as being the public voice for businesses, I do hope the CBI is also privately challenging its members to go further.
Alan Milburn this week warned that the parties were failing to address poverty. With poverty on the political agenda, Helen Barnard assesses where their plans need to go further.
With an election looming, all the political parties are firing out policies and promises: competing to sound ‘tough’, ‘responsible’ and ‘fair’ and to show that they can improve Britain’s future prospects and restore the public finances.
Yet this weekend, Alan Milburn, who chairs the Government’s social mobility and child poverty commission, said that all of the main political parties are making too little effort to “to reconcile the social ends they say they want with the policy means to which each of them are committed”.
Any party interested in fairness should put poverty reduction at the heart of their manifestos. They all say how important it is to reduce poverty but none of them has put forward a convincing strategy to do so. The commission’s State of the Nation report gives a detailed analysis of the depth of this failure.
As Milburn outlines, there are serious flaws in the headline measures advocated by the different political parties. Raising the Personal Allowance for income tax is an incredibly expensive and inefficient way of helping low-income working households. Increasing the minimum wage is one step to improve the incomes of low-paid people, but the commitment made by Ed Miliband to raise it to £8 per hour actually implies a lower rate of rises between now and 2020 than we have seen in the last decade.
David Cameron has vowed to end youth unemployment by creating millions of new apprenticeships. Youth unemployment should definitely be a high priority for any new government – in 2003, 67 per cent of young people were in work; by 2013, only 58 per cent were. Apprenticeships are a vital route to better-quality, more stable work and should be expanded. But to pay for them, the Prime Minister is extending a policy with little basis in evidence – the household benefit cap – and trading it off against people on out-of-work benefits.
What all of the parties seem to miss is that tackling poverty takes more than isolated policies to boost pay, reduce tax or squeeze benefits. It requires an evidence-based, comprehensive anti-poverty strategy. Such a strategy should include action on four underlying issues:
- reducing living costs: for example increasing the amount of affordable housing and reducing childcare costs;
- improving the quality of jobs at the bottom of the labour market so that work becomes a more effective route out of poverty;
- reforming the benefits and tax credit system so that working more always leads to a higher income, and to provide a secure safety net for those who cannot work, those who move in and out of work and those who are not able to work sufficiently to support themselves;
- improving the prospects of the next generation by closing the educational attainment gap between richer and poorer children and helping families to give their children the support they need.
Any battle on the responsibility and fairness fronts should take heed of the high levels of poverty across the UK. In the last few months before the election, all of the parties should be focusing on putting forward a coherent, comprehensive strategy (something JRF is devising and will report back on next year), rather than aiming for quick headlines with short-term fixes that fall well short of what’s required.
Read more about Anti-poverty strategies for the UK.
Poverty costs us all – but with the right plan we can do something about it, says Chris Goulden.
Half of people in poverty now live in working households and one in five workers is low paid – much higher figures than in many other nations. Poverty prevents our economy from firing on all cylinders and is a waste of potential. It costs us all.
Even though a majority of the public think there is ‘quite a lot’ of poverty in the UK today, popular and media debates on poverty remain highly divisive, relying still on stereotypes of the deserving and undeserving poor.
At JRF, we want to make the case that poverty is real but that it is not inevitable. With the right plan and commitment, we can do something about the high rates of poverty in the UK. That’s why we are producing our own strategy to deal with poverty and have set out our early thinking in ‘A UK without poverty’. This draws on the evidence from 33 reviews of policy and research as well as a new definition of poverty.
JRF defines poverty as not being able to afford to meet your basic needs – and this includes taking part in society and customs such as buying birthday presents. This means there are two core answers to the problem of poverty:
- increasing people’s resources, or
- reducing the costs of meeting their basic needs.
This doesn’t mean ending poverty is simple. Action is needed in a huge range of areas – more than just reform of the tax and benefit system, but labour markets, the costs of essential goods and services, issues to do with where people live and the choices that they make.
Poverty is costly, wasteful and risky. It affects a child’s educational achievement and reduces earnings in later life, calculated to cost the UK economy £29 billion every year.
Paid employment needs to remain the primary route out of poverty but over half of households in poverty have someone working below the Living Wage. Job insecurity is a problem as well as low pay. Half of men making a new claim for Jobseeker’s Allowance have made another claim in the previous six months. No strategy on poverty can rely on work alone – the needs of those who cannot work due to disability or caring commitments need to be catered for too.
Previous strategies have failed to deliver, lacking both a vision of a country without poverty and a clear route map from where we are now to a better future. The role of evidence has not always been central. JRF aims to remedy these failings through a comprehensive approach that deals with:
- the nature of work at the bottom end of the labour market;
- the cost of living, markets for goods and services and their regulators;
- enabling people to reach their potential at school, at work and in their communities;
- enhancing the civil society and private institutions that are important in people’s lives;
- the choices that people make.
A poverty-free UK would not only be good for people who experience poverty; it would be good for everyone.
Read more about Anti-poverty strategies for the UK.
Whatever the outcome of Thursday’s independence referendum vote, Scotland must get to grips with high levels of poverty in the country, says Julia Unwin.
As campaigners from both sides have reminded us, this Thursday’s independence vote is one of historic importance. The campaign has energised political debate and the outcome must be grasped as a moment to bring about positive change for people and places in poverty. Almost a fifth of people live in poverty in Scotland, a level unacceptably high for a country of such wealth. Whether Scotland has full independence resulting from a ‘yes’ vote or new powers devolved from Westminster in the event of a no vote, it is clear there will be a new opportunity to tackle poverty.
It is one that is urgently needed and one policy makers and politicians on both sides of the debate must grasp. As JRF’s A UK without poverty outlined this week, if we don’t start doing something differently, one in three children and one in four working-age adults are forecast to be living below the poverty line by 2020. This is a waste of human potential, a strain on the public purse, and it means the economy does not function as well as it could – child poverty alone costs the country £29 billion a year.
JRF’s state of the nation report in January 2013 outlined the immense challenges facing Scotland in its battle with poverty: shocking health inequalities, youth unemployment and rising in-work poverty. The referendum debate has put a spotlight on the question of what kind of country Scotland wants to be. It has focussed on issues like child poverty, welfare reform and the spare room subsidy, or so-called ‘bedroom tax’ to critics. But we need a much richer and deeper debate about how to tackle poverty.
Whichever way it goes on Thursday, there will be a great deal of discussion around what sort of tax and benefits system Scotland should have in future, but this alone cannot reduce poverty - though it does play a vital part. Poverty reduction is not a job for government alone and centres around the kind of economy Scotland nurtures. Our businesses therefore have a vital role to play in providing well-paying, secure jobs, which offer genuine chances to progress and a lasting route out of poverty.
While Scotland has seen lower levels of poverty over the last decade, its record is under threat because of the rising cost of housing, particularly in the private rented sector. A failure to build enough homes at affordable prices has costs for us all: in the last five years alone, the number of private rented households needing housing benefit to help with their rent rose by 62 per cent.
Whatever happens on Thursday, these are the issues that must remain at the forefront of discussions about Scotland’s future. The realisation that change must happen has provoked a much-needed and long overdue debate about how this is achieved. But to think the outcome only has implications north of the border would be a mistake. Scotland should act as an example for what can be achieved with will and momentum – the rest of the UK must seize the initiative to tackle one of the biggest challenges facing the country.
There are real risks, as well as opportunities, for the North of England from further devolution. Northern cities can be the engine of growth that reduce poverty but regions need the tools to regenerate their communities and tackle poverty.
After Thursday, there is a golden opportunity for a more socially just settlement in Scotland and to refocus the prospects for people and places in poverty. Any devolution – to cities, regions and countries - will be judged by the impact it has on poverty. Everyone has their part to play. This opportunity must not go to waste.
Fifteen months after Council Tax Support was localised, new figures show that arrears have increased by 20 per cent.
The Department for Communities and Local Government’s new statistics on council tax collection in England – covering April 2013 to March 2014 – give us the first official data to assess the impacts of the localisation of Council Tax Support (CTS).
A headline finding was that while more than £1 billion extra was collected, in-year arrears increased by £145 million – up more than 20 per cent on the previous year.
Using data collected by NPI for JRF, we have linked these outcomes to the CTS scheme introduced by each council. The findings do not bode well for the future of localised CTS.
From April 2013, local councils across England were given the power to devise their own systems of CTS for working-age adults. This replaced the national system of Council Tax Benefit (CTB), which ensured that the poorest households did not have to pay council tax.
The change marked a historic move from a nationally devised system to one of 326 different local schemes in England. Alongside this restructuring, the money provided by central government to fund CTS was cut by 10 per cent. Each council became responsible for devising its own scheme within the reduced budget. The majority of councils chose to pass the cut on to CTS recipients, with the introduction of a ‘minimum payment’ – which requires everyone to pay at least some council tax regardless of income – being the most common approach to making up the funding shortfall.
The graph below classifies councils according to the size of the minimum payment each chose to impose – from zero at one end to above 20 per cent at the other, with 8.5 per cent included because it was the maximum a council could set last year and still be eligible for central government’s transitional grant. Each of these groups is then split according to the increase in arrears (between 10 and 25 per cent, 25 and 50 per cent, 50 and 100 per cent).
To see what the graph is showing take, for example, the 97 councils who had no minimum payment: 38 per cent of them saw arrears rise by between a tenth and a quarter, 10 per cent saw a rise of between a quarter and a half, while 5 per cent saw a bigger rise still. The other 48 per cent saw either a small rise or a fall. By contrast, arrears rose by at least a quarter for more than four fifths among the 43 councils with the largest minimum payments.
Proportion of councils where arrears increased between 2012/13 and 2013/14
The pattern here is very clear. Councils who chose not to introduce a minimum payment saw a smaller increase in arrears than those who opted for a minimum payment. The larger the minimum payment, the worse the picture becomes. This worsening is seen in both the proportion suffering a rise in arrears (the overall height of each bar) and the average size of the rise (how dark each bar is).
In April 2014, many of the local schemes changed again: 56 councils increased the minimum payment from the year before and a further 15 included one in their scheme design for the first time. In terms of the graph, councils in England are moving to the right. These changes have seen the number of families having to pay council tax for the first time increase by 110,000 to 2.34 million. The additional council tax paid compared to the former national system is also higher in the second year at £149, £10 more than in 2013/14.
While councils are collecting more council tax than a year ago, arrears are mounting. The further cuts to CTS made in April 2014, which are not reflected in this year’s data, are likely to see these figures worsen next year. Are we seeing are the beginnings of a trend that mirrors that of the Poll Tax, which resulted in growing arrears – and ultimately led to its abolition?
The worst may be yet to come for UK households in poverty – only a comprehensive strategy can close the gap between their needs and resources.
The official poverty statics were released this morning. Although levels of poverty remained relatively stable in 2012/13, there is good reason to believe this is the calm before the storm, not least because recently introduced benefit cuts are not reflected in the data.
According to the figures, the relative poverty rate remained stable at 21 per cent after housing costs, and average income looks to have levelled out after several years of real-term falls.
However, the aggregate figures hide differences between different types of households, with slight increases in absolute poverty rates after housing costs among couples with children and single parents, and slight falls among pensioner couples and couples without children. The figures also show almost two-thirds of children are still living in a household where someone works. So although – as the Government has pointed out – employment rates have increased among households with children, work still does not offer a guaranteed route out of poverty.
The fact that poverty has not shot up in these years of economic stagnation and austerity may surprise some. There are, however, two caveats to bear in mind when interpreting these figures:
- A number of benefit cuts introduced by the Government did not come into force until 2013, after the period covered by this data. For instance, the decision to limit benefits and tax credits increases to just 1 per cent a year wasn’t implemented until 2013/14. As a result of this and other benefit reforms, the Institute for Fiscal Studies has forecast that from 2013/14 we will see an increase in the number of households, both in work and out of work, experiencing poverty.
- The relative poverty rate is calculated in relation to median household income, which over the last several years has fallen substantively in real terms. This is why it is important to complement the official poverty statistics with other measures of living standards, such as JRF’s Minimum Income Standard, which measures what households need for a minimally accepted standard of living. According to JRF’s latest research, households on low incomes face an increasing gap between what they’ve got coming in, and what they need in order to maintain a socially accepted quality of life. This reveals a growing gulf between the cost of essentials and family incomes.
To tackle this growing disparity between the needs and resources of UK households, ambitious measures are needed to improve earnings among low-income households and ensure they can keep more of what they earn; to reduce the cost of essentials; and to ensure that those who cannot work or are unable to work sufficient hours are adequately supported by the state.
Only a comprehensive anti-poverty strategy, based on evidence and with clear targets and measures, can deliver such a change.
- Read more about Minimum Income Standards.
Setting a Living Wage target should give government a little more focus, drive and leadership, says Katie Schmuecker.
Set a target for one million more people to be paid the Living Wage by 2020 and come up with a sector-by-sector plan for delivering it. That is the strongest message coming out of the work of the Living Wage Commission, which published its final report today. This conclusion is important for two reasons:
- It represents the outcome of 12 months of deliberation by a diverse set of commissioners drawn from business, trades unions, academia and civil society. They agree that there is a powerful social, public finance and business case for paying the Living Wage, and action can and must be taken. Achieving this consensus among people with such disparate interests shows how well established the arguments for a Living Wage have become.
- The report is important because while it signs up to the idea that paying the Living Wage should remain voluntary, it doesn’t conclude that government therefore has no role. Indeed the reason the idea of a target is helpful is that it should serve to instil a little more focus, drive and leadership from government should they adopt it. This should extend not only to government’s role as an employer, but to its societal leadership role too. We have seen this in London in recent years, with the current mayor and his predecessor championing the Living Wage in the capital. It is perhaps no surprise then that there are more accredited Living Wage employers in London alone than in the rest of the English regions combined.
There may be some who are disappointed that the report doesn’t conclude business should be compelled to pay the Living Wage. But this seems like the right judgement for now, given that a sudden ratcheting up of wage rates would risk job losses in some sectors, and being out of work carries a much higher risk of poverty than being in low-paid work.
However, while the Living Wage should be a central plank of a strategy to address in-work poverty, there is a need to be clear eyed about what it can achieve. With 44 per cent of people in working poverty living in households where no one is being paid less than the Living Wage, it only provides part (albeit a significant part) of the answer.
Alongside making the case for business to increase wages there is a need to drive up firm productivity to enable more businesses to pay more, and improving the quality of work, so that low-paid jobs offer a stepping stone and not a dead end. That means secure work, with training and opportunities for progression.
Furthermore, after years of stagnant pay, high prices and eroded government support for low-income families, substantial ground needs to be recovered by families to once again achieve a minimum socially acceptable standard of living.
In this context, the role of the tax and benefit system will always be important in ensuring people have enough to make ends meet – but more on that next week when we publish the Minimum Income Standard for 2014.
The latest British Social Attitudes survey shows how important the public think it is to tackle poverty, says Helen Barnard.
This week we learned that the majority of the public believes that poverty is real, rising and that a democratic society should do something about it. They think that work is vital but not the whole answer, and that some groups need additional help from the state.
The 31st British Social Attitudes Survey was published this week. The last before the Scottish Referendum and next year’s UK election, it gives plenty of food for thought for politicians on both sides of the border. Here are eight of the key findings on poverty:
1. Over 60% of the British public believe there is poverty in the UK and that it has risen in the last 10 years.
2. 58% of people think it is extremely important that a democracy protects its citizens against poverty. That is considered more important than media freedom or political parties offering clear alternatives to one another.
3. Benefits are believed to be an important part of addressing poverty – for some groups – and are not seen as generous.
4. 56% of people do not think unemployment benefits are enough to live on when told how much they are (although this is down from 68% in 2000). JRF’s research shows that benefits for single unemployed people cover only 40% of what the public think is a minimum adequate income – and they have been losing value over time.
5. For unemployed people work is seen as the priority:
- 49% think that unemployment benefits should be cut.
- Over half think that unemployment benefits are too high and discourage work.
- Over half think that most unemployed people could find a job if they really wanted to.
6. But this survey and other research suggest that people also think that low-paid work doesn’t pay enough to live on. The survey report authors suggest this is why people believe that benefits which are too low to live on can still discourage work.
7. For some groups, there is strong support for increases in benefits:
- Carers (73%)
- Low-income working parents (59%)
- Disabled people (54%).
8. And more people say now than in 2011 that the Government should increase spending on welfare benefits for the poor, even if it means higher taxes (up from 28% to 36%).
I have just spent two days in a poverty-themed ‘Dragon’s Den’, debating which policies should make it into the JRF’s UK Anti-Poverty Strategy next year. Two recurring themes were the need to reduce living costs and improve the quality of work. Another was the importance of public attitudes. Hopefully this year’s survey suggests we are going in the right direction.
Higher wages and targeted support are the best way to ensure the worst-off people benefit from recovery, says Chris Goulden.
It’s almost exactly 11 months to the 2015 General Election. In that time, we’ll hear a lot about the parties’ main policy offers on tax cuts – whether further increases to the personal income tax allowance (Liberal Democrats and Conservatives), bolstering the marriage tax allowance (Conservatives) or reintroducing a 10p starting rate of income tax (Labour).
These are often presented as a way of helping low-income working families and are attractive fodder for manifestos. But new research by JRF lays bare their shortcomings. The trouble lies in their design, and a lack of joined-up thinking, rather than mean spiritedness.
The report looks at what it will take to make a working couple on low wages (earning around £335 each a week) £20 better off with two children. This would help them to have a decent standard of living and not have to choose between buying food and heating their home. But to make up this modest shortfall through income tax cuts, it would cost the Treasury between £8 billion and £11.5 billion a year.
If policy-makers wanted to be sure working families in receipt of in-work benefits received the full £20 in their pockets, the cost would be about three times higher. This is because support through Universal Credit for working households is withdrawn on an after-tax basis: for every £1 gained through a tax cut, a family will lose 65p immediately as the benefit is clawed back.
A better, more targeted approach could deliver the same impact at a hugely reduced cost to the Treasury – between £1 billion and £4 billion. So, allowing a couple to keep £31 more of what they earn before support is withdrawn would provide the £20 windfall, benefiting four million parents for a cost of £2 billion – much lower than tax cuts. Likewise, policies such as extra support towards childcare costs are welcome, but they need to sit alongside improved wages and take-home pay as a twin-track approach to improving household living standards.
Policy-makers need to take a more sophisticated look beyond income tax cuts to support families on the lowest incomes. At a time when public money is scarce, the simplest way of ensuring work pays is to increase the amount people can keep from their earnings before benefits are withdrawn – this should be done automatically by the same amount as any increase in tax allowances to ensure they don’t lose out.
Universal Credit, despite its problems, remains a once-in-a-generation opportunity to make a huge difference to those on the lowest incomes, but it must be joined up with income tax policy.
Otherwise, the options currently on the table could end up wasting taxpayers’ money, and worst of all, failing to help those in most need.