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Scrooge employers are Britain's real welfare cheats

A new report reveals pockets of extreme poverty among young working-age adults, including those who have jobs. Barbara Gunnell on how a low-wage economy punishes us all.

Barbara Gunnell
12 December 2011

Among the most disadvantaged groups in our society is one for which  there is no government strategy and very little public or media support. In its report on poverty and social exclusion published earlier this month, the Joseph Rowntree Foundation highlighted the relatively new deep poverty among working-age adults without dependent children. For younger working-age adults the poverty rate was even higher; 30 per cent of those aged 20-24 lived in poverty. Taking the age group 16-24 as a whole, more than two million lived in low-income households.  Of these, 1.1 million were not living with parents. Most were workless.

Monitoring poverty and social exclusion 2011 reports steady achievements over Labour’s 13 years in office from 1997-2010, in particular progress in child poverty and severe poverty among pensions. The report outlines the challenges for the Coalition in maintaining these advances in the current precarious economic environment.

The priority given by governments to child poverty and severe pensioner poverty is no surprise. Care for the vulnerable is widely perceived as the hallmark of a decent society; how a government treats the very young and the elderly has become the measure of a compassionate society. No Prime Minister could survive persistent press and television images of impoverished children and starving or freezing pensioners.

But the very final paragraph of Monitoring poverty and social exclusion talks of an “error” of the Labour years that, it claims, this Government appears to be repeating, one that could prove more disastrous than a mere PR failure. The report notes:

“There is a strategy for child poverty but not one for working-age adults… The rise in working-age poverty, among those in work and not in work, represents one of the previous government’s biggest failures. The lack of recognition of this problem is ... a major gap in the current Government’s programme.”

In Labour’s final year of office, child poverty had fallen to 29 per cent and pensioner poverty had almost halved to near its current figure of 16 per cent. But JRF’s report suggests that these two achievements have been at the expense of working-age adults without dependent children. One in five of this age group live in poverty - defined as an income of 60 per cent or less of the national median.  In hard cash (in 2010) that meant a single adult income of £124 a week, the lowest it has been since Labour’s 1997 victory. But in addition to the number affected, the depth of hardship is also of concern. More than half have incomes below 40 per cent of the median.


Lost generation

It is tempting to see the improvements for pensioners and the impoverishment of working-age single adults as further evidence of the much debated Clash of the Generations (as David Willetts calls it in his book The Pinch) or, as increasing numbers of younger men and women are expressing it, those “bloody baby boomers” pulling up the drawbridge as they squander the next generation’s wealth. The facts don’t completely support that. The poverty rate for 55-64 year olds is the same as that for the working age childless as a whole (20 per cent or one in five). They are, though, less likely to be poor than the under-24s. The greatest success in poverty reduction has been for pensioners aged 65-74 where the percentage in poverty fell from 25 per cent to 15 per cent. What this indicates, in the words of JRF, is that “the best hope of escaping poverty is to wait for state retirement age, an age which is set to rise steadily”.

All this adds to the dismal employment prospects of today’s young people and add to the grim picture painted by Ed Howker and Shiv Malik in their book the Jilted Generation, subtitled “How Britain bankrupted its youth”.

Soon after publication in November of unemployment figures showing that the number of those under-25 out of work had reached a million, the economist David Blanchflower asked the Prime Minister in the Guardian what he would to to prevent this 16-24 age group from becoming a “lost generation”.

Cameron replied: “As David [Blanchflower] knows, there is no simple answer. You’ve got to improve the quality of education so you don’t have children falling out of school at 16 without skills, you’ve got to have proper apprenticeships that take people from school into work, you’ve got to make sure that there are training programmes to help those who can’t find jobs. Youth unemployment went up in the years of economic growth as well as recession, so this is a deep underlying problem with the British economy that we have to solve.”


Scroungers?

It’s hard to disagree with the answer that we shouldn’t have children leaving school at 16 without skills or the prospect of proper apprenticeships and training. (But then why remove the Educational Maintenance Allowance?) And most commentators agree that there is a deep underlying problem with the British economy, though not necessarily with the Coalition’s assessment that this is entirely a problem of welfare dependence. Iain Duncan Smith made clear his view of the problem when he introduced his White Paper on welfare reforms attacking “the benefit culture” and the million children being brought up in houses with no parent in work. He promised “a regime of sanctions for those who refuse to play by the rules as well as targeted work activity for those who need to get used to the habits of work”. The thesis is clear: the jobs are there if only the scroungers could get up in the morning and learn how to write their CVs. When the government’s own austerity cuts are estimated to be putting some one and a half million people people out of work, it is hard to fathom where Cameron and Duncan Smith believe the jobs will be coming from. Nor how £18 billion worth of cuts can be introduced without extreme hardship in many parts of the economy.

“Work is ultimately the best route out of poverty”, Duncan Smith claimed in his White Paper delivery. But is this really so? Even if the government makes life on benefits really uncomfortable, those who “play by the rules” and take whatever work they are asked to, may not find themselves any better off at all.

There is one other arresting statistic in the Joseph Rowntree Foundation study. More than half the children currently living in poverty in Britain have parents who are in work: 57 per cent have parents with jobs, 43 per cent have parents out of work. In other words, the rhetoric of this government (in this respect, not so different from that of the last) about rewarding hard-working families is challenged by the facts. Those in low-paid jobs understand only too well that the national minimum wage delivers far less than the recognised minimum standard of living. The message to those on benefits is clear: “If you play by the rules you will live in poverty”. (How the definition of a minimum socially acceptable standard of living was reached is outlined  in an article by Donald Hirsch, an independent policy consultant, in July this year. Minimum wage rates as amended in October this year are set out here). 

Persistent poverty in the UK may be less to do with the welfare dependence of the poor than with the dependence of major employers on Britain’s low-wage economy. As Donald Hirsch wrote in July 2011: “Even single people are falling short on today’s wages. If they work full time on the minimum wage [since October £6.08 an hour], they don’t have enough even by the government’s standards, and get tax credit top-ups. This seems to tell employers that they don’t need to pay enough for people to live on, because the state will pick up the difference. This feels wrong, and a wage floor above £7 would give a different message. Then state subsidies to low earners could concentrate on the extra cost of feeding a family.”


Morally meaningful

A paper “Do tax credits really ‘make work pay’?” published in September by Hartley Dean and Gerry Mitchell of London School of Economics made a further point about wage top-up schemes. Their research concluded: “…  wage top-up schemes may not always be conducive to sustaining a morally meaningful work ethic among those workers who are systematically confined to the low-paid periphery of a polarised labour market. This suggests that while the proposed Universal Credit [introduced by Iain Duncan Smith], like the working tax credit before it, might assist in accommodating workers to a flexible and competitive low-wage labour market, there will still be circumstances in which workers may feel in various ways aggrieved. In some ways, because the Universal Credit will abolish the distinction between 'credits' for workers and 'benefits' for people out of work, we can foresee that some low paid workers may feel less good about having their wages topped up by the state."

The “welfare dependence” of some of Britain’s biggest employers is admirably monitored by Corporate Watch which recently chronicled the use of Job Centre supplied “volunteers” sent on work placements to stack shelves alongside paid workers, an example in practice, perhaps, of “targeted work activity” as described by Duncan Smith. It is difficult to see how this benefits anyone but Tesco shareholders. Since the company posted half-year profits of £1.9bn in August, it surely does not need the taxpayer to bear the costs of this free labour.  

I have been unable to find a reliable estimate of the welfare-dependance of Britain’s low-paying employers (I am sure they exist and openDemocracy Centrestage would welcome contributions on this) but the extent to which some companies depend on taxpayer-funded handouts is surely an area ripe for investigation. If the JRF report on poverty and exclusion is right that retirement is currently a surer safeguard against poverty than finding a job, that is, to use David Cameron’s words, “a deep underlying problem with the British economy that we have to solve”.

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