Tuesday, April 22, 2008

What lies beneath

Greg Clark, Tory front-bencher, says that “tax credits are masking the extent of underlying poverty in Britain today”.

This concept of underlying poverty he defines as covering those people “who either are in poverty or would be without tax credits”. Hmm. So that’s those people who are in poverty plus some of those who aren’t but would be if not for a particular government policy.

But why, among all government policies, just tax credits? Why not child benefit and jobseeker’s allowance too? I bet they’re masking some poverty. Or the minimum wage? There must be plenty of poverty underlying that. Or the Sure Start childcare provision that allows parents the chance to go out and earn money? Or state education? That must help a few people get decent jobs who otherwise wouldn’t. Or Bank of England independence? Without that, the economy would have done less well these last ten years…

It’s almost as if Clark has it in for tax credits. Although he swears he doesn’t:

Let's be clear: tax credits are an essential part of a modern welfare policy, because it is obviously better to increase someone's income in work than to see them either in poverty or out of work.

But there’s a but:

But, surely, something has gone badly wrong with our economy - and our society - when more and more people every year are unable to earn enough to keep themselves and their families off the breadline.

By “unable to earn enough” he really means “unable to earn enough in the absence of certain government policies, namely tax credits”. Has something gone wrong with our economy – and our society – if this is true?

Well, that’s two questions. The point of the economy is to… actually, there isn’t a point to the economy. It’s the aggregate of the buying, selling, working, hiring, producing, consuming and other such activities that we all carry out. We carry these out to advance our own interests. If the untrammeled workings of the market would leave some people badly off, that’s no fault of the economy per se.

But most of us don’t want an economy with no government intervention. We expect our governments to do just that, in various ways and to various extents. Our society thus affects the working of the economy. One of the key reasons it does this is to ensure that those who’d lose out from laissez-faire are in a better position. There are many ways of doing this.

Clark mentions skills, and of course the government can make itself useful there. But there will always be a lot of low-skilled jobs. For every office block full of well-educated professionals, you’ll need catering and cleaning staff. If we want these people to be able to keep their families off the breadline, then we can’t imagine that the free market will do that. Society – via government – will have to compel employers to pay them more or will have to add to their wages directly. Or both.

As we do.

‘Underlying poverty’? The notion seems to treat anything achieved by government as somehow illegitimate and even unreal. Perhaps we should also have figures for underlying crime (counting those that would be committed if there were no prisons), underlying child mortality (including those deaths that the NHS prevents) and underlying school league tables (showing what exam results would be if schools stopped getting public funding).

5 comments:

Cassilis said...

“The notion seems to treat anything achieved by government as somehow illegitimate and even unreal”

Not sure that’s fair – the point is outcomes achieved as a direct result of government intervention or policy can be transitory or at the mercy of a future government with different ideological leanings. To use a flawed medical metaphor they treat the symptom rather than the cause. Even the progressive left would surely concede it's better to address this structurally rather than superficially at the back end?

As the quote Greg uses from Milburn illustrates tax credits “cushion the blow of poverty, rather than help people escape from it” and there’s a very strong argument, even from a progressive standpoint, that it’s far better to help people address these issues themselves than simply cover them up by creating a government dependency on extra income via a complex and expensive tax credit system.

Brown understands this when he talks about third world aid and the need to create self-sufficiency in Africa - he just seems a little less keen on the concept in Aberdeen. As I’ve pointed out at my place today it shouldn’t be beyond the talents of the Treasury to let more low-paid employees keep more of their own income in the first place rather than have to jump through government hoops to get it back.

Tom Freeman said...

“outcomes achieved as a direct result of government intervention or policy can be transitory or at the mercy of a future government with different ideological leanings”

Yes, but that’s the sort of argument that might be made be a Labourite worried that the Conservatives would dismantle all this government’s wonderful work! If Clark, Cameron et al are as anti-poverty as they say, then this ceases to be much of a worry. (The argument can also be made for any policy at all, including those relating to skills, competitiveness, productivity, etc.)

I would love for the market to work in a way that made everybody comfortably off and government redistribuition redundant. But I don’t think there’s any plausible structure for an economy that will do this. Certainly, structural changes can be made in this direction (the economy’s structure changes of its own accord all the time anyway). But I can’t conceive that this would ever be enough, so direct government intervention will be needed to make up the difference.

On your own post, I agree that there’s a real perversity to the idea that intricate fixes should be set up to target all the different people losing out from the 10p abolition. Targeting only really makes practical sense when you’re being fairly specific. But then, income tax cuts (whether by bringing the band back or by raising thresholds) will benefit almost all taxpayers, costing a lot – so tax rises for those higher up the scale would then be needed.

I’m very glad I’m not in charge of getting them – fiscally or politically – out of this particular mess.

Cassilis said...

"I would love for the market to work in a way that made everybody comfortably off and government redistribuition redundant. But I don’t think there’s any plausible structure for an economy that will do this"

In very (very!) broad historical terms there is a market structure that does this and it's one the left spent c.75 years trying to restrain, control and circumvent - capitalism. By 'broad & historical' of course I mean globally and over the last 150/200 years - encouraging self-sufficiency and the pursuit of self-interest has, as Smith predicted, massively increased the well-being of billions of people.

Now, it’s far from perfect of course - thank God for the labour movement and the sensible left for recognising the merits of the market but addressing the many abuses and failings that come with it – I’m no free-trade absolutist in that sense. In the here and now there will always be issues governments need to (and should) intervene in and as a wealthy developed country you could argue that we’re at the point were further social advance HAS to be government led rather than laissez-faire.

I guess my point is given the broad historical truths in that first paragraph I’d prefer a government that valued self-sufficiency, actively sought to give citizens the means to provide for themselves with as little state support as necessary and only stepped in when it was clear that the system was failing the genuinely needy and unfortunate. I suspect (cue sweeping generalisation) that many on the left have little or no interest in these distinctions and are only interested in the outcomes with little regard for the long term implication of how they’re achieved (which in a sense was the point of your original post) – “Tax credits, a job, what’s the difference as long as they eat…?” I’ll refrain from the emotive language of client states etc. but that’s a dangerous line of thinking.

But that’s probably just a very long-winded way of saying I’m a liberal small ‘c’ conservative…..

Tom Freeman said...

"I’d prefer a government that valued self-sufficiency, actively sought to give citizens the means to provide for themselves with as little state support as necessary and only stepped in when it was clear that the system was failing the genuinely needy and unfortunate"

I may surprise you slightly by agreeing with this entirely - although we differ (as do you and the govt) on the extent to which the unfettered system does fail in this respect.

Money's far from being the only good. I was on JSA for a few months some years back and the experience of going in to claim was deeply upleasant; it would have been no less so had the money been more.

If a materially equivalent outcome to benefit receipt can be achieved by earning one's own money, then I prefer that for sure. But I find that a significant 'if'.

And to counter your 'many on the left' (there's some truth there), I'd note that many on the right are primarily interested in cutting welfare spending with little serious regard for whether the market and self-sufficiency really can provide everyone with decent living standards.

Don said...

I'd like to see people like Greg Clark be brave enough to make some clear suggestions. The absence of any certainly leads me to believe he has about as much ideas of what to do as the rest of us.

Certainly there is a role for the govt in society, the question is how much they get involved. And even the best govt legislation at time of introduction can be rendered totally worthless and outdated within a couple of years due to broad societal and economic trends.