Tackling poverty requires a radically different economic model
Repairing the frayed social safety net is a moral, political and policy priority, but we must look deeper to identify and tackle the root causes of poverty in Britain
This guest post is written by Stewart Lansley, a visiting fellow at the University of Bristol, and the author of The Richer, The Poorer: How Britain Enriched the Few and Failed the Poor, a 200 year history, and Paying for a Decade of National Renewal (Compass).
Poverty is finally rising up the political agenda. With 4.5 million children (almost a third of all children under the UK) living in poverty, and rising at the rate of 60,000 a year, pressure is mounting on Labour. Campaigners are calling for an end to the benefit cap imposed since 2017 on families with more than two children, and for the government to drop plans for cuts to disability payments. Yet desirable as these U-turns would be, their effect would be limited: cutting child poverty by around half a million. Twenty-eight per cent of children would remain poor, more than double the proportion of children living in poverty in the 1970s.
A more substantial assault on poverty requires a fundamental overhaul of the British economy, of how rewards are shared and resources are allocated. The current economic model imposes downward pressure on low incomes and upward pressure on high incomes. The poorest fifth of households receive 7% of the nation’s aggregate income (after taxes and benefits). In contrast, the top fifth receive 41%. Meanwhile, the top tenth own at least 45% of all wealth. The proposed benefit reforms would make little difference to this gap.
Britain has been a high-poverty, high-inequality nation for most of its history, the one exception being the short-lived period of post-war egalitarianism. The rise in poverty since the 1970s has been driven by a hike in top fortunes, engineered at the expense of stagnant and falling living standards for a significant part of the population. For centuries economic power in Britain was held by a tiny elite of landowners, merchants and financiers. Spread more evenly after the war, that power has been recaptured by today’s billionaire class, with towering fortunes achieved through a range of predatory business methods. Companies have been turned into cash cows for owners through the ‘skimming’ of gains from economic activity at the cost of weakened social and economic resilience.
Britain’s built-in bias to inequality and poverty, geared to the enrichment of the few, is not just bad news for social progress. With resources steered into high-return, but often unproductive and growth-sapping activity, it is also the principal explanation for the stifling of economic progress.
In 1759, the patron saint of economics, Adam Smith, warned of how the rich and powerful could rig economies against the rest of society. Two centuries later, the American Nobel Laureate Simon Kuznets, the pioneer of the system of national accounting, distinguished between ‘good’ activity that benefits society and ‘bad’ that doesn’t. “The test of our progress is not whether we add more to the abundance of those who have much,” declared the American President Franklin D. Roosevelt in 1936, “it is whether we provide enough for those who have too little”.
These warnings were heeded in the early post-war decades, but have since been ignored. Instead, a toxic mix of extreme inequality and an over-reliance on private markets has delivered a hike in activity that serves little social purpose. Scarce land and building resources are used to construct walls of multi-million pound luxury flats and mansions, mostly bought for speculative purposes and left empty, by the mobile super-rich.
Britain is one of the highest users of private jets, contributing a fifth of related emissions across Europe. It hosts vast and lucrative industries, from tax avoidance to lobbying, whose sole purpose is to serve the interests of the super-wealthy, such as the ‘reputation professionals’ who are paid to protect the public image of the rich and famous.
The result of over-consumption by the rich and under-consumption of the everyday goods that sustain decent opportunities has been an intensified ‘paradox of plenty’. Britain’s capacity to meet essential needs - from children’s services to social and health care and adequate social housing - has faltered. Hence the rising social crises of the last decade and the juxtaposition of enfeebled public services, growing levels of impoverishment, and high levels of super-luxury consumption.
Take the scale of Britain’s ‘poverty gap’. This is the amount by which households fall below the poverty line. The current gap is around 30%. This is equivalent to an average shortfall of £6,200 a year for a couple with two children. This gap - which stood at around 23% in the 1990s - is a stark indicator of the inadequate share of national income and wealth enjoyed by those on the lowest incomes.
Rising and deepening poverty has causes that go far beyond a simple lack of resources. Its roots lie in a mix of regressive taxes, over-privatisation, excessive reliance on markets, and growing monopolisation. Together, these have transferred power over land, workers and financial resources to global asset behemoths, corporate boardrooms, bankers and an increasingly wealthy billionaire class.
A fair and strong society depends on a decent social security system. But without an economy geared to fairer rewards for all and growth that meets social priorities, Britain will stay at the top end of the poverty league tables.
This guest post is written by Stewart Lansley, a visiting fellow at the University of Bristol, and the author of The Richer, The Poorer: How Britain Enriched the Few and Failed the Poor, a 200 year history, and Paying for a Decade of National Renewal (Compass).