Poverty: The Poor are Still With Us

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Despite New Labour's claims social justice and the free market are unhappy bedfellows.

Tony Blair, in a speech at the end of last year, claimed to be 'proud' of the government's achievement in its 'crusade' against social exclusion. He may have hoped we would be dazzled enough to ignore the 'achievements' of his more bloody crusade in the Middle East, but even those who opposed the Iraq war have taken up the theme. Robin Cook, writing recently in the Guardian, breezed over the carnage in Iraq to play up New Labour's record in tackling poverty and social injustice. Polly Toynbee and Johann Hari are among the left-liberal newspaper columnists plugging the same message. Many readers will also be familiar with the exasperated Labour supporter claiming that, ignoring the 'war on terror', Blair has made things better for the poorest in Britain.

Relative poverty

What are his achievements, then? The government's Social Exclusion Unit has drawn up a list, which initially looks quite impressive: 700,000 fewer children in poverty; 1.85 million more people now in work; 70 percent reduction in rough sleeping; and 500,000 fewer pensioners in relative poverty. Unfortunately, none of these claims stands up well to scrutiny. On the same day the Social Exclusion Unit published its progress report, figures were released showing the numbers of those forced into emergency accommodation through homelessness hit a record high of 99,380 over three months in 2004. Rough sleeping may be reduced; homelessness has skyrocketed.

Or take poverty as a whole. John Hills and Kitty Stewart's recent book, A More Equal Society?, closely examines the government's record. They find that certain aspects of the worst forms of child poverty have been reduced under New Labour. Yet relative poverty in childless households reached record levels between 2002 and 2003, producing an overall rise in the total number of households in relative poverty, from 12 percent in 1997 to 13 percent in 2003 - a greater number than under Margaret Thatcher or John Major. The complexities of the schemes introduced to tackle child poverty have had some impact on some deprived households, though, it is becoming clear, not by nearly enough to meet the government's own targets.

Such targeting is central to New Labour's thinking. However awful they may get, they are not simply the Tories in drag - the claims made about social exclusion are not simply 'spin' on a disappointing record. Chunks of New Labour's supporters are prepared to overlook catastrophes like Iraq thanks to a belief that the government is working for social justice. Blair himself no doubt really thinks he is the prime minister of a 'progressive, reforming' government.

The core of New Labour's social policies draws on what was once called the 'Third Way' - the idea that support for the free market can sit alongside the desire for social justice. In office this has been boiled down to two main ingredients: the creation of highly specific programmes for specific groups, devised to blend into a generally laissez-faire approach everywhere else.

The flagship scheme in this approach has been the New Deal, the largest element of which is the New Deal for Young People (NDYP). This aims to reduce unemployment and improve the employability of 18 to 24 year olds, through a series of different stages. After six months on Jobseeker's Allowance claimants between 18 and 24 are put on the New Deal scheme, involving an initial period of significant pressure to find work, followed by either training or subsidised employment. Should a participant refuse to make this dubious choice, they will have their benefits cut off. We can see the Third Way logic at work: on one side, an apparent desire to assist the deserving poor; on the other, a desire to tie this assistance to the dictates of the labour market, through benefits sanctions and the compulsion applied.

The NDYP was introduced in 1998. By the Pre-Budget Report of autumn 2002 New Labour was claiming that 'more than 375,000 long-term unemployed 18 to 24 year olds have found jobs through the NDYP'. A more careful count over the same period, from a group of researchers at the Institute for Fiscal Studies, pointed out that many of those entering the New Deal would have found work anyway. Unemployment among 18 to 24 year olds has been declining since 1994, long before the New Deal's introduction. The IFS team estimated that only 17,000 genuine new jobs had been created, at a total running cost of £394 million over four years.

The Department for Work and Pensions' most recent study of the programme, covering 2003, suggests that only a third of those now entering the New Deal find work - not excluding those who would have found work without the programme. These aggregate figures say nothing about the kind of work being offered either. Some 40,000 18 to 24 year olds have now been through the entire New Deal scheme three or more times in just four years, strongly suggesting that the work found is insecure and inadequately paid. It is little wonder the government's own National Audit Office found the New Deal to be 'of limited value' in a highly critical report.

Similarly heralded is the government's national minimum wage scheme. This has been exhibited as a shining example of the Blair government's success. Before its introduction in 1999 the Low Pay Commission, charged with setting the minimum wage rate, predicted that nearly 2 million of the lowest paid workers in Britain would receive average pay increases of 30 percent.

When introduced at just £3.60 per hour, the initiative was widely derided, with the minimum set so low as to have little impact. Nearly five years on, at just £4.85 per hour, the national minimum wage is still unforgivably low: the EU, for example, recommends a 'minimum decency threshold' wage for Britain at £7 per hour. By setting the minimum wage so abysmally low, the Low Pay Commission specifically hoped to affect the labour market as little as possible, while also hoping - as if by magic - to bring about significant increases in the lowest incomes. 'Minimum Wage, Minimum Impact', a study by researchers from the Centre for Economic Performance, demonstrates how futile this hope was. It concludes that somewhere between 500,000 and 800,000 adult workers received a pay rise as a result of the national minimum wage. Although they give no figures for the average pay rise, the figures they present on the employment impact of the minimum wage imply that it was unlikely to be have been significant.

Kowtowing to the market

The New Labour approach has little to recommend it on this showing. When simple schemes like the minimum wage are crippled by kowtowing to the market, the results are disappointing. The attempt to slide socially desirable outcomes under the nose of the free market does not work, even on New Labour's terms. But it is when we look at the wider picture of inequality in Britain that failures of this government become clearer.

Britain is now a significantly more unequal society than it was in 1997. The gap in incomes between rich and poor had actually reduced under John Major's Conservative government. According to Hills and Stewart, recent years have seen the gap in incomes between the very richest and the very poorest widen most of all. Similarly, the latest estimates we have, from the Institute of Public Policy Research, suggest the richest 10 percent in Britain own 54 percent of national wealth, up from 47 percent under Major. Those at the very top, the richest 1 percent, have seen their share of wealth rise even faster, from 17 percent to 23 percent over roughly the same period. For comparison, the bottom 50 percent now own only 7 percent of Britain's resources.

These are damning figures. They tell us that a redistribution of wealth has taken place under Blair - in the wrong direction. Economic growth over the last few years has disproportionately benefited the rich. When placed against the limited achievements of New Labour's efforts in reducing the worst forms of poverty, this demonstrates just how inadequate the government's entire approach has been. The strategy of selective targets and tiptoeing round the markets does not produce the goods. Even the minimal standards the government has set itself are set to be overwhelmed by pressures from the free market towards increasing inequalities.

A modest proposal for more effective reform was made recently by the Joseph Rowntree Foundation. If the British economy grows at the same rate for the next 20 years as it has for the previous 20, it estimates £500 billion will be added to national income. The foundation claims that it would cost £25 billion to move 10 million people clear of poverty over the same period - a fraction of the total increase.

A very limited amount of redistribution could achieve this, but New Labour has demonstrated very well how much it is set against such measures. It would prefer at best to tinker, somewhat impotently, while allowing the richest in society to hoard the benefits of economic growth. The crucial point in the Rowntree survey is that targeted measures are meaningless without a wider economic goal to deal with inequalities: effective redistribution of wealth would do more to lift people out of poverty than over-complex targeting crippled by market pressures. A meaningful minimum wage, reinforced by progressive taxation on high earners, could be a start. Raising Britain's low rates of corporation and capital gains taxes to pay for improved public services would be another. The major aim should be to tackle and restrain market forces, not bow down to them, as part of a strategy to seriously reduce inequalities of wealth and incomes. All of this is anathema to New Labour, but can form part of a credible socialist alternative.