‘Fifth of UK population now in poverty’ read alarming headlines in December 2017. The Joseph Roundtree Foundation had released a report claiming that 14 million people in the UK were living in poverty and blaming a recent increase on changes in welfare policy.
Alarmist claims of Victorian conditions in Britain have been around for years, but is there any truth to these claims?
The definition of poverty is not settled science. The World Bank defines absolute poverty as spending of less than $1.90 per person per day, an obviously nonsensical figure in today’s Britain where that sum can’t even buy a cup of coffee – though the figure is adjusted for Purchasing Power Parity. About 10% of the world’s population lives below this $1.90 line. None of those 10% live in Britain – on these islands, being on even the most basic benefits will put you in the top 20% of global income. The UN defines absolute poverty as ‘the minimum set of resources a person needs to survive’, a reasonable measure but hard to quantify.
The sociologist Peter Townsend invented the concept of relative poverty in the 1970’s. According to Townsend, relative poverty means that a person can’t afford an ‘ordinary living pattern’: ‘Individuals, families and groups can be said to be in poverty when they lack the resources to obtain the types of diet, participate in the activities, and have the living conditions and amenities which are customary, or at least widely encouraged or approved, in the societies to which they belong’. In the UK we use two different definitions, referred to as ‘Low Income’. According to the Department for Work and Pensions, relative low income is income below 60% of the median in that year, whereas absolute low income is income below 60% of the (inflation-adjusted) median income in some base year, usually 2010/11. The threshold for absolute poverty is obviously still a relative measure, just not adjusted for changes in earnings.
According to the DWP, after housing cost (AHC), 22% of the population is indeed in relative poverty. This is the figure cited in the Rowntree report.
The question is, how relevant is relative poverty? Measuring poverty relatively means that if someone gets richer and thereby raises the median, more people drop below the poverty line – though their circumstances may be unchanged or even have improved slightly. During the financial crisis, as median income fell some people perversely rose out of poverty. This is not how poverty is normally understood. We can however quantify the measure: the Rowntree report shows the incomes (after housing costs and all taxes) corresponding to the 60% of median income:
Certainly, these are not amounts that affords someone a comfortable lifestyle, but does it justify the moniker ‘poor’? For some people, the answer might be ‘No’.
Obviously, income is not equivalent to wealth. Those with the lowest income may not be those with the lowest living standards. A couple with no children may have an income of less than £248 per week but live off savings and enjoy a reasonable standard of living. As a measure of poverty, just considering income leaves a lot to be desired.
The Rowntree Foundation has tried to measure what they call destitution, the inability to afford two or more of six essentials such as shelter, food and heating. In a 2016 report, they performed a census survey and found that in a typical week, 184,500 households were destitute and in contact with charitable organisations (thus being able to participate in the survey). Annually, 668,000 households containing 1,252,000 people were at some point destitute. If we accept this measure, one in 53 people, not one five, lived in poverty in the UK at some point during 2015. But this almost certainly underestimates the number, as only people in contact with charitable organisations were included in the survey.
It obviously seems relevant to also examine why those people ended up with no money left for essentials. For example, there are more than half a million students at higher education institutions in the UK; many of them may be amongst those struggling to pay for adequate footwear or toothpaste, while prioritizing social activities and the newest smartphone. Again, measuring poverty is not simple and cannot be boiled down to whether you have simultaneously run out of money and shampoo. The report has no answer to that, but it claims that 312,000 of those categorized as destitute were children. One would tend to believe that parents would prioritize essentials for their children before unnecessary luxuries. This subset – and their parents – may very well be people facing real hardship and destitution.
Poverty exists in the UK, but the alarmist headlines are wide of the mark. And framing the debate as the 1% against the rest or as poor versus rich is unhelpful and disregards the fact that most people move through income brackets through their lives (as we point out here). Poor students become rich CEOs. Well-to-do professionals retire. Poverty is often transitional. A society with high social mobility can afford to be less concerned about poverty.
The existential question must be this: why do we have poverty in a rich country like Britain? 75 years after the Beveridge report declared war on Want, Disease, Ignorance, Squalor and Idleness, the welfare state has seemingly failed to deliver on those lofty promises. Could it be that the model doesn’t work? Relying on the state to insure us against Beveridge’s ‘Giant Evils’ seems to fail the weakest amongst us, despite government now spending more than 40% of GDP. Why is there free access to museums but children going without food? Why did the NHS in 2013 spend £52.5m on breast enlargements, £8.5m on facelifts, £5.7m on ear pinning and another £10m on liposuction? Why do railway passengers enjoy a £10.7bn taxpayer subsidy? Was this Beveridge’s vision? Clientelism, cronyism and catering for special interest inevitably capture the welfare state, leaving those it was set up to serve no better off. The alternative seems clear: capitalism, though not offering any explicit promises, offers everybody the best chance of extricating themselves from poverty, should they be so unfortunate to end up in destitution. The economic growth, job creation and innovation that comes with capitalism and free enterprise is the best insurance against widespread poverty. It is not redistribution, but wealth creation, that has almost eradicated poverty in the Western world and is now busy doing it in the developing world.
The poor in Britain can, despite their misfortune, be thankful that they are poor in a society that has benefited from two centuries of economic growth under capitalism. Hardship undoubtedly exists in Britain today, but the scale and acuteness is not comparable to the extreme poverty we witness in countries that introduced capitalism and free trade much later, half-heartedly – or worse, not at all. The news is full of reports of malnutrition or even starvation in North Korea, Africa or Venezuela. Thankfully, in Britain even the poorest are just watching that on TV.