The autumn statement will be on Wednesday. The economy faces three problems: inflation is still above the 2% target, economic growth is too low and forecast by the Bank of England to be zero next year, and unemployment is rising. Inflation was 4.6% in October, and unemployment rose by 159,000 in September to 1.464 million, an increase of 0.5% to 4.3%.
It was announced in September that borrowing was £11.3 billion less than forecast in March. Some are forecasting that the Chancellor of the Exchequer will have £15bn ‘headroom’ instead of his forecast of £6.5bn.
The most important task for the Chancellor is to get some economic growth for next year without stimulating inflation and stopping the Bank of England increasing the bank rate.
His first task is to address inflation and the cost-of-living crisis. He needs to keep making cost-of-living payments. Last year Jeremy Hunt announced those on benefits would receive £900 extra in cost-of-living payments, but it seems likely that the final £299 payment will be made after March 2024. To ensure that people on benefits receive £600 next tax year there needs to be a second payment of £301 in autumn next year. The other cost-of-living payments to disabled people and pensioners should be continued for 2024.
Universal Credit is due to increase by 6.7% to £5.70 a week for a single person, and £7.09 for a couple. The £20 a week temporary increase to Universal Credit should be restored on top of these increases and these amounts be applied to the legacy benefits. The new rates would be £110.79 a week for a single person, and £132.90 for a couple.
To stop the forecast 5% increase from 1st January to energy prices, the Chancellor should lower the energy price guarantee (currently £3000) to the current energy price cap of £1834 and set a higher one for the rest of 2024 of £1870, as well as providing the same price guarantees for non-domestic customers. He should bring in a price cap for petrol of £1.54 per litre for unleaded and £1.60 for diesel until the end of the financial year, then £1.57 and £1.62 for the rest of 2024, by varying the duty on petrol.
As well as these measures to help people he should reduce the 20% VAT rate by 2.5% from 1st January until at least April 2025, which should reduce inflation by 1.5% because not everything is subject to VAT. This should mean that by the end of 2024 inflation should be below 2%. But this would cost £19.6 billion and so some other taxes would need to be increased. Such as introducing a new income tax rate of 2% for those earning over £38,000pa and increasing the higher and additional rates by 2%,which raises about £8.7bn; increasing corporation tax by 2% raising another £4.2bn; and increasing the capital gains tax rates by 4% to raise another £3 to £6 billion. That only leaves between £3.7 billion and £700 million not covered. This is a very small stimulus £3.7 billion is about 0.142% of the economy.
To help those on below average wages and to mitigate the 2% increase for those earning over £38,000 the Chancellor should increase the personal allowance by £230, which would cost about £1.5bn.
Turning to other measures to stimulate the economy, he should allocate regional support according to the number unemployed in each region, of £76 million for the north-east, £1.98bn for the north-west, £1.58bn for the West Midlands, £1.62bn for the east, £1.32bn for the East Midlands, £1.26bn for London and £1.48bn for Scotland, totally £10bn.
Michael Gove’s Levelling-up Department handed back £1.9bn – including £255m meant to fund new affordable housing in 2022-23 – because it struggled to find projects to spend it on. Therefore Jeremy Hunt should allocate this £1.9bn for councils to apply for, to assist them in getting loans to build more council homes.
To help people into employment he should allocate £3 billion to fund employment training schemes and job guarantee schemes to assist the unemployed and those with health issues who wish to return to work.
To reduce the NHS waiting lists, and enable these people to return to work, the Chancellor should allocate £8bn extra to the NHS for 2024-25. The NHS requested £1bn to pay for the cost of the industrial actions this year, so he should give it to them plus another £800 million to spend before the start of the next tax year.
The GDP was about £2,605bn in June 2023. So excluding the costs of the energy price guarantee and petrol price caps these measures would only stimulate the economy by less than 1.3% next year.
* Michael Berwick-Gooding is a Liberal Democrat member in Basingstoke and has held various party positions at local, regional and English Party level. He posts comments as Michael BG.
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>” economic growth is too low”
And has been low for decades, hidden by the economic activity caused by mass immigration.
Moving to a low carbon society and economy will mean negative traditional GDP growth, as for example: we destroy the ICE supply chain with the much simpler and smaller EV supply chain, more people work from home rather than (wastefully) commute reducing fuel consumption,train travel and need for large offices.
In this context GDP is a very poor measure of economic growth, with lockdown giving an indication of the order as GDP ‘economic activity” was down but manufacturing productivity stayed high.
The problem is GDP includes stuff a business would regard as wasteful activities. Perhaps what we need to do is move economics away from traditional textbook definitions to definitions that actually reflect and measure real world economic activity going forward.
Reducing VAT etc. will have little real effect, preventing utilities, mobile providers etc. from doing inflation plus x price increases, just because that’s what’s they’ve always done, will actually achieve more.
>” Inflation was 4.6% in October”
By the Bank of Englands own admission, 80% of inflation is beyond their influence, so the inflation rate the BoE can influence is currently around .92% …
The idea of having a cap on petrol and diesel prices, financed by reducing excise duty if necessary, surely works against our climate goals. Higher prices at the pumps helps make public transport relatively more attractive and encourages motorist to drive less. Are these objectives not Liberal Democrat priorities?
As an aside, I would welcome directing available money towards helping the lowest paid by raising the personal allowance.
If only he would listen, Michael! But as we know, the benefits level remains far too low, while the Chancellor apparently thinks about how he can help the rich a bit more. It was good at least to see our party asking in an amendment to the King’s Speech why there was nothing said about the standard of living. Reported in The Times on November 9, ‘British workers are on course to miss out on £17,000 from lost growth in real pay by the end of this year, economists are forecasting.’ The prediction is apparently reinforcing a report by the National Institute of Economic and Social Research that estimated ‘the real incomes of the UK’s poorest will take until the end of 2026 to recover to their pre-pandemic levels’. But we don’t need to compare predictions – that we are worse off is obvious to most of us ordinary people.
A good way to boost productivity would be to introduce the old Liberal Party policy of partnership at work.
If people felt they had a stake in the company and would benefit from its success they would be a lot more motivated in their jobs.
The Tories aren’t going to go down this route but the Liberal Democrats should.
Rather than economic growth- just getting bigger, we need to be thinking in terms of economic development, just as Vince Cable indicated recently with a considered industrial strategy to improve living conditions for all.
Sorry about the mistake in the seventh paragraph “of 2%” should be “of 22% an increase of 2%”.
Roland,
Indeed, the Bank of England has little it can do to reduce inflation. What it has done is reduce economic growth to zero next year.
I wish you had not written ICE and EV, but had written internal combustion engines and electric vehicle. Next year we will not have moved from the ICE supply chain to the smaller EV supply chain. Until a new generally accepted measurement of economic activity arrives we need to continue to use GDP.
Mary Fulton,
The problem with the government increasing the duty on petrol is that it increases inflation and it effects those who are living at the limit of their income and so have to make cuts elsewhere to afford the more expensive petrol. Instead of making petrol more expensive public transport should be made cheaper. To encourage people to buy electric cars the price of them needs to be subsidized. Our environmental policies are more liberal now with a move away from the stick towards the carrot.
My proposed increase to the personal allowance only makes everyone £46 a year better off, which is not much. But if the personal allowance was increased by 6.36% this would cost £5.2 billion and would mean everyone earning above £13,370 would be £160 a year better off. If this was done then the 2 pence increase in rate would only affect people earning over £46,000.
This article is about addressing the economic situation and not about other matters which could be covered, such as reducing inequality more and other things which can be financed by new or reforming or increasing taxes.
Katharine,
Jeremy Hunt will not be taking my advice. Indeed, most people are worse off under this government.
David Warren,
Indeed, having workers owning part of the company where they work would make workers feel that they had more of a stake in their company because they would. And it is a good old Liberal Party policy, but not something which would stimulate the economy.
Christopher Haigh,
We passed an industrial strategy at our recent conference in Bournemouth to unlock investment, support manufacturing and SMEs and create ‘Catapult’ centres. My proposals build on this by allocating £10bn to 7 of the 12 regions and nations of the UK for investment, which I see as assisting businesses to setup or expand in those regions or nations. I would like to see banks investing in businesses much more and some of this might need the government to get involved.
@Michael BG – “ Until a new generally accepted measurement of economic activity arrives we need to continue to use GDP.”
Don’t expect economists to volunteer, they are too busy repeating the mantras from their (now ancient) economics O-level textbooks…
We need to use every opportunity to tell them their kit of economic measures aren’t fit for the world we are now living in. For example, as GDP is currently defined, a society based wholly on travelling between A and B, drinking fancy coffee could have a massive GDP, but no way of actually paying for the import of fuel and coffee beans…
The small increment in the personal allowance (i.e. raising the threshold at which both income tax and national insurance kicks in) is too insignificant to help anyone, in fact it would be highly insulting. What is required is an increase significantly above the September rate of inflation (8.7%), in line with the proposed increase in state pensions and (hopefully) welfare benefits; this would proportionally help those on the lowest incomes and would in particular assist the estimated 2.2 million who have become liable to pay income tax and N.I. due solely to their income increases in recent years. While this would admittedly be expensive, it would be much more productive than any reduction in the percentage rate of income tax, a retrogressive step which would again see the benefit going primarily to those on higher incomes.
Of course, bringing in a proper system of Universal Basic Income to replace much of the confusing mix of welfare benefits, state pensions and assorted grants would improve matters much better, but this is clearly a long way off.
There’s nothing wrong with GDP as a concept per se. It and its limitations do need to be understood in its correct context. It is essentially a total of all the financial transactions both real and deemed in the economy.
One surprise might be the imputed rent that homeowners are deemed pay themselves on their own property. I’m not sure how far this concept is applied. If we own a car, for example, does that mean we have an imputed rental income on it?
@Michael B G Partnership at work would boost productivity therefore helping the economy.
Peter Martin, chasing the illusion of economic growth the measurement of GDP is just a completely out of date concept in the modern era of climate change, population migration and catastrophic warring.
@Peter – I agree however, as you clearly describe, GDP = “ total of all the financial transactions” which is totally different to economic growth (which is also different to economic development as noted by Christopher).
In the 90’s with the increasing use of computers to speed up financial transactions, as expected by some, we saw an increase in GDP, because financial transactions speeded up and so monies could more quickly flow around the economy. In business this would be labelled a margin improvement. Brown spotted this and put a transaction tax on financial transactions, ensuring the government benefited from this efficiency gain.
So by focusing on GDP we’ve become obsessed with illusory growth rather than real growth; it is notable that no economist has raised their hand to say the use of GDP = economic growth is incorrect…
So what should we be measuring the growth of? National wealth?
@Roland: I think you’ll find economists are perfectly well aware of the limitations of GDP, and unless you’re trained economist yourself, I’d hesitate to start lecturing them about their expertise. GDP is in fact a good measure of economic activity, which usually correlates well with material standard of living – the problem is that it doesn’t measure the extent to which that economic activity enhances people’s lives or what quality of life people have. That is more subjective and harder to measure – although arguably it would be good to put more effort into attempting to measure that.
@Michael Some interesting ideas, but I’m somewhat baffled by your assertion that “This article is about addressing the economic situation and not about other matters which could be covered, such as reducing inequality“, since a lot of what you’re proposing is primarily redistributive and so hard to interpret as anything other than an attempt to reduce inequality.
Our economic situation is that the UK sadly does not have the infrastructure and is not producing the wealth necessary to give people the standard of living and lifestyle that we would like people to have, and I’d expect something focused on our economic situation to primarily contain proposals to address that. I’d also point out that increasing corporation tax will hit many small businesses and is likely to add to inflation: You can’t just treat businesses like a free cash cow and not expect that to impact the economy! And I agree with @Mary Fulton that we should not be trying to make motoring cheaper when we so badly need to encourage people to drive less and walk/cycle/use public transport more.
@Simon R. You write that ‘the UK is not producing the wealth necessary to give people the standard of living and lifestyle that we would like people to have.’ I suggest that there is wealth enough being generated, but it tends to flow into the coffers of individuals and companies already well off instead of being more fairly shared. For example, to give large bonuses to Chief Executives of water companies such as United Utilities which have been allowing massive amounts of sewage to flow into our rivers.
@ Rik Winfield. I agree with your comment, Rik, except for the last paragraph. Universal Basic Income is unfortunately too often confused with the policy of Guaranteed Basic Income, which our party decided to support at the York Spring Conference, and which is absolutely possible, being based on increases in Universal Credit. As Michael BG explained in an article printed here on October 6, entitled ‘Ending deep poverty by April 2029’, its objectives could be achieved within this decade, and we will try and persuade the next government to bring it in.
The Joseph Rowntree Foundation have produced a good pre-budget report focused on the cost of living crisis and highlighting the impact of inflation in eroding the purchasing power of wages and benefits Autumn statement 2023: Addressing an evolving crisis.
Rif Winfield,
Inflation was 6.7% in September not 8.7%. Indeed, increasing the allowance and threshold are better than reducing the rate, because everyone earning about the new level receives the same. As I have pointed out an increase of 6.36% to the personal allowance would cost £5.2 billion. Increasing the National Insurance threshold to the same level would cost about £4.5 billion. Would you do this in addition to my expenditure suggestions? If so it would cost another £8.2 billion. It would stimulate demand across the whole of the UK while my targeted support stimulates demand in the seven regions with the highest levels of unemployment. Of course it could be funded by restoring an investment income surcharge at the rate of 7.5% which according to Richard Murphy would raise about £9 billion.
For the poorest in society I have proposed increasing benefits. The Low Pay Commission has recommended an increase of 9.8% to the National Living Wage and higher increases to these under 21. For someone paying National Insurance and Income Tax this works out as an increase of 6.66%. With my small increase to personal allowances this is increased to 9.27%.
A proper system of UBI is very expensive if it is going to replace the current welfare benefits, which is why our policy is a Guaranteed Basic Income. I can’t see any point in replacing pensions with a UBI but relating the amount of pension to a person’s NI payment years could be abolished.
Christopher Haigh,
Until AI do most of the jobs in the economy and most people receive their income from the state GDP will be important to increase because when it isn’t increasing unemployment is. It is not a choice between GDP and green policies to save the planet.
Simon R,
I do accept that increasing Universal Credit and the legacy benefits by £20 a week above inflation does reduce inequality, but I see it as giving back to those on benefits what the Conservatives took away.
Corporation Tax is paid on profits and so I do not consider it inflationary.
The government has announced that the spending on HS2 would be used for infrastructure, so I am not sure how much more can be allocated to infrastructure. The primary focus of my proposals was to stimulate the economy in the areas with the worse rates of unemployment, provide training and work experience to the unemployed to make them more employable and to return some of those waiting for a NHS operation to the labour market. I am proposing doing this while reducing inflation and not providing any inflationary pressures in the economy. Richard Murphy pointed out that income from profits is taxed less than income from earnings. Increasing corporation tax by 2% is not going to end this difference.
Joe Bourke,
The link you provided does not work.
The JRF have some things they would like to see such as:
• committing to uprate working-age benefits for inflation in full,
• increasing support for private renters through increases to Local Housing Allowance,
• increasing the value of Support for Mortgage Interest’,
• better protecting spending on public services in real terms,
• pushing the increase in the National Living Wage as far as possible.
And then,
Increase Universal Credit so that it covers life’s essentials,
Reform the housing market,
Reform employment services towards supporting people back into the right type of work,
Provide parents with the childcare that allows them to work if they want to.
@Joe Rourke
JRF link didn’t work for me
https://www.jrf.org.uk/report/autumn-statement-2023-addressing-evolving-crisis
without a full-stop being included on the end did work.
@Michael BG – ” GDP will be important to increase because when it isn’t increasing unemployment is.”
That’s probably the wrong way of looking it: when there are more people unemployed, the amount of money flowing around (ie. Financial transactions) falls, so GDP falls.
A big part of the annual increase inGDP has been due to the massive level of immigration, which all things being equal contribute 0.5~1 percentage points of the circa 2 percent increase seen. Globally GDP has increased directly in line with population growth.
>” It is not a choice between GDP and green policies to save the planet.”
Agree, unless we address climate change etc. GDP is going to crash (through the floor) in the next couple of decades; if the forecasters are right.
It’s interesting to see all these economic arguments about the strengths and failings with GDP, but no mention of Gross National Product nor National Income whatsoever, both of which add some extra information to he debate.
However, worst of all no-one at all mentions the key words, “per capita”.
As a people centric party, this omission really is rather worrying.
Roland,
“That’s probably the wrong way of looking it
It is the way I have always looked at GDP. The most important part of the economy is the number of people who are unemployed. I remember when it was news that we had over one million unemployed. I still hope one day we will have a government who will support people into work so there are fewer than one million people unemployed in the UK and very few have been unemployed for more than a year (the figure for September was just over 296,000).
@Michael
You aren’t alone in thinking that way, and much of the discourse over the decades encourages that way of thinking. However, a little reflection will show you, as you’ve already demonstrated in your reply, GDP changes are a downstream effect of employment/unemployment levels. However, that is because in our society the unemployed have less economic power (aside: not sure how a universal income would play out as it increases the economic power of the unemployed).
Looking ahead, over the next few decades we have a very simple choice transform and downsize our society and economy into something more sustainable, or nature will do it for us.
The transformation will by its nature downsize or even eliminate “old” businesses and jobs, replacing them with what currently looks like smaller businesses (but more highly technology leveraged) and fewer jobs. This naturally will significantly negatively impact GDP.
So I suggest for the coming decade or so, we need policies that play down GDP (as currently worshipped) and focus on tomorrow. I would liken it to a business (eg. Car manufacturer) shutting down a production line for a few years whilst it is rebuilt to produce a new range of vehicles. Naturally, as we are addicted to the idea of perpetual growth, this sounds very scary…
David Evans,
I hadn’t seen your comment when I posted my previous comment. According to the World Bank UK GDP per capita was $50,438 in 2007, $47,448 in 2014 and $45,850 in 2022 (https://www.macrotrends.net/countries/GBR/united-kingdom/gdp-per-capita). The humane way to increase this is by increasing GDP.
Roland,
I can’t imagine even the Green Party having policies to achieve your aims. It should be possible to grow the economy and reduce the amount of carbon we produce. I thought you agreed with me in your post – 2.34pm 22nd Nov. According to Investopedia it can be done with “’intensive’ economic growth” (https://www.investopedia.com/articles/investing/120515/infinite-economic-growth-finite-planet-possible.asp).
@Michael BG – Yes, it should, but first you have to transform the economy.
I agreed there was no choice – climate change etc is the o ly that really matters: Do you want circa 35m in the UK post 2050 or sub 5m?
@Michael BG – that article talks about Real GDP not Nominal GDP which is what everyone generally refers to. But there definition of Real GDP seems to differ from others I’ve seen.
Hi Michael BG, thanks for the reply, and the figures you quote are sound, but you seem to be missing the real point. In terms of GDP, the UK can be portrayed as around the 6th richest country in the world. In terms of GDP per capita our people are about the 20th richest (ignoring the inequitable distribution of GDP).
Once you look at these matters in more detail, you notice the top three are tax havens Luxembourg, Ireland and Switzerland) and if you extend it to minor countries which brings in even more tax havens we don’t even come in the top 30.
And this is key to the problem. All the tax havens are to significant extent tax avoidance/tax evasion mechanisms for mega rich individuals and corporations.
Now I understand the Leaky Bucket theory of wealth redistribution, where the holes in the bucket are an inevitable consequence of trying to make it a bit better quickly, rather than try to get it perfect never, but the holes in the bucket are being made ever larger and dealing with tax havens is key.
But for most of the time when we talk about poverty and the cost of living crisis, we never mention it.
@ Joe Bourke. Thank you very much, Joe, for giving us the link to the Joseph Rowntree Autumn Statement. Their figures on the rise of destitution, and on the lack of essential items of the poorest 40% families (7.3m people), together with their showing that prices have risen almost 50% faster than most working-age benefits between April ’21 and September of this year, starkly illustrate the continuing rise of poverty in our country. It is essential that our party now declares our intention to fight poverty and proclaims the policies we have which would begin to solve it.
@ Katharine You rightly say, “It is essential that our party now declares our intention to fight poverty and proclaims the policies we have which would begin to solve it”.
As you probably remember, Katharine, way back in 2019, I travelled down to London from Scotland in order to hand over a personal copy of the Alston Report (by the UN Rapporteur on poverty in the UK) to Sir Edward Davey at a Social Liberal Forum meeting.
I urged Sir Edward to publicly respond to the report. Now I may have missed something, but I have yet to come across anything from him about the Report. Maybe you could gently remind him if you come across see him at any future Conference.
Increasing GDP with “intensive” economic growth. This just looks like unsubstantiated oprimism. Once you have approached the maximum efficiencies of the energy technologies concerned: Carnot efficiency for fossil fuels and the physical limits for solar and wind, where is this going to come from? All the financial things are proxy for claims one energy, which there is less available for conversion into things we might want.
We’ve had almost no growth since 2008 in the UK, following the oil price peaking around then.
Roland,
The UK population is about 67.8 million. I would not expect the population to decline in the next 30 years and especially not to levels not seen here since the nineteenth century. I don’t want to see millions of people unemployed while the economy is transformed in the way you think is necessary.
David Evans,
What caught my eye is that the USA’s GDP per capita is $76,399. I note Germany’s is $48,432, France’s $40,964 and Japan’s $33,815. It is not possible for the UK to sort out the issue of tax havens, but I assume it could more about those based in British overseas territories.
Katharine and David Raw,
While we want our party to now declare our intention to fight poverty and proclaims the policies we have which would begin to solve it, it will be difficult to make this happen.
Jenny Barnes,
I don’t see why economic growth cannot come from the more efficient use of our resources. That we can have sustainable economic growth. We need to increase this and reduce unsustainable economic growth. In the future we will have space-based solar power.
Jeremy Hunt has allocated an extra £2.5 billion to fund their “support” for the unemployed and those not well enough to work to be spent over the next five years. I proposed £3 billion to fund employment training schemes and job guarantee schemes to assist the unemployed and those with health issues who wish to return to work for the next financial year.
Jeremy Hunt is cutting National Insurance by 2 pence costing £8.7 billion. He has said:
• someone on £38,900 will receive an annual gain of over £520;
• someone on £44,300 will receive an annual gain of over £630;
• someone on £63,000 will receive over £750.
He didn’t point out that someone earning £20,900 (just over the increased National Living Wage) would gain £166.60.
Increasing the personal allowance and NI threshold to £13,410 would cost £8.53 billion and everyone earning between £13,410 and £100,000 would gain £268.80.
Jeremy Hunt boasted that the 6.7% increase to Universal Credit will mean a household on Universal Credit gaining £470 on average.
However he forgot to mention that they will be £302 worse off if the third cost-of-living payment arrives after 6th April. A single person 25 or over will only gain £296.52 and so will be £5.48 worse off if they receive the £299 cost-of-living payment after 6th April.
According to the Autumn Statement book next year there will be a financial stimulus of £11.375 billion (a third of what I proposed). (Making the capital allowance permanent doesn’t cost nearly £11 billion until 2027-28.)
@Michael BG
“It is not possible for the UK to sort out the issue of tax havens,”
Why not? Please explain.
“but I assume it could more about those based in British overseas territories.”
OK- what are your assumptions based on?
@Michael BG – I suggest you take a careful look at the forecasts, with the crunch point being circa 2040. and consider the ramifications, if the forecasts become reality. The outcome really depends on the actions we take: no preparation and we’ll be fully exposed to the perfect storm…
I think you misunderstand my point, change is going to happen and will happen rapidly, history tells us this type of change isn’t going to be kind. So my stance is the signs are there that we will be downsizing and large numbers will loss their current jobs, we can either be in denial – which would seem to be where your thinking currently is, or embrace this reality and plan accordingly – for example those solar panels etc. will need skilled people, in numbers we don’t currently have, to install… Obviously, the LibDem difference is in the way these people are treated and brought back into contributing members to our society.
It seems that the cost-of-living payments this year have cost £8.7 billion and next year will cost only £2.5 billion (https://commonslibrary.parliament.uk/research-briefings/cbp-9616/). This is a cut to government spending, which reduces the value of the financial stimulus to only £5.175 billion. To be fair the value of my proposals should be reduced by the £7 billion of the value of the difference between increasing the personal allowance and NI threshold in line with inflation and my proposed increase to compare with £5.175 billion. Nevertheless, once both financial stimuli are reduce my proposal is five times the value of Jeremy Hunt’s.
Nonconformistradical,
David Evans mentioned three tax havens – Luxembourg, Ireland and Switzerland. Others are British Virgin Islands, Cayman Islands, Bermuda, Hong Kong, Jersey, Singapore, and the United Arab Emirates.
The UK can’t do anything about the tax regimes in foreign countries. I assume that British overseas territories are dependent on the UK and don’t have full independence or sovereignty and therefore the UK can get them to change their financial services rules and tax regime. However, it is likely I am wrong. Jersey, Guernsey and Isle of Mann are nearly independent. The British Virgin Islands, Bermuda, and the Cayman Islands have parliaments to handle their domestic affairs, so the UK is likely to only have influence.
@Katharine: I suspect this issue of needing to generate more wealth to solve poverty is something we’ll be constantly disagreeing on 🙂 But to try to justify a bit:
1. You mention sharing water company executives more fairly. Well let’s try Thames Water’s boss Sarah Bentley, who was given £496K last year. If you took it off her and distributed it amongst the population in the name of fairness, we’d each get less than 1p each! Sure, she’s only one person, but how many bosses do you think there are who receive supposedly undeserved bonuses that you might therefore want to confiscate in some kind of authoritarian way? There’s not nearly enough money there to make a noticeable difference in everyone’s lives.
2. In a free market, prices inevitably sort themselves out to match supply and demand. If prices are rising that invariably means that it just wasn’t possible to supply enough goods to meet demand at the old lower price. Of the main price increases driving the cost of living crisis, there is a broadly free market for housing and food. Energy is more complex, but capped at an amount related to wholesale prices – for which there is a broadly free market. I leave you to draw the inevitable conclusions about supply.
So I stand by that if you want to solve poverty, you need to create more wealth to improve supply of the things people need. There really is no other way!
Obviously that should be, sharing water company executives’ BONUSES more fairly. Without that extra word, the meaning of that sentence would be – umm – interesting! 🙂
Roland,
We are taking action. The target is to cut carbon dioxide emissions to 2010 levels by 2050. Both the Liberal Democrats and (currently) the Labour Party have extensive green investment policies. It is the role of government to ensure that there will not be huge numbers of unemployed people. (I suppose the government could lower the retirement age. 🙂)
Please can you post a link to your apocalyptic forecast for 2040 and your claim that after 2050 the UK population will be between 5 and 35 million?
Simon R,
It has been reported that this government is reducing investment. I think the Liberal Democrats have plans for investing £200 billion (£150 billion for the environment and £50 billion for regions) I think over five years. I do accept that if I had more space I should have set out plans for investment over the next five years.
With regard to company executives’ bonus, it would be fair if their bonus were the same percentage of their salary as the rest of that company’s workforce receive.
No, Simon R., we don’t need necessarily to create more wealth in this country: just to see that it is spread out more fairly. People who seem to be less deserving are top executives who haven’t been seen to conducting their affairs successfully yet accept bonuses. I understand some of the water companies’ bosses did refuse bonuses this year, but the bosses of my local company, United Utilities, were not among them.
No, of course we don’t talk of sharing the individual small amounts out, but of getting the principle of unfair bonuses accepted by their shareholders; and the principle that workers are in the modern phrase further ‘stakeholders’ in their companies who deserve a fair share is one held by Lib Dems. We also hold that it would be fairer to tax capital as well as people’s earned incomes, and call for better taxation policies to tackle poverty and raise the standard of living of the working population.
Dealing with excessive poverty without growth is practically impossible. Even in a command economy (which in itself would create a new privileged elite) it would be close to impossible to manage.
In a growing economy there would be fewer cases of unforeseen and unintended hard cases of those losing out. Without growth efforts to rebalance would reproduce the spectre of the ‘bedroom tax’ on a much greater scale. The bedroom tax was an effort to solve housing inequality, but at a time of housing shortage. I guess it could have worked in combination with a largescale programme of building new social housing, that is with growth.
Many of us will remember the Tory line of the 1970’s that we had become too fixated on the idea of solving poverty by a process of redistribution rather than creating growth in the economy.
Since 1980 GDP has increased by a factor of at least 4 but we don’t seem to be any nearer to solving the poverty issue. Had we known the economy was going to be this much larger some 40 years later it would have been hard to argue against the Tory line. We would have thought that surely this would be more than enough to fix any problems.
We would have been wrong. It turns out that redistribution does matter as much as it ever did.
@Peter: I think the problem with citing growth since 1980 is that the main thing driving people into poverty over the last 15 years has been housing costs, which are in turn driven by lack of housing. And housing stock per capita hasn’t significantly increased: According to https://www.statista.com/statistics/378391/uk-england-housing-dwelling-stock-total/, there were 21.21 million dwellings in the UK in 2001, and 24.66 million in 2020. Comparing with population gives (58.8M and 67.1M) gives 0.36 dwellings per person in 2001 and 0.37 per person in 2020. I don’t have housing stats back to 1980 but considering how low housebuilding was in the 1980s and 90s there’s no reason to believe supply increased much in that time.
So no, in terms of the current main driver of poverty, we haven’t been producing enough to give people more – which of course goes a long way to explaining why we haven’t been able to solve poverty, and is quite consistent with my saying that to solve poverty, we need to produce more.
btw – GDP 4 times what it was in 1980???? In real terms, that sounds rather implausible to me. I’m pretty sure living standards haven’t gone up that much. Have you taken inflation and population into account? Are you comparing per capita real-value GDPs?
Katharine,
It is not a choice between growing the economy and redistribution.
Martin,
I have shown in my LDV article (https://www.libdemvoice.org/ending-deep-poverty-by-april-2029-74037.html#comments) it is possible to end deep poverty funded by tax changes.
Simon R,
According to the World Bank UK GDP per capita was $10,032 in 1980 and $40,318 in 2020.
Housing is not the only driver of poverty. In a House of Commons briefing (https://researchbriefings.files.parliament.uk/documents/CBP-9498/CBP-9498.pdf ) there are some interesting tables and graphs. The table on page 16 shows that in 2021 a working aged single person would only receive 33% of the JRF Minimum Income Standard; a working age couple 31%, a single pensioners 95% and a pensioner couple 92%. The first graph on page 19 shows that the amount that Jobseekers receive has declined from a high in the 1980s by about 20% in real terms. (I didn’t know that until the early 1970s the unemployed and pensioners received the same amount.) The second one shows that Universal Credit in 2021 was only about 11% of average earnings, while in the 1970’s it was about 20%.
Housing benefit has not kept up with rising rents. From April next year Local Housing Allowance rates will be restored to the 30th percentile. When it was introduced it was set to the 50th percentile.
We are a rich society with high expectations, at least those of us with sufficient education and means: expectations to live in freedom, to have our health and wellbeing cared for, to work as much as we wish and to have sufficient money to spend on the material goods and enjoyments of our choice.
But there is no freedom in living in poverty, if life is a struggle for a decent home and enough of what we reckon are material essentials, as well as sufficient food and drink and limited treats for the children. And as Liberal Democrats, wanting a Liberal society in our country and believing in effective communities which share goods, we surely should work to lift the persistent number of 14 million people who live in poverty here into our better, luckier circumstances. Where there is a will there is a way. I believe we must commit to finding it.
@Katharine: Your passion to eradicate poverty is admirable, and I don’t think anyone here would disagree about wanting a society without poverty – it’s just that there are different views on how to achieve that, and some of us believe that focusing exclusively on taxing to redistribute will not work (and will harm the economy as well).
@Michael BG. I agree that redistribution and growth are both important. Focusing on either one to the exclusion of the other is inadequate.
The reason I say that housing is the main poverty driver is that we don’t have enough housing, but a place to live is absolutely essential to people, and that means that, faced with a housing shortage, many people on lower incomes will choose to pay whatever they can afford to get a place to live – since with such intense competition for housing, the alternative is homelessness. That means that rents/etc. will always rise to completely absorb any additional money you give to poorer people – which is part of what’s been happening the last decade. That will only stop when you build enough houses!
Simon R., you are right to focus on the housing situation as a driver of poverty, and if I was able to focus on three slogans for our developing General Election campaign I would probably choose, Tackle Poverty, Sort the NHS, and Fix Housing. But 14 million people, about 4 million of them children, were living in poverty in Britain when the UN Rapporteur on Extreme Poverty Philip Alston found in November 2019 that our poverty rates weren’t fitting for a rich country (see David Raw’s comment on November 23, 4.10 pm), and only the Scots Nats took note and tried to do something about it. Four years later, it’s more than time for our own party to take up the baton and make tackling poverty a Manifesto commitment for us. The Labour Party aren’t doing it, but if we prioritise it with our GBI policy to aim to end deep poverty and the need for food banks within ten years, we can both show the country we are different in having this commitment and then hopefully bring Labour to the table when they are in power.
@ Simon,
I agree that a factor of four sounds a lot. I certainly don’t feel that much better off!
The reference is Google {GDP per capita UK} The graph you’ll see cites data from the world bank. $46.5k for 2021 $10k for 1980
So a factor of 4 is understating my case!
Incidentally the high price of housing adds to GDP. Which isn’t much good if you don’t own one. There’s an imputed rental included for owner ocupiers.
I think we all would like to have a society which is poverty free. However, doesn’t the present system (call it capitalism or whatever you like) require that this poverty exists as a disciplinary measure? If we don’t go to work and earn whatever money we are able to, then we won’t have an easy life.
Which is fine if we are lucky enough to be able bodied and have had a good enough education or training to be able to earn enough but if we aren’t that lucky there will be problems.
So how do we devise a system which does encourage everyone who is able to work and so produce the goods and services we all need but at the same time doesn’t have a measure of coercion which is the undesirable flip side to our current level of prosperity. A GDP per capita of $46.5k each would indicate that we are doing OK in aggregate.
Simon R,
Someone of working age living just on benefits will live in poverty because of the benefit system. Those in work are not affected by the benefit cap, but if paying rent they are affected by the low level of housing benefit because of the Local Housing Allowance rates. Having enough homes for everyone would not change any of this. The benefit system must be a genuine safety net which keeps people out of poverty. And we need to build more homes. Shelter in its 2019 report, ‘Building for our future: A vision for social housing’ stated that we need to build 3.1 million social homes over 20 years and recommended that by 2034 209,000 social homes and 140,000 private homes be built.
Peter Martin,
Liberals don’t accept the premise that people will only work if the alternative is poverty. Our party has to articulate this and have ending poverty as it long term stated aim.
@Peter I think those figures aren’t taking inflation into account – and probably not exchange rates either since they are in US$. I did some digging into World Bank open data and it looks to me like UK real-terms per capita GDP approximately doubled between 1980 and 2022, which seems more reasonable. But I’d still maintain that the housing shortage and resultant high housing costs are mostly what’s causing poverty levels to be so high, so the doubling in GDP isn’t that relevant.
You are correct that you do need incentives for people to work. Lots of essential jobs are frustrating/difficult/stressful/sometimes unpleasant – so why would you spend your day doing them if staying at home and enjoying your free time paid you roughly the same? No matter what the economic system – capitalism or anything else – the economy would collapse with almost no-one doing anything if you tried to run it on that basis. It’s completely unrealistic to pretend otherwise – which it feels like some people here seem to want to do. For that reason, there will always be a substantial degree of inequality, which simply reflects that in a free society, different people will make different life choices. Nevertheless, I’m sure it’s possible to arrange things so that almost all people have access to the essentials to live at least a basic but decent life – which is how I’d understand ‘eliminating poverty’.
@ Simon,
We agree that there does need to be an incentive to work. The economy would collapse without it. Michael BG is being quite Utopian in his assertion to the contrary.
We can argue that the imposition of a tax by Government does create unemployment. It’s easier to see this if we consider what would happen if, for example, the Brazilian government imposed a poll tax on Amazonian Indian populations. They would have to work for Government, either directly or indirectly, to get the money to pay the tax.
So consequently we can argue that if we are required to work the Government should, as a last resort, provide us with something to do as means of acquiring this money. Alternatively, if you don’t like this theory, we can say that the Govt should at least provide us with a job it it wants us to contribute to society in a meaningful way and, as a last resort, there is nothing available in the free market.
Then, once we do have the opportunity to work, the question of the minimum rates for paid labour, as well as the rates of a progressively applied income tax do need to be decided in the usual way according to the democratic process.
Simon R,
Ensuring no one in the UK lives in poverty does not remove the incentive to work. The poverty level is where people only have the essentials.
Peter Martin,
I have never said there is no need for people to have incentives for them to work. What I say is that people don’t need to have the choice between work and poverty.
The government taxes income and spending. If a person has no income and no savings then the government needs to provide them with an income which keeps them out of living in poverty. If a person works for the government, the government normally pays market rates. If a person is of working age and can work then the government should provide support so they can get a suitable job. The government should also provide the economic circumstances so that everyone of working age well enough to work can be employed.
@Michael: I think it does. The problem is, what you’re proposing, along with the LibDems’ wish to remove not-searching-for-work sanctions for receiving benefits, implies that someone who could perfectly well work and contribute to society but decides they’d rather do nothing is guaranteed that they will still be given a decent life/income – sufficient that they won’t be in poverty, with no questions asked. That will remove a lot of the incentive to work – and would pretty much guarantee that many more people will choose not to bother working. And remember that this is at a time when the UK already has a problem post-Covid of lots of people choosing not to work/take early requirement etc., which is great for those people, but is further hitting the UK’s output at a time when our main economic problem is lack of output!
@Peter: Yes, I think we broadly agree here. In fact, my view is that the best way to solve poverty would be twofold: For the Government to offer everyone a guaranteed job based on their abilities/wishes paying at least the minimum wage (and for goodness sake, there’s more than enough stuff that needs to be done that isn’t being done in our communities), and also take action to ensure all the essentials for life (housing, energy, etc.) are being produced in sufficient quantities that their market prices remain low, and people on the minimum wage can afford them.
Living at the poverty level does not provide a decent life style or income. That is why the incentive to work is there so a person can have a decent income and life style which provides more than just the bare essentials. Also you have assumed that the only way to contribute to society is via paid work. Anyone doing voluntary work or caring for someone for no pay is contributing to society. Do you have any figures for the number of people who have taken early retirement since 2000 to back up your claim? My understanding is that the number of economic inactive has increased because of health issues. Which is why the Liberal Democrats want to fix the NHS and reduce waiting lists so these people are well enough to return to work.
You want the government to provide everyone a guaranteed job based on their abilities/wishes paying enough for them not to live in poverty. (The National Living Wage is now above the poverty level for full time workers.) I agree that the government should provide a guaranteed job for those of working age based on peoples’ abilities and wishes or training for a role that meets their wishes.
Michael BG,
It depends how you define poverty.
Certainly any young person with a family has to earn a lot just to be able to afford mortgage repayments, rent, childcare, and the necessary other bills that need to be paid. This is just ‘getting by’ and before there is anything left over to spare on holidays etc.
Many of us will have been through a period in our lives when ‘poverty’ was only a couple of missed pay cheques away. The possibility of losing a job is quite scary.
@Michael. But as I understand it, you’re trying to make sure that everyone is above the poverty level. So the fact that, poverty level does not provide a decent life style or income seems not relevant if no-one will be at that level. (And to be clear, aiming to get everyone above the poverty level is a good thing in itself – but it’s not workable to achieve that if you don’t link it to an expectation that people will work if they are able to do so).
@ Simon R. I’m afraid I find your determined focus on the need for sanctions depressing. It fails to take account of child poverty. Children living in poverty are not responsible for what you might describe as the frailties and weaknesses of their sanction facing parents.
During the pandemic, 400,000 children were lifted out of poverty, largely thanks to the Government’s decision to temporarily increase Universal Credit by £20 a week. But with the withdrawal of the £20 increase in October 2021, followed by the onset of a major cost of living crisis, progress was pushed firmly into reverse.
By 2021/22, the number of children in poverty had almost recovered to its pre-pandemic levels, to 4.2 million (or 29% of children). How would your predilection for benefit ‘sanctions’ help these children and how would you propose to deal with the issue ?
@ David Raw,
Simon, you and I would all agree that we don’t want anyone, adults or children, to live in poverty. The way to achieve this has to be involve something different from what we’ve been doing for the last few decades. Otherwise we wouldn’t be having this discussion.
Some (most?) Lib Dems seem to be of the opinion that we shouldn’t require anything at all in return for whatever assistance might be provided.
Whatever you, Simon or I might think about this high minded principle, a short conversation with the voters should be enough to convince anyone that this is a political non-starter. Even the best of policies won’t help anyone if voters won’t vote for it.
So how to achieve our goal? I’m happy to go with the Marxist principle of “from each according to our abilities”. This is in return for “to each according to our needs”. Just what the second part means may not be totally clear. However in a society where the GDP per person is some £35k p.a, it should mean that we all should have a sufficient income to keep ourselves, our children and other dependents out of poverty.
I think the problem is how you define work.
Is a person who runs a food bank working? Is someone who sets up a refuge for battered women working? Is someone who writes and produces amateur dramatics working? Or is it only work when it’s paid employment? Look, we’re only talking about keeping people above the poverty line, not making them rich. Does it matter to society as a whole if some people don’t have paid employment but contribute to wellbeing in other ways?
Increasingly, working is going to be less plentiful in the future because more and more of what we now call work, will be done by machines or AIs. So we have to plan for people working less hours, but still being paid well and maybe, just maybe some people will not be working, but will still need enough to live on without being in poverty.
Think outside the box.
Peter Martin,
Many people in work have no savings and are only one wage packet away from living in poverty. Even if someone made unemployed was paid at the poverty level losing a job would still be ‘quite scary’.
Simon R,
Party policy is to increase benefits to the deep poverty level within the decade. I call for it to be increased after this to the poverty level, not above it, but haven’t put a timescale on it.
The Liberal Democrats are a liberal party and believe in liberty not coercion. Sanctions are coercion. Our policy is to replace sanctions ‘with an incentivised scheme that helps people into work’. The Liberal Democrat policy includes job guarantees and training schemes for the unemployed.
@Michael: Last time I checked, as LibDems we believe in tax (which is a coercion) and in enforcing the law (which is also a coercion). So it’s not true to claim that the LibDems don’t believe in coercion. Rather, we believe in maximising liberty to the fullest extent practicable. But we are not anarchists, and we do accept that a degree of coercion is necessary to allow society to function.
@David: I don’t see it in terms of particularly wanting sanctions: Rather, to me it’s about devising a system that is sustainable and going to work, and also recognising that society is a two-way thing which works by everyone helping each other. That applies to all aspects of our society, and how we ensure that everyone has a reasonable standard of living is not an exception to that principle. You can’t build a liberal society if you try to do it by the Government handing down everything from above without ever expecting people to do anything in return – for the simple reason that people doing stuff and making stuff is what creates our society and allows us to have decent lives, and if people stop doing that then society collapses and all of our liberal dreams become impossible.
@Mick: If you wanted to define work to include voluntary work, I don’t see any problem in principle with that. But I don’t think that changes the wider point about expecting people to do something to contribute.
Simon R,
Taxes are not coercion. I suppose enforcing the laws is a form of coercion. Liberalism states people should only be forced to do things so they don’t cause harm. Sanctions are coercion. Do you agree that the Liberal Democrats have policies to replace sanctions ‘with an incentivised scheme that helps people into work’? Sanctions are not part of ‘maximising liberty to the fullest extent practicable’.
We are not advocating the government ‘handing down everything’ to people. We are just advocating that no one in the UK lives in poverty, because we say that living in poverty means someone can’t be free. We are not removing the incentive to work. We are very much not saying that people should not do stuff and make stuff. We believe the government shouldn’t force people into destitution and that is what sanctions do. Sanctions are not part of a liberal society. Requiring people to do things, apart from obeying the law so they don’t cause harm, is not part of a liberal society.
@Michael: How do you reason out that tax is not a coercion? I’m pretty sure that, if I decided I’d rather keep the money I’ve earned and therefore declined to hand a chunk of it over to HMRC, I’d quickly find myself in court, being coerced to pay up!
You deny that you’re advocating the Government ‘handing down everything to people’ but surely that is exactly what it amounts to if you have the Government give people all the money it considers they need to live reasonably, without any checks and without asking people for anything at all in return. To me it seems very self-evident that doing that will disincentivise many people from working, and I have to admit to some puzzlement that you apparently do not see that. If you disincentivise people from working, you reduce the UK’s output and therefore reduce everyone’s standard of living – which then makes it much harder to eliminate poverty.
I think we both agree that no-one should have to live in poverty, but we disagree about how to achieve that: I see ending poverty as a partnership in which we provide everyone with the means to lift themselves out of poverty if they wish to. You advocate policies that appear to me to put the entire responsibility on the Government.
@ Simon R. It’s been a reasonable and good-humoured debate here, I think, Simon, having just caught up with it all. But it seems to me you are losing the argument now. Just now you write, “I see ending poverty as a partnership in which we provide everyone with the means to lift themselves out of poverty if they wish to”, ignoring the fact that many may wish but not be able to. And I think a paragraph you wrote at 9.38 yesterday seems to suggest a fixed viewpoint holding onto a pleasant fantasy.
You wrote, “You can’t build a liberal society if you try to do it by the Government handing down everything from above without ever expecting people to do anything in return, for the simple reason that people doing stuff and making stuff is what creates a society and all of us to have decent lives, and if people stop doing that then society collapses and all our liberal dreams become impossible.” Simon, please could you try to share the ‘liberal dreams’ many of the rest of us have? – of our fellow citizens indeed being all able to ‘do stuff and make stuff’, to be creative and free, because we will give them the basic subsistence all of us need, which many are sadly unable at present to get.
Simon R,
I would define coercion as forcing someone to do something against their will. Paying VAT and income tax doesn’t force me to carry out any other action against my will. However, some taxes can be coercive such as fuel, tobacco and alcohol duties which are meant to force people to buy less of these products.
You seem to have difficulty in understanding that someone living at the poverty level (the level I would like benefits to be) does not mean that they have enough money to live reasonably. You seem to believe that a person living at the poverty level would be happy living at this level of low income. I believe that most people would not be content to live on such a low income and so will have the incentive of earning a higher income to live what most people expect a reasonable life to consist of, such as being able to go out for a drink or a coffee, having a holiday and being able to pay for out-of-school activities for their children.
In an earlier comment you put the responsibility on the government to remove people from poverty by ‘offering everyone a guaranteed job based on their abilities/wishes paying at least the minimum wage (which is above the poverty level) and ‘ensure’ that ‘people on the minimum wage can afford’ ‘all the essentials for life (housing, energy, etc.)’.
@Katharine: Well, I’m clearly expressing a minority view here, but I don’t believe I’m losing the debate. And I’m sure this is a debate that we will continue to have, given how often the topic comes up on LDV. But I’m concerned that you write as if I don’t share the dream of lifting people out of poverty: Please understand that I do share that dream – and that’s precisely why I am debating this. I want to lift people out of poverty, and I fear that you and Michael are advocating a (rather utopian) GBI policy that may look good on paper but would never work in the real World, and I want to see real-World based policies that stand a chance of succeeding. Obviously you disagree with my analysis, so I guess we’ll have many more discussions 🙂
I agree with you that at present, many people are unable to lift themselves out of poverty – which is awful – and I’m not advocating that we do nothing to fix that. I’m just advocating different solutions from you/Michael.
@Michael: I do actually understand that living at the poverty level doesn’t mean, living reasonably. But I’m now confused about your intentions: Earlier you stated, “The benefit system must be a genuine safety net which keeps people out of poverty.“. Now you are stating “at the poverty level (the level I would like benefits to be)“. Well if you only pay benefits at the poverty level, then you are not going to keep anyone out of poverty! Which one are you advocating? Benefits at the poverty level or above the poverty level?
Regarding people being content: A key point here is that people are unique. Some people will only be happy with a life of luxury, and those people will always be strongly motivated to find the highest-paying job they can. Other people will be perfectly content to have a very basic standard of living, and those people will likely perceive no financial need to work if they will get a guaranteed basic income anyway. Most people will be somewhere in between those extremes. If only – say – 5% of people are disincentivised from working, that’s still a significant loss of GDP, which then drives even more people into poverty, defeating your own objectives!
Michael BG, Katharine, SimonR,
“Paying VAT and income tax doesn’t force me to carry out any other action against my will.”
Of course it does. Unless you are lucky enough to have an inheritance you’ll need to work to get the money.
Why does the government impose these taxes in the first place, when it can create, from nothing, all the ££ that it needs? The reason for taxes isn’t to collect money. It’s to force us work, either directly for the government or indirectly for others who do or provide goods and services in one way or another. We need to work to get the money to pay the taxes.
Taxes are a means for governments to provision themselves from the products of our labour.
The process also creates a value for the ££ that we need to pay in taxes so the currency can fulfil its familiar roles as a means of exchange and a store of value.
This is the system that LibDems support, unless and until Lib Dem policy is to scrap what we have totally and move to an economy (if that’s the right word for it) where no-one has to do anything at all. All work will then be totally voluntary.
Simon R,
If a person or family receives an income at the poverty level they are not living in poverty because poverty is below this level.
If you don’t want the benefit levels to be at the poverty level what level do you want them at a sixth of the poverty level, a third of the poverty level, two-thirds of the poverty level as per party policy?
Do you think those who are not well enough to work should receive benefits at the poverty level or below it? And if below it, at what level?
It seems to be an economic choice of the government to have over 5% of the working age population living on benefits. Unemployment is 4.3% and there are 2.6 million people who are ‘long-term sick and disabled’ and that is about 8.16%. Together this is 12.46%.
Peter Martin,
If you have an income less than £12,570 you don’t pay income tax. The government does not force people to work and earn more than this so they can collect the tax. The government doesn’t force pensioners to work. While I have no choice in paying VAT if I want to buy the product, also if I want to buy that product I have to pay the price of it, but the government does not force me to buy that product.
In the future according to Elon Musk all work will be voluntary.
Simon R,
Sorry, I made a mistake in my maths. 2.6 million is only about 7.65% of the working age population; making a total of 11.95%.
@ Michael BG,
We can’t all be pensioners and someone has to do the work to keep the wheels of the economy turning. It’s not easy to have a lifestyle where we don’t pay any taxes at all even if we don’t earn that much. Unless we live in a tent in the park we’ll have to pay council tax. Even if we walk everywhere, to avoid fuel duties, we’ll still have to pay VAT on our footwear. This is the basis of the system you claim to support.
When European colonialists wanted to assert their authority over native people they would impose a tax on their properties. Huts, land, boats etc. They’d obligingly create the money tokens they needed to pay the tax in return for whatever the colonialists wanted them to do. it looked like the colonialists wanted their created tokens back but why would they?
Our taxation system might not include this term any longer but the principle is just the same.
I don’t think any of us has a viable alternative to the concept of taxation leading to compulsory work. The MMT advocacy of a Job Guarantee is an acceptance of the need for everyone to contribute in some way too. From a socialist perspective, it is then only fair to distribute the proceeds of our work far more equitably than we do.
https://en.wikipedia.org/wiki/Hut_tax
OK so if I’ve understood you, you want benefit levels to be right at the boundary where £1 less would technically define people as in poverty, but the definition of poverty excludes the boundary, so at a pedantic level you can say you’ve (just) got people out of poverty? Right?
I would want to be much more ambitious – I’d like a system that allows anyone who wishes to lift themselves well above that level. You ask what level I’d want benefits to be – but my answer is that I’d be looking more at replacing the entire benefits system with a guaranteed job system, whereby anyone who wishes would be offered a choice of jobs in the community based on their abilities (taking account of disabilities etc.) and preferences; and at the same time – crucially – the Government would seriously tackle supply (housing etc.) to make sure that the UK is producing enough of the essentials for life to ensure market prices remain low enough that a person earning minimum wage/doing a guaranteed job can live reasonably comfortably.
Obviously there’s a lot of devil in the detail of how that kind of system would work, but in principle it would let you truly lift people well out of poverty – and you’d be doing it in a sustainable way that won’t trash the economy in the way that I think the approach of just giving people more money without checks is likely to do.
That last message should have read @Michael: OK so if I’ve understood you….
Peter Martin,
I do accept that the economy needs people to do paid work to work. However, each individual makes choices and are not therefore forced to pay taxes. A tax on homes is less of a choice. Nevertheless, in the UK if you are a pensioner with income below the guaranteed pension rate you don’t need to pay council tax.
If taxation leads to compulsory work as you claim there is no need for sanctions.
Simon R,
If the benefit level is at the poverty level then this, as you wrote, “allows anyone who wishes to lift themselves well above that level”.
You seem to be saying everyone of working age should be forced to work, even if they are not fit to work. That is not liberal and you have implied you are a member of the party (30th Nov 9.38am). There has to be a safety net. You are saying no work no money. The answer you have given is there should be no benefit system. If you are too unwell to work then you can just starve. Do you really mean this?
If 5% of people of working age decided they would like to live at the poverty level I would be happy with this, if the government ensured there was work suitable for the other 95%. If we are going to have nearly 5% unemployed I would rather it were people who wanted not to work than it include thousands of people who want to work.
@Michael: You appear to be questioning my liberalism. But, like it or not, the nature of the Universe is that people have to work because – bluntly, if everyone stopped working, we’d all starve to death! To my mind, a liberalism that doesn’t recognise that reality is not a liberalism that can have much practical value.
You have to remember that all the stuff we all want everyone to be able to have doesn’t magically appear by itself: Houses and food etc. only exist because other people work hard to produce them. Your proposals – in particular the lack of checks in giving benefits – in practice would encourage many people to stop working, while forcing those who do still work to work extra to support those who have decided not to bother. I doubt anyone in their right mind objects to supporting people who cannot work, but forcing people to support those who choose not to do anything? I’m pretty sure you’ll find most ordinary voters would (rightly) think that grossly unfair. An approach based on guaranteed jobs would give everyone the chance to create a decent, fulfilling life and participate in society, and would do so in a way that’s fair and sustainable: Isn’t that what we all want?
And to answer your specific point: No, I’m not advocating making people work who are not fit to work: Any workable guaranteed job scheme would clearly have to make provision for those kinds of situation.
@ Michael BG,
“If taxation leads to compulsory work as you claim there is no need for sanctions.”
But what if there are no jobs to be had? Sanctions can’t create jobs if they don’t exist.
This is the problem with our present system. The imposition of taxation requires us to find work in order to pay our taxes but doesn’t guarantee us that work.
The introduction of the Job Guarantee is a solution to this.
@ Simon R,
” No, I’m not advocating making people work who are not fit to work: Any workable guaranteed job scheme would clearly have to make provision for those kinds of situation.”
I think this is generally agreed.
One solution would be to put anyone who was unfit to work on paid sick leave and which could be indefinite in severe cases. This is not to suggest that we should be too quick write anyone off in the longer term. At one time society would have done just that to Prof Stephen Hawking.
Simon R,
I do question your liberalism because you say there should be no benefits for people too unwell to work. I asked did you really mean you want to scrape the benefit system. You have failed to answer this question. Do you believe there are people who are too unwell to work? And if you do, what level of benefit in relation to the poverty line do you want them to receive?
I don’t understand why you are trying to persuade me that the economy needs people to work. I wrote, ‘I do accept that the economy needs people to do paid work to work’. It was you who suggested that if benefits were at the poverty level 5% of people would not want to work (2nd Dec 9.30am). If you asked the unemployed if they would like a job or receive benefit most will say they would like to work (some want to if the right support is provided) and they would be happy that the only people not working are those who choose not to work or are too unwell to work.
Peter Martin,
Your idea of a compulsory Job Guarantee is illiberal. The government could do better in running the economy so there are more jobs and supporting people into work (not trying to use a stick to beat them into work).
Are you suggesting that companies pay sick leave for long periods of time? I worked somewhere where people on sick leave received full pay for the first six months and half pay for the next six months then they would go on Statutory Sick Pay. However, many employers seem to pay no sick pay now and people are left just to claim SSP. SSP is higher than Universal Credit for a single person aged 25 or over.
In Sweden at least, if you are out of work for a period, you are given a state job rather than benefit, I think for a year. It does not seem unreasonable to me that people should be expected to work if they are fit and able. As far as the long term sick or those unfit for work are concerned, they should be removed from those listed as unemployed and paid long term sickness benefit, perhaps with an annual review to see if their circumstances have changed.
I think Michael BG is to cautious in wanting to introduce a GBI or UBI at the poverty level. Quite apart from anything else, it goes against our constitution which wants to build a society where none shall be enslaved by poverty!
The present benefits system is byzantine in its complexity and costs a lot of money. I know I could not be bothered to engage with it during my brief periods of unemployment, because it was so complex. Getting rid of most benefits through GBI or UBI would provide much of the financing and we could create a system where the DWP focussed on helping people get work rather than harassing and sanctioning them.
@ Michael BG,
“Are you suggesting that companies pay sick leave for long periods of time?”
No. It would only apply to those on the JG scheme. It’s essentially a way to pay the living expenses of those who are physically or mentally unable to work without calling it a social benefit. There could still be additional benefits paid though.
If the JG scheme is “illiberal” then so is the wider capitalist economy. The entire system requires the vast majority of us to work with the distribution of the products of our labour distributed in a highly unequal manner.
Mick Taylor,
I support a voluntary Job Guarantee and got our Green voluntary Job Guarantee included in a motion in 2021 and added to it a new policy of setting up a training scheme for the unemployed. For us these schemes have to be voluntary.
I am not used to be called too cautious when advocating a GBI at the poverty level. As I have pointed out someone living at the poverty level is not living in poverty.
Peter Martin,
So you would still pay people benefits when there are too unwell to work but you would pretend that they were not too unwell to work and say they were on a the JG scheme.
Indeed, we do not live in a liberal society, which is why Liberal political parties exist to try to convert society into a liberal society. In the past the UK was more economically equal than it is now after years of full employment (Keynes was a liberal.)
@ Michael BG,
I’m not being too dogmatic about how a JG scheme would work. It’s just a suggestion that we put people on indefinite sick leave as a last resort. We could try to arrange something useful for each participant. With the advances in technology it is now easier than it used to be.
Many would disagree with you about a liberal society necessarily being more equal than the one we have at the moment.
@Michael: Questioning each other’s liberalism doesn’t seem to me a very constructive direction to take this discussion. But anyway I think you’re reading stuff into my posts that isn’t in them (Maybe I’m compressing too much to keep to the word limit?) I used 5% as an EXAMPLE, not a prediction. The point was that IF 5% of people stop working, that’s potentially a 5% loss of GDP and a 5% loss in everyone’s living standards, therefore driving more people into poverty. Same logic if it’s 10% or 20% who choose to stop working. I also did not say there should be nothing for people unable to work: I made it clear any job guarantee scheme would have to provide for that. I agree with Peter’s suggestion of sick pay (btw I think Peter was suggesting the Government would pay that, not any private company).
The point of replacing the benefits system is that, with a job guarantee, much of the current system becomes superfluous anyway. If everyone is guaranteed a job or sick pay, then who do you imagine will need to claim benefits? It’s basically just going to be people who have unusual circumstances meaning they can’t live on a minimum wage salary; people temporarily between jobs – who could probably be covered by some kind of insurance scheme; plus any rare edge cases who for some reason have fallen through the cracks and arguably would be best dealt with on a case by case basis.
Peter Martin,
Every Social Liberal would agree that a liberal society needs to be much more equal than the one we have at the moment.
Simon R,
As I pointed our currently 11.95% of working age people do not work, so it being 5% would be an improvement.
You had not earlier stated those too unwell to work would receive anything. You stated you wanted to get rid of the benefit system. As you now say you agree with Peter, please can you answer these questions?
Do you believe there are people who are too unwell to work?
Are you really saying that someone too ill to work shall be paid £423.28 (NLW for 37 hours) a week sick pay? That this should be paid to them if they are single, or part of a couple, or have children, or have rent to pay? A one size fits all approach!
Are you saying once you have scraped the benefit system that you expect people in work to buy an insurance policy to pay them if they are made unemployed? No insurance policy will pay out for an unlimited time. So what happens when the insurance company stops paying them? Why take out insurance as people will still be able to apply for money from the government on a case by case basis?
It seems to me you have not thought out what scrapping the benefit system would actually mean.
@Michael BG,
Excuse me for chipping in but as it was my idea I thought I might just comment on your figures. As I said previously I wasn’t being too dogmatic on the details of a JG scheme. It could be that sick pay is means tested to an extent with time limits on sick pay being 100%, 75% etc.
However the costs work out it would be more realistic to pay something like £20k pa, or whatever it takes to keep anyone out of poverty, to just a few people, than pay it to everyone as a UBI and hope to collect enough back in extra taxation to cover the extra costs of such a change.
Looking after those who are too sick to work isn’t going to be cheap whichever way we do it. Fewer people are now institutionalised than in previous times but there are still some. The costs of that are going to be far higher than £20k pa. It could well be that their sick pay is used to offset those costs. Those who aren’t in need of such care will still require extensive support by way of specialised transport arrangements and nursing care. It all has to be paid for one way or another.
Peter Martin,
A National Living Wage of £423.28 a week is £22,010.56 a year. The government have said recently that £38,700 is average earnings. I assume this is gross and so it is £30,338.40 net or £30,861 next year. 60% of this is £18,516.60. Of course when we talk about the poverty level we are talking about different amounts for different household types.
Would you pay the same amount to someone working 37 hours a week and someone working only 16 when they have a Guaranteed Job? It seems you have implied this.
I have said that I would hope a Guaranteed Job would have a maximum of 30 hours a week so the person has some time to search for a role in the job market.
I am surprised that you are suggesting a UBI. Perhaps you mean GBI or Guaranteed Minimum Income. As you know a GBI is party policy to be at the deep poverty level within the decade. Perhaps you are coming round to our policy at last.
The government in the Autumn Statement seem to have a compulsory Job Guarantee scheme for those who have been unemployed for 18 months, which they are calling a Mandatory Work Placement.
@ Michael BG,
I don’t really understand your last comment. I’m not advocating a UBI nor a GBI. The principle is that everyone who is able should contribute what they are able to or wish to. There will be provision for part time work but the pay will be proportionate. So the JG isn’t compulsory in the sense you mean. Although we do all have to earn a living in one way or another.
Just how we tackle the issue of those who are too sick to work is going to require some discussion just as it does now.
The ONS figures (https://uk.indeed.com/career-advice/pay-salary/average-uk-salary) show £38 600 was the mean gross salary for full-time workers in 2020. The median was £31 460, which I believe normally becomes about £24 500 after tax. If you’re defining the poverty level as 60% of that, it would be a bit under £15K. That was 2020 – obviously would be higher today.
One particular issue – which goes to the core of one of my objections to Michael BG’s proposals is that a person earning minimum wage for 35 hours a week from April next year would earn about £20 800 gross or £18 200 after tax, which is very close to the 60% of median income that is defined as the poverty level – so it’s not hard to see how if you pay benefits at that level without any conditionality that people must be genuinely looking for work, you’re going to make living permanently on benefits an extremely attractive lifestyle choice for many millions of people. Why work if living on benefits gives you basically the same income?
Personally I think 60% of median income is too crude a definition of poverty to be very useful: I’d guess what most of us mean when we talk about people living in poverty is, people unable to afford the essentials for life – and I’d much rather look for a definition of poverty that attempts to measure that (although that’s going to be harder and more subjective).
I’m also rather puzzled by Michael’s post to me. In particular, I’ve said a couple of times that any job guarantee scheme would have to somehow provide for people who are too unwell to work, so I have no idea why @Michael you’re asking me whether I believe such people exist! Like Peter I’m somewhat open minded on the details of how a job guarantee scheme would operate, but I am very clear that in principle that is the only workable and ethical approach to attempting to solve poverty.
I think a big ethical question at the heart of this debate is: Is deliberately choosing to live permanently on benefits, and therefore expecting other people to work to provide you with all the the things you need while you do nothing, an acceptable lifestyle choice for someone who is able to work? I don’t believe that is acceptable or ethical. But @Michael, I wonder whether you agree? Some of your remarks seem to imply you think it’s fine for people to do that.
Peter Martin,
Sorry, I read your post about UBI incorrectly. I thought you were saying something like a UBI would be paid to people too unwell to work.
You don’t seem to have thought out what you are suggesting. You seem to be suggesting someone who can work should be in a Guaranteed Job and be paid £22,010.56 a year, and someone too unwell to work will be paid benefit (but you will not call it benefit) of about £20,000. If these amounts are not sufficient to live on there will be no benefit system to top them up so they can live on them. Also now you are saying that the pay of someone working 15 hours a week will be proportionate (£11,897.60) but if that is not sufficient for them to live on there will be no benefit safety net.
Simon R,
It was the government who had claimed that £38,700 was average earnings. They seem to have backtracked from that saying it is an average household income. The ONS reported in November that average earnings in the UK was £32,292 pa (https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/november2023).
According to the JRF the poverty level (60% of median income) for a single person is £164 a week (£8,528 net), a couple 283 a week (£14,716 net) and for a couple with two children £458 a week (£23,816 net) (https://www.jrf.org.uk/report/uk-poverty-2023). To cover housing costs more would be needed.
The aim of the government is to get National Living Wage to 2/3 of median earnings by 2024. I would like to see it rise further. Therefore full time earnings would be higher than the benefit level. Party policy is to increase benefits to 50% of median earnings by 2030. Once we have reached that level there would need to be a discussion on how benefits would need to change as the benefit level increased so there would be a sufficient incentive to work.
Now you seem to be saying that there should be a benefit system for those too unwell to work but those who are well enough to work should be forced to do a Guaranteed Job. Please let me know how much you think people should receive in terms of the poverty level if they are too unwell to work?
With reference to sanctions I agree with party policy to abolish them.
Simon R,
Liberals have an optimistic view of human nature. The aim of liberalism is to create a society where everyone has as much freedom as possible. Liberals believe no one should live in poverty. The liberal view has to be a society where no one lives in poverty and each person is free to choose their own path in life. And this must include people being free to live at the poverty level and not work if they so choose. You may not agree with it, but it is the liberal ideal. So, yes I do think it is acceptable that people should be able to live at the poverty level where their basic needs can be met without being forced to work. However, I expect most will choose to work.
Should adults living in the same household receive a separate payment or should their benefit be included in the household amount as with couples? Above there is a difference between the amounts received by single people and that of a couple of £119. With Universal Credit the household receives an extra £62.21 a week for the second child. Therefore once benefits are at the poverty level, the household could receive an amount lower than the second adult amount and at least equal to the second child amount. Also if the extra adult or adults were in paid work the household would receive no benefit for them and that income wouldn’t count as part of the household income for benefit purposes.
Catching up with this interesting discussion, I was particularly struck by Simon R’s comment of December 3 at 4.15 pm. Rather than the benefits system, Simon wrote, “I’d be looking more at replacing the entire benefits system with a guaranteed job system, whereby anyone who wishes would be offered a choice of jobs in the community based on their abilities (taking account of disabilities, etc.) and preferences”. Really, Simon? Who is going to determine how this needful array of jobs to suit everyone’s ability and preference will be provided? What will happen if the job provided to each individual turns out not to their liking after all (maybe been subject to bullying or harassment) and they want a career change? I think nothing of the kind could be possible in a liberal society. You’ve made me think of China in the Cultural Revolution, where the educated middle-classes were obliged to work in the fields, or Soviet Russia’s strict labour direction. No, stick to offering voluntary job guarantees, as Michael suggests, but there will always need to be top-up benefits – thank goodness.
@Katharine: The Chinese Cultural revolution involved mass persecution, torture, forced collectivization, with estimates of up to 2 million people being killed. It must rank as one of the 20th century’s worst crimes against humanity. And it is so far removed from anything that I or anyone in this discussion has argued for that I’m struggling to see how anyone could even think of suggesting it as a comparison.
More generally, we are (quite reasonably) restricted to 250 words per comment. Clearly you can’t give details of all the nuances of people’s ideas in 250 words, so a lot of stuff will necessarily go unsaid and have to be inferred. It seems to me that you and Michael are both to some extent (and I’m sure, unintentionally) putting the worst/silliest possible interpretations on whatever I don’t fully spell out due to the need for conciseness. Could you please trust that I am in good faith trying to offer ideas for enabling people to lift themselves out of poverty in a way that’s economically sustainable? (And I feel very certain that both Michael’s ideas and current LibDem policy, although very well intentioned, are not economically sustainable).
@Michael: I’m glad you recognise the need for sufficient incentives to work, but I’m not sure you appreciate how difficult your proposals make that: You’re using a definition of poverty based on 3/5 of median income adjusted for family size. The flip side is that definition automatically confines half the population to an income less than 5/3 of the poverty level. If the minimum wage is also 3/5 of median income, that means that there is no difference between benefits and a minimum wage income (other than adjustment for family size), thereby destroying the incentive not to live off benefits. You propose to solve that by increasing the minimum wage relative to median salary – but the flip side is that mathematically forces 50% of workers to earn significantly less than 5/3 of the minimum wage. How do you imagine tens of millions of professionals and skilled workers who trained hard to qualify for their careers are going to react to finding that you’ve forced them to earn not that much more than minimum wage? You’ll inevitably end up with an inflationary wage-price spiral as companies are forced to raise prices to meet the higher minimum wage costs, and then skilled workers in turn demand higher wages to maintain their differentials and standard of living. End result: Almost no-one is better off, plus you’ve destabilized the economy!
I’m open-minded about how much people genuinely too unwell to work should receive.
Simon R,
167% of 60 is 100% of the median earnings. It might be you are confused between the difference median and mean. 22% of the population live in poverty where their household income is below 60% of the median. 50% of people have earnings below the median and 50% have earnings above the median. If 22% of people have their incomes increased to 60% of the median this does not change the median (of course it would change the mean).
I have already pointed out that the National Living Wage will be 2/3 (67%) of median income next year which is higher than 3/5 (60%). It was possible to increase the minimum wage from 60% to 67% in four years, therefore it should be possible to increase it from 67% to 70%.
Nothing I have suggested would decrease the earnings of anyone. There is no evidence that increasing the minimum wage from well below 60% of median earnings to 67% of median earnings has caused anyone to be paid less. There has not been any inflationary effect from increasing the minimum wage to 67%.
I have often pointed out the problems with what you have suggested but your response is ‘please trust that I am in good faith trying to offer ideas for enabling people to lift themselves out of poverty in a way that’s economically sustainable’. Scraping the benefit system is not liberal and it is not sustainable. So as a liberal it is difficult to trust that you want a liberal solution.
@Michael: Your proposals will decrease the net income of many people because you are proposing to fund them from taxation. But that wasn’t the point of my post. I was trying to point out some basic maths: Let’s try again, more formally: Let’s call median income M, full time minimum wage income W and the income you want to guarantee you’ll pay anyone even if they can’t be bothered to work P – which also equals the (rather arbitrarily) defined poverty level.
Now you have chosen P=(3/5)M, and also you’re claiming W=(2/3)M. Rearranging those, that means that M=(5/3)P, hence the point that you are restricting 50% of workers to earn less than 5/3 of the defined poverty level. But most seriously, you have W=(10/9)P, meaning that someone who is working full time on minimum wage can earn scarcely more than you’d just give them for staying at home: So where’s the incentive to work? You can try raising W – you’ve suggested to (7/10)M, but that only makes a small difference, and it reduces the difference between M and W, so millions of people in skilled jobs could find they are scarcely earning more than the minimum wage. There’s no way to avoid that your proposals will kill incentives to work, which will reduce output, risking plunging more people into destitution – a point you have never addressed. I admire your dedication, but it is basically impossible to solve actual poverty in the way you propose.
@ SimonR,
You’re right of course. I might just say that if there is still an incentive to work it will be in the ‘black economy’. Even now, there’s usually plenty of work to be had mowing lawns and cutting hedges etc on a cash-in-hand basis.
Socialists have never argued that we should be paid for doing nothing. We argue that both the responsibility for doing the work and the rewards for doing that work should be distributed as equitably as possible. The majority of the population would agree with that sentiment. Excepting some Lib Dems apparently!
The “Living Wage” is an hourly rate. It cannot be expressed as a proportion of household equivalised income which is used to define poverty. You need to multiply it by the total hours worked by all members of the household then subtract direct taxes add in-work benefits and adjust for the number of adults and children in the households. Neither the proposal nor its rebuttal seems to take this into account.
“Living wage” is a deliberate misnomer for a minimum wage aimed at capturing for the Tories a term from the early days of the labour movement when it was self-evident that a man working sixty hours a week should be able to support a wife and such children as God granted them. The only thing preventing this was skinflint with the top hat and cigar who refused to pay him a living wage.
Simon R,
Adding the letters has made what you are writing more confusing. It seems to be confusing you too. 50% of workers currently earn less than median earnings, which you are calling (5/3)P. So nothing is changing. What changes is that no-one has a household income less than the poverty level.
Currently the minimum wage is 2/3 of median earnings or 5/3 of the poverty level.
I don’t agree that minimum wage would be 2/3 of median earnings by the time benefits reach the poverty level. 70% of median earnings is 7/6 of the poverty level. However, the poverty level is set at the household level not at the individual level as Peter Davies points out.
You talk about skilled workers only earning just above the higher minimum wage. Do you have any evidence that skilled works earn in the region of £22,604.40 a year currently? According to Indeed the average wage for a plumber is £20.14 an hour (about £38,750 a year).
Your argument against increasing the minimum wage is the same as the Conservatives used before the minimum wage was introduced. Since 2015 the Conservatives no longer hold these views.
Peter Martin,
Simon is saying there would be no incentive to work if the minimum wage is 70% of median wages. Do you really agree with this?
@Peter Davies: You’re correct that we’re generally not taking into account that the definition of poverty being used is 60% of median income adjusted for family size etc.. That adjustment would complicate the analysis, plus it’s not clear (at least, to me) how exactly Rowntree make that adjustment, but I would think ought to balance out overall if the adjustment goes different ways for different people.
@Michael: I did not claim that minimum wage being 70% of median wage would kill incentives to work: What will kill incentives is minimum wage being so close to what you’d pay people in benefits (a problem that you STILL haven’t acknowledged or addressed). But taking minimum wage too close to median wage causes a different problem: It would mean that 50% of workers earn close to the same (minimum) wage. I doubt many professional or skilled workers would tolerate that situation, so it would cause inflationary pressure on wages and prices as people try to restore differentials, plus demotivate people from upskilling.
And no, I’m not at all confused by the maths 🙂
There’s another problem that @Michael I wonder if you’ve thought about:
If someone on benefits starts working, how much of their earnings should they keep and how much should they lose as benefits are withdrawn? Personally, I reckon to motivate people to work plus be fair to people working, you’d ideally want them to keep at least 50p in each £ they earn. That would mean that if benefit level is P, benefits are completely withdrawn when they are earning 2P. More generally if they keep a fraction K of their earnings, then they’ll only stop getting benefits when they earn P/(1-K).
At what income level should people no longer get any benefits? Well it had better be below median income M otherwise more than half the workforce are receiving benefits which is economically totally unsustainable! Ideally you probably want someone earning a full time minimum wage (W) to be able to live without requiring benefits, so that suggests P/(1-K) should be no more than W.
That analysis says that if you want to keep an incentive to work and be fair to people working, you can’t pay benefits at more than half minimum wage – way below what you want to pay.
Of course you can play with those variables: I took K=0.5, maybe you think it should be lower? But this again illustrate the mathematical near-impossibility of creating a reasonable system that eliminates poverty by relying on paying people not to work.
Simon R, Michael BG, Peter Davies:
Could I throw a couple of other variables into the mix – travel and child care costs? If poverty is 9/15 of the mean income and the minimum wage is 10/15 of mean income this leaves 1/15 of the mean income to cover for these variables. If this is not enough (often it will not be), working at the minimum wage would put people into poverty (by this definition of poverty).
In practice there are other expenses to consider for a flexible employment market such as relocation expenses. I guess, in practice, employers would have to offer significantly more than the minimum wage.
@Simon R
I assume Rowntree and the UK government use the Modified OECD scale: Household size is callculated as 1.0 for the first adult + 0.5 for the second and each subsequent person aged 14 and over + 0.3 for each child aged under 14. The net household income is divided by the household size to give equivalised household income.
This means that a minimum wage that gave a single person 70% of gross median equivalised household income would give a household of two adults, with children aged fifteen and twelve just 30%. There are far more poor people in the latter category than the former. Poverty cannot be eradicated by minimum wage alone. The most efficient way to eliminate poverty by this measure would be a household basic income proportional to household size as defined above e.g. £100 per household + £50 per additional adult or child over 14 + £30 per child under 14.
For other reasons, I would still go for an individual UBI and set Universal Credit base value to top lower incomes up to that proportionality. e.g.
household UC £70
individual UBI over 14 £70 (paid to parent until at least 16)
individual UBI under 14 £42
A bit of cheek coming up, I’m afraid. There’s a lot of dead-horse-flogging in this current debate, it seems to me. I confess, though, that my observations here are based more on glances than on scrutiny.
Please have another look at LDV on 1st December, which aspired to bypass much of the argument in this. In particular I recommend the suggestion from Caroline Lucas, of the Green Party, that more enlightenment can be got from viewing not the GDP, but the Gross National Income.
Why? Because it sheds light on the fortunes of Households, and not the fortunes of Industry and Business. We are all (surely ?) in the Lib Dems dedicated to a generous concern for the wellbeing of all our neighbours in these islands. And we should seek not greater wealth but greater justice and equality, as a natural Right, and not a controlled patronage from the lucky ones.(That’s us!) Please consider the ideas of Professor Guy Standing, even though the Guardian and the Labour Party disparage the idea of a National Income Dividend (aka UBI). And consequently Labour, like the Tories, are sticking to Buggins’s Turn rather than Democracy.
Gotta go — family coming. Seasonal Greetings to all LDs.
Michael BG,
“Simon is saying there would be no incentive to work if the minimum wage is 70% of median wages. Do you really agree with this?”
No he isn’t. I’ve checked his logic and his algebra and it looks OK to me.
I’ll not go into that but the difficulty arises when you arises when you make unconditional and universal guarantees. Whether we like it or not the current system requires us to work to have a reasonable living standard. The problem is that not everyone can work and there are some who are able to but don’t have the offer of a job. One possibility is to guarantee everyone a job if they need one. If they are genuinely too sick then any offers to them are neither going to be universal nor unconditional.
There’ll still be some difficult issues to tackle. What do we do about someone who may choose lives in a remote location? How do we supply a guaranteed job to them. So there will still have to be some problematic details to discuss and try to resolve.
Simon R,
I have already stated you are incorrect in saying that if the minimum wage was 70% of median earnings, then half of people in work would earn close to the minimum. If you divided the earners into ten, and assume that the top 10% earn more than 200% of the median and the fifth and sixth earning the median. The fourth might earn 80% of the median, the third the minimum wage amount. Those lower down would not be working full time. Next year the third would move to 67%. If by 2030 the minimum wage is 70% of median then these have moved to 70%. This would still leave 50% of earners in the top 50%, and the fourth group at 80%.
You haven’t recognised that increasing minimum wages over the last 20+ years has not caused inflationary pressure on wages and prices as the Conservative said it would before 1997 and now they don’t.
Median earnings is for individuals. So two adults in one household could earn twice median earnings, but if both don’t work they would get benefits, say at the earliest in 2035, of 60% of median earnings. This is why there would be an incentive to work the difference is 140% of median earning minus taxes.
Simon R (cont.)
The amount of benefit, if a person is in work depends on their circumstances. There is no benefit cap for people in work. Unlike the Tories I don’t believe in the benefit cap and support our policy to abolish it. A large family which requires a four-bedroom home living in Central London (where LHA is the highest), in work, would be entitled to over £27,691.32 in benefits next year. I think someone with a net income of £38,206 (gross £50,270) would have £21,013.30 reduced from their benefits.
I have thought about possible problems with the taper on benefits. I haven’t come up with any firm figures, but I would provide a £50 a week work allowance – your K for single people, and keep the taper at 55% at the start. I think it would need to be increased in stages up to the initial 65% that it was when UC was introduced.
Martin,
The government has promised to increase the amount of free childcare available, and we have policies to increase it even further. Also people on Universal Credit can receive 85% of their childcare.
We have been talking about median earnings. What is the current mean income?
Peter Davies,
What you are proposing is more expensive than current party policy. You haven’t said if these UC amounts count as income with regard to benefit income. The reduction in poverty is greater in our current policy than in the UBI proposal put to Conference in March.
“The reduction in poverty is greater in our current policy than in the UBI proposal put to Conference in March.”
That is probably untrue. Fewer people would fall through the gaps as a result of the removal of sanctions but like any means tested benefit, people will still have a much lower take up than UBI. People with unpredictable incomes are unlikely to get what they are entitled to. Among those that the current policy treats worse than UBI, the main group is single earner couples. These are on average more likely to be in poverty than single earners or dual earner couples.
It is not obvious whether the removal of sanctions means students get UC. They obviously do get UBI. Technically a large majority of students are in extreme poverty though it may not feel as bad after loans.
It is worth noting that the bottom decile of household incomes receive on average less in benefits than that above it. I would not expect our current policy to change this.
Peter Davies,
The reduction in poverty is indeed greater in our current policy than in the UBI proposal put to Conference in March, please see paragraph 3.1.12 of the policy paper ‘Towards A Fairer Society’ on pages 14 and 15, where it is pointed out that the UBI proposal would reduce poverty by 19% compared to 28% for the Guaranteed Basic Income proposal that was passed.
The GBI will be enough to live on, but the UBI proposal was not. Nor is your proposal. Next year UC for a single person will be £71.93 or £90.80 a week. Next year for the first child UC and Child Benefit will be £102.52 or £92.04 a week and £83.39 a week for the second child.
According to the ONC (spreadsheet can be downloaded at https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/theeffectsoftaxesandbenefitsonhouseholdincome/financialyearending2022) the bottom decile have their income increased (on average) by £14,121 a year compared to £12,105 for the next decile.
That page shows quintiles rather than deciles. My point is that those people that UBI reaches but UC doesn’t include many that are in the bottom decile. It may not take them out of poverty but it means they have some income.
Actually looking at the quintile data, the bottom quintile sees household equivalised income raised by £7267 by cash benefits compared to £7952 for the second quintile.
The most cost-effective measure for poverty reduction incedentally is removal of the two-child limit which was already policy.
@ Peter Davies “The most cost-effective measure for poverty reduction incidentally is removal of the two-child limit which was already policy”.
I agree on that, Peter.
However, having a policy on a bit of paper or hidden away on an obscure web site doesn’t cut it. It is a cause and a policy that needs to be articulated loud and clear with conviction by Party spokespeople and the Party leadership if it is to be transmitted and got through to the electorate at large.
Indeed. In this case though we also need the message to get to a very specific group (lower income households with more than two children. They need to get the message much more often than they see Ed Davey on telly. Either we need to identify these people locally (which is difficult given GDPR) or work out how to target them on social media.
Peter Davies,
I don’t understand why our figures do not agree. You are correct the information is for quintiles. The information I was quoting is from the spreadsheet for figure 1 – ‘Taxes and benefits lead to household income being shared more equally between people’. (There is a note saying that these incomes are equivalised.) I was quoting the difference between the original income and the final income. Please can you let me know where the information you are using to get different figures to me comes from?
I did note your point about the people who fail or can’t claim benefits, but this doesn’t affect the reductions to poverty of each option of 19% or 28%.
There are people who are not in the lower income households who would support the restoration of benefits for more than two children and so reduce poverty. There are people not living in poverty who would support our policy to remove everyone from living in deep poverty within the decade.
@Michael Your figures are for taxes and benefits together. the second quartile pay more tax. I was using the spreadsheet for figure 5 which gives the separate elements.
I’m not convinced that any target based on a definition of poverty relative to median income is useful. The problem is that the simplest way to achieve it is to tax people on median income more. Both our options raised net incomes for a substantial portion of people close to the median. That’s a good thing (and very popular if we chose to mention it) but it makes the target much harder to achieve.
To see why relative poverty targets are a bad idea, look at the South Sudan strategy. They have completely eliminated relative poverty since over half the population have no income.
I’m guessing the reason the 60%-of-median is used as the definition of poverty is mainly that it’s easy to measure. But I agree with @Peter Davies that it’s not very useful as a target. A more useful definition would probably involve deciding what things we think are essential that someone not in poverty ought to be able to afford to buy, and setting an amount just enough to cover those. But that would be more subjective and harder to work out.
The trouble with using any % of median income as the definition and as the target is that (a) it takes no account of how comfortable life actually is on the median income, and (b) trying to get everyone to that level inevitably becomes an exercise in equalising the incomes of the bottom 50% of the population – which is just not at all feasible if you want to run a successful and prosperous market economy in which people are able to work to make better lives for themselves (and that is part of the reason why you end up destroying incentives to work)
Peter Davies,
In the spreadsheet for figure 5 I don’t see your figures but the second quintile receives more in cash benefits than the bottom one. However, what is important to households is how their income is increased after benefits and taxes.
The government prefers a different definition of poverty based on 60% of the median income in 2010/11 uprated by poverty. Relative poverty is a standard measurement and so is very useful when discussing reductions to poverty. However, when median income falls the number of people in relative poverty falls too, which happened during Covid.
If we can ensure no one in the UK is living in deep poverty we can go on to ensure no one in the UK is living in poverty.
To ensure students don’t live in poverty we would need to restore maintenance grants for living costs, which were available before 1990.
Simon R,
The Joseph Rowntree Foundation have what they call the Minimum Income Standard, which is what the public have told them ‘is sufficient income to afford a minimum acceptable standard of living’ (https://www.jrf.org.uk/deep-poverty-and-destitution/what-is-poverty).
I have explained that if no one had an income below 60% of medium income this would not mean ‘equalising the incomes of the bottom 50% of the population’. Currently 22% of the population live in poverty. If their household incomes were increased to 60% of median income, the income of the other 28% below the median are not directly affected. Only the income of the bottom 22% are equalised. I have pointed out the policy of increasing the Minimum Wage since 1999 and the National Living Wage since 2016 is evidence that increasing the income of the poorest hasn’t destroyed our market economy. You seem to believe that people have the incentive work only if the benefit level is below the poverty line. However, people want to earn more money because of what it can buy. If what you seem to believe is true no one would have the incentive to increase their income so they can buy a home, buy a better car, buy the latest mobile phone or computer or buy whatever they want.
The JRF MIS is a better measure for us to target. We wouldn’t put everyone above it with any of the measures we have considered but it would at least be a target to aim at. I would like to suggest measuring our policies against a metric which is the sum of the shortfalls in EHI below MIS. It’s a much broader measure than how hany people go over a specific threshold and much less susceptible to gaming.
“what is important to households is how their income is increased after benefits and taxes.”. That may be what is important to the beneficiaries but to those trying to assess the extent to which people can be taken out of deep poverty by increasing UC, only the cash benefit figure is relevant.
@Michael: You’re distorting my meaning when you say “You seem to believe that people have the incentive work only if the benefit level is below the poverty line” What I’ve actually said is that people won’t have the incentive to work if what you pay in benefits is close to what they could earn if they worked. And to be honest, I can’t see how that statement is at all controversial. Does anyone disagree with it?
The problem that you don’t seem to be willing to recognise is then that, with the 60%-of-median definition of poverty, it’s mathematically practically impossible to pay everyone that level for not working, while also leaving sufficient incentives to work for the economy to be able to function; that leads to the conclusion that what you (and LibDem policy) is trying to achieve is basically impossible, and if you are serious about wanting to eliminate poverty, the only way to do it is to design a system that’s primarily based not on welfare but instead on guaranteed jobs. (Although adopting a more realistic definition of poverty rather than constantly relying on 60%-of-median would be helpful too. Looking at that link you provided, the ‘material deprivation’ and ‘destitution’ measures seem to me the most useful.
What motivates people to work rather than rely on benefits will be different for different situations. Certainly if you don’t receive significantly more than you would not working there is no particular motivation to work especially if it’s a low quality job. How much more will differ. The benefits of paid work apart from the salary will only apply if you’re above the poverty line i.e. not struggling. Assuming with a UBI you will only be at the dividing line between struggling and not it should not provide a detererent to obtaining a decently paid job.
Peter Davies,
I haven’t seen comparisons between the poverty level and what Joseph Rowntree Foundation have called the Minimum Income Standard, but it seems that the MIS is higher than the relative poverty level and the National Living Wage. A few years ago the Social Metrics Commission produced poverty lines specific to the needs of different families and I think they were lower than the equivalised relative poverty levels.
Peter Hirst,
We are not discussing a UBI, we are discussing going further than party policy, which is to increase benefits to the deep poverty level and call this a Guaranteed Basic Income (GBI).
Simon R,
I have tried to point out that what most people earn if benefit levels were at the poverty level would be above the poverty level (as they already are today) and so the incentive to work would still exist. I have also pointed out that the incentive to work exists for wages well above the poverty level.
You have not provided any evidence that it is ‘mathematically practically impossible’ to increase the benefit level to the poverty level and still provide the incentive for most people to work. Until we had the policy of increasing benefits to the deep poverty level I advocated increasing them to the Social Metrics Commission poverty levels which were lower that the relative poverty levels equivalised. It doesn’t seem they are now.
Perhaps we should discuss party policy and not my long-term ambitious target. According to the SMC a single person needs £177 a week and a couple £305 to meet their needs. According to the JRF the deep poverty level for a single person is £137 a week and a couple £236. Do you believe that the benefits levels could not be increased to the deep poverty levels whilst keeping the incentive to work? Do you believe it isn’t possible to increase the National Living Wage to 70% of median earnings (an increase of 3%)? And if you do believe these things do you have any evidence for such beliefs?
Simon R,
If we imagine in the future the benefit level to be set at the poverty level, so a single person would receive £164 a week and we assume that their parents take half (£82) for bills and food, they would have £82 left over for other things. If we assumed that the National Living Wage is £12.87 an hour. If they instead worked 37 hours a week and gave their parents the same amount they would be £237 better off in work than on benefits at the poverty level. They would have a large incentive to work.
Turning to a couple we can imagine the benefit level to be £283 a week. They rent a one bedroom flat for £200 a week. One of them gets a job working 37 hours a week and has take-home pay of £401 a week. They still receive £262.45 a week in benefits and so are £180.45 better off a week. Again they have an incentive to work. (This doesn’t include there being a work allowance for people without children which I would hope we would restore.)
@Michael: I have provided reasoning for the mathematical impossibility of doing what you’re trying to do. Maybe I haven’t explained the logic well enough? Let me try again:
You want no benefit sanctions, which means the only incentive for people on benefits to work will be, getting more money – so you need to let people keep a good proportion of each £ they earn – arguably at least, say about half. So let’s say for each £, you withdraw 50p of benefits. That means people completely stop receiving benefits at twice the benefit level. But you want to pay benefits at 60% of median income, so twice benefit level is 120% of median income! In other words, well over half the population would be receiving benefits! Hopefully it’s obvious that’s not a remotely sustainable way to run either the economy or Government finances.
So if you want to pay that level of benefits, then you have no choice but to substantially reduce how much of earnings people can keep – thereby destroying the incentive to work. (Note though this analysis is for someone where there’s no adjustment for family size)
Regarding the particular examples you cite: You first suggest a single person. A single person living at home has the least requirements so will receive lowest benefit levels. But notice you’re giving that person £82/week spare cash after essentials: An awful lot of single people would view that as sufficiently comfortable to choose as their permanent lifestyle, without even considering how much more they could get working.
Your other example of the couple – are your figures correct? You’re saying they get £283/week in benefits and pay £200 rent: That doesn’t seem enough left to live on. Yet then you say they can earn £401 a week and they’ll lose only £283 – £262.45 = £20.55 of their benefits: So they lose only 5.1p for every £ they earn. At that low rate of benefit withdrawal they’d have to earn £5 522 a week (that’s £287K a year) before you completely stop paying benefits – which seems absurd!
Clearly it would be ridiculous. The calculation should be £283 + £401 – £262.45 = £421.55. or £0.45 per pound earned. You don’t even need to do the calculation. The taper rate for UC is specified as £55%
Forget the calculation. It’s the 55% withdrawal rate that is fixed.
Simon R,
If someone was earning £32,292, it is an interesting question whether they would receive benefits. However if they were a couple earning £64,584 they wouldn’t receive any benefits. You have already accepted that a single person, living at home, earning the minimum wage would not receive any benefits. Those who have a mortgage don’t receive any benefit for paying their mortgage interest as they did in the past.
I do accept that if working-age benefits were increased more households would be entitled to receive them but it wouldn’t be half of all households. Returning to someone earning £32,292, they would receive £26,375.40 net. This means their benefit would be reduced by £14,506.47 (£278.97 a week). Therefore if they were a couple living in rented accommodation, and that is their only income, they would still receive some benefit. Mostly it would be the households living in rented accommodation which would receive benefits when in work. However, it is likely to be less than half of people living in rented accommodation. The majority of them (57%+) live in social rented accommodation where rents are lower than in the private sector. Of the total number of households 61.7% own their home either outright or with a mortgage.
Simon R,
In the example of a single person they pay no rent and so just receive the £164. In the couple example, the rent of £200 for a one-bedroom flat would entitle the couple to receive this amount in benefit if they lived in Brighton (I should have picked a lower rent say £120 for Coventry). So the couple receives £483 in total, the basic £283 and £200 for their rent. They lose 55% of £401 – £220.55. 283 + 200 – 220.55 = 262.45.
I note you have changed your position from ‘that 50% of workers earn close to the same (minimum) wage’ to ‘well over half the population would be receiving benefits’. You seem to be equating median earnings with median household income. They are not the same. The benefit level is set according to median earnings not median household income and varies according to household composition. Also your view seems to be is based on the assumption that both members of a couple will not work. I would expect both members of a couple to work.
I calculated that £82 would only buy 11.5 pints of beer a week. This wouldn’t even cover my drinks for three nights out when I was in my twenties (for some of my friends it wouldn’t even cover one an half nights out). It wouldn’t cover the bus fare to get into town, or anything for clothing and grooming.