By most international standards Britain is a rich country, however millions of people live in households which suffer from poverty. Reasons for poverty include differences in wages and earnings between households, dependency on benefits, and unemployment. The Labour government has brought in various policies to try to eradicate poverty in Britain, and their effectiveness will be discussed in this essay.
Poverty can be measured in two ways, firstly absolute poverty which measures the number of households unable to afford basic goods and services, and secondly relative poverty which measures the extent to which a household’s financial resources falls below an average income threshold. The most commonly used UK standard identifies as poor those households with incomes (adjusted for household size) less than 60% of the national median income.
The risk of relative poverty is greatest amongst households where no one is in paid employment, household members are highly dependent on welfare assistance, and household savings and other forms of financial wealth are low. One explanation of the persistence of relative poverty is the ‘Poverty Trap’. This arises from a combination of losing state-benefit entitlement and paying tax that ensures that poor families keep only a small proportion of any extra money they earn. Relative poverty is usually worse in areas where unemployment rates are above the national average. The Labour government has allocated increased funds to areas of deprivation to encourage new businesses into the areas. However there are doubts over the cost-effectiveness of regional policy funding.
Unemployment is a key cause of poverty. Since 1980 there have been two mass unemployment periods and a large rise in relative poverty (the two trends can be connected). Unemployment encourages people to take on benefits and families can become dependent on state welfare aid. The Labour government has launched various employment schemes to raise employment and improve prospects for the unemployed. One of these schemes is New Deal which was launched in 1997 and includes training for unemployed people.
Unemployment often leads on from poor education and training skills. In Labour’s manifesto pledge of 1996, Tony Blair focussed on five key concepts; education; crime; health; jobs and economic stability. By implementing New Deal, unemployment has decreased and the economy as a result is growing, as the level of training has risen dramatically. According to the Labour website, New Deal has helped over 351,000 young people into jobs, and youth unemployment has fallen by 75%. Britain has one of the highest employment rates among developed nations, with 75% of working age adults in work.
Between 1979 and 1999 the incidence of unemployment among this group of households more than doubled. Over the same period, the number of households where all adults are in work has increased. The New Deal for Lone Parents and the New Deal for Partners of the Unemployed are particularly relevant for families with children; these groups had been ignored by previous governments. The New Deal for Young People aims to eliminate long-term youth unemployment, and to improve matching with sustained employment among youths.
Returning to work from a period of unemployment also has its setbacks. Workers returning from unemployment benefits often do so on lower wages than any previous jobs they had. They also remain on lower wages for a sustained period after returning to work. Low paid workers are also more at risk from job loss than those earning more than them, and over the last twenty years the wage penalty accompanying job loss has increased.
In ‘Opportunity for All’ Rt Hon Andrew Smith MP, Secretary of State for Work and Pensions, states that Labour will by 2006 have ensured that an extra 2 million people will benefit from interviews and work-focussed support through Job Centre Plus.
Schools with high levels of child poverty among their pupils underachieve on school-leaving exams and generally have fewer pupils staying in education after the minimum leaving age of 16. ‘Sure Start’ is targeted at children aged 0-4 living in the most disadvantaged communities in Britain. It aims to promote physical, social and emotional development of children, and make them more ready to learn by the time they enter into school.
Earnings inequality has been growing in Britain. Male wage inequality continued to grow in Britain after 1990, but at a slightly slower rate than in the 1980s. Since 1996 wage inequality has changed little (Office of National Statistics, 2000).
National Minimum Wage was established in 1999 and is designed to boost the earnings of people in low paid work. It has been increased on three occasions since its introduction and now stands at £4.20 per hour for adult workers. Supports say it has provided a significant improvement in gross earnings and living conditions for thousands of low paid workers, and it has also improved the incentives for people to look for work, and therefore has increased household income and lifted poverty for some families. However critics claim that it is an ineffective strategy to reduce poverty. Many people who benefit from the National Minimum Wage are generally from middle class families where other members of the family also work, and those who are unemployed do not benefit at all. Labour statistics state that the National Minimum Wage means that 1.5 million low-paid workers are better off.
Changes to the tax and benefits system effect a household’s economy in different ways. Low income households have lower taxes, whereas higher earners have higher income taxes. It has been feared that this would encourage people to take on less well-paid jobs and might damage enterprise and productivity. This is an expensive way of alleviating relative poverty as all taxpayers would benefit from lower starting rates of tax and increased tax allowances.
Benefits can be received by households after they have been means tested. These tests are often unpopular with the receiving households. There is always a risk that the recipients will become reliant upon the benefits and not be encouraged to return to work. The Working Families’ Tax Credit differs in major ways from its predecessor. Firstly it is more generous, and secondly families can earn more before support is withdrawn. The Working Families’ Tax Credit, the Childcare Tax Credit and the Children’s Tax Credit all combine to increase the financial returns to working rather than being on welfare.
The intention is to reduce entry into work and so further reduce child poverty as a reduction in the number of children wholly or nearly-wholly supported by the state is probably vital if numbers in child are to be reduced. The Spring 2000 Labour Force Survey shows a dramatic decline in the numbers of children living in workless families. State welfare benefits normally rise in line with prices rather than with the growth of earnings, therefore households partly or wholly dependent on welfare assistance will have their relative incomes fall over time.
In 2002 Labour claims that, “Record increases in child benefit, the new Children’s Tax Credit and the Working Families Tax Credit are all helping us lift 1.4 million children out of absolute poverty.” Also, “Families with children are on average £1000 a year better off since 1997. The poorest families with children are on average £1,700 a year better off.” These statistics throw a very positive light on the subject of child poverty, however according to a recent story on the BBC news, 41% of children in Britain still live in poverty under the Labour government. Over the past 20 years, the incidence of relative poverty among Britain’s children has tripled.
These changes are related to increased earnings inequality, growth in the number of single parent households, and an increased share of households with children with no working adult. At the Beveridge Lecture in 1999, Tony Blair (Labour leader) said, “Our historic aim will be for ours to be the first generation to end child poverty.” The Labour government has responded by adopting as a policy objective ending child poverty by 2020. Initial steps towards this end include increasing direct financial support to families with children, creating financial incentives for work for parents, adopting more intensive case management for the welfare caseload, and alleviating the long-term consequences of the deprivation poverty brings.
The Prime Minister’s pledge to end child poverty has not been formally translated into a specific numeric target, as there is no official standard poverty definition in the UK. However, the government currently produces a range of indicators covering relative incomes, absolute incomes, deprivation and unemployment, all of which are related to child poverty (Department of Social Security, 2000b). Using the after-housing-costs benchmark, 33% of Britain’s children were living in relative poverty in 1998. This was up from 14% in 1979. The most immediate and obvious response to observed low incomes in many families with children is to increase the net transfers available through the tax and benefit system.
Wages and earnings in some jobs have grown faster than others. Workers in industries of fast economic growth and rising profits have benefited from increased wages, but there are still many people earning hourly wages far below the national average. In recent years there has been a growing demand for labour in high-skilled and high productivity knowledge industries compared to the low pay seen in thousands of lower skilled industries where labour productivity may be lower and the value-added labour in the production process is smaller. Many low paid jobs have little or no trade union protection, and some lower paid workers may experience exploitation because of this.
With regard to the elderly, Labour claims, “We are doing more for pensioners with the Minimum Income Guarantee, £200 Winter Fuel Payments, record rises in the state pension, free TV licences for the over 75s and free eye tests for the over 60s.” The Minimum Income Guarantee received depends on the individual’s circumstances and the amount of savings they have. It applies to all over the age of 60 who have less than £12,000 savings, who are working less than 16 hours per week.
An organisation working closely alongside the government, the Social Exclusion Unit, tries to find solutions to social problems, including poverty, and to help the government to understand social exclusion. An example of the SEU having report recommendations implemented is the Connexions scheme, which has helped over 17,000 young people into jobs and training. This in turn will help these young people to avoid poverty.
Because relative poverty and income inequality is deeply rooted in the UK, no single government policy is likely to be sufficient for a government committed to reducing poverty and economic deprivation. Labour government research shows that there are 1.5 million more people in work since 1997, and at below 1 million, unemployment is at its lowest since 1975. Levels of welfare support for those not working, as well as those in work, are rising substantially. The Labour government have put a strong emphasis on tackling poverty and its consequences for children.