Making the poor poorer is false economics

When former US Treasury Secretary Larry Summers compared the UK to a “sinking market” last week, I thought he was putting it on a bit. But in a busy south London chalkboard, “go into hiding” felt like the right word on Friday.

A line formed in a church parking lot to pick up a package containing free food and a hot meal. In the past, visitors here were mainly single men. But last week, toddlers were running around and moms were wiggling babies on their hips. “Recently people have been asking us, ‘Can I have food that I didn’t need to put in the fridge because I turned off the fridge?'” says Kate Lott, project manager at the Living Well Bromley food bank. Others are asking for food they don’t need to cook because they turned off the gas, she says.

The number of visits to this panel has increased from 530 adults with 183 families in August last year to 843 adults with 372 families this August. About 1,000 people came for warm meals in September, almost twice as many as a year ago. Many of these new visitors have never used a blackboard. According to Tamara Cooper, a volunteer, many people are working who cannot afford the rising cost of food and energy. She understands: she sometimes sits with the lights off to save money on her prepaid meter.

Kwasi Kwarteng, Britain’s new Chancellor, made a U-turn on Monday with his decision to cut the 45p tax rate for the wealthy. But he still has a financial hole to fill. One option under discussion is to cut social spending by increasing benefits out of step with inflation. According to the Resolution Foundation think-tank, raising working-age benefits by income rather than inflation over the next year would cost a typical low-income working family with two children more than £500 a year and save the Treasury £5 billion.

The UK spends heavily on non-pensioner benefits: the invoice amounted to about 4.6 percent of GDP in 2019/20, up from about 3 percent in the 1970s. But spending has already been cut by about 5.7 percent during the post-financial crisis decade of austerity. There comes a point where making the poor poorer becomes false economics, and I think we’ve got there.

Families who become homeless have to be accommodated in expensive bed and breakfasts. People who become mentally or physically ill contribute to healthcare costs and drop out of the workforce. Around 640,000 people of working age have left the labor market since the start of the pandemic. In a survey of NHS trust leaders last week, 72 per cent said they had seen an increase in people with mental health problems due to stress, debt and poverty. More than a quarter of Trust executives said they have set up food banks for their own employees.

The better way to crack down on social spending is to crack down on the causes of social spending. About three-quarters of working-age benefits are spent in three ways: income supplements for low-income workers; housing benefit to support rent payments; and disability, sickness and disability benefits for people who are ill.

In other words, the size of the welfare bill is a result of Britain’s deep-rooted problems of low wages, high housing costs and poor health. The dysfunctional housing market in particular stands out. The UK spends less on unemployment benefits than most other OECD countries, but more than any other OECD country on housing benefits.

These problems are not insurmountable. They require better community-based and preventive health services, more public housing construction, and greater corporate investment in workforce skills and productivity.

The alternative is to cut back welfare spending and let people try to help each other through. But that’s an economic shock that resonates high up the income ladder. People who normally have enough money to donate to others are now worried about their own utility bills and mortgage payments.

The Living Well Bromley food bank has a shipping container in the parking lot that is usually full of donations. Now it’s half empty. Two other local food banks in the area have warned they may have to close. Still, people give what they can. And Lott says that those who have the least give the most. “People will come in and say, ‘Can I give you three pounds? I used to be a guest and I want to help.”

sarah.oconnor@ft.com

https://www.ft.com/content/3fb982c2-792e-496f-8488-237f43fc2db7 Making the poor poorer is false economics

Adam Bradshaw

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