Does social security do nothing in reducing poverty?


12:02 pm - August 2nd 2010

by Richard Exell    


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One of the claims in Iain Duncan Smith’s Twenty-first Century Welfare really annoyed me when I first read it, and it has been niggling away at me ever since:

The welfare system has failed to tackle intergenerational disadvantage and poverty.

I suppose the reason I find this statement so annoying is that you come across it so often – after a century of social security, we still have poverty and inequality. So obviously social security/the welfare state is a failure.

This is a claim that fails to take into account what would happen if we didn’t have the welfare state.

If you divide the population into ‘deciles’ (tenths) by how much income, the poorest get far more than the richest in both cash benefits and benefits in kind:

How much different income groups get from the welfare state, 2008/9 (£ p.a.)

Bottom 2nd 3rd 4th 5th 6th 7th 8th 9th Top
Cash benefits 5,267 7,536 7,807 7,794 6,255 5,107 4,128 2,964 1,982 1,627
Benefits in kind 5,874 6,748 6,072 6,061 6,208 6,075 5,022 4,889 4,452 3,727

Each income group receives a significant amount from the welfare state, but – on the whole – lower income groups receive more than higher. The end result is that we have much less poverty and inequality than we would have without the welfare state.

The next table uses the same decile groups, and looks at their average “original income” (including wages, pensions, investment income and other sources) and the ratio between the bottom decile and the top. The next row looks at their “gross income” – including cash benefits. The third category is “post tax income” – we add the direct and indirect taxes people have paid to the mix. The last row, “final income” takes into account the value of benefits in kind, mainly education and the NHS.

The effect of the welfare state on the incomes of different groups and ratio between the top and bottom, 2008/9 (£ p.a.)

Bottom 2nd 3rd 4th 5th 6th 7th 8th 9th Top
Original income 3,120 5,979 8,274 12,896 19,451 27,225 33,160 43,309 56,542 94,897
Gross income 8,386 13,515 16,081 20,690 25,705 32,333 37,289 46,273 58,523 96,524
Post-tax income 4,659 9,408 11,184 14,407 17,320 21,752 24,668 30,190 37,789 64,753
Final income 10,533 16,156 17,257 20,468 23,528 27,827 29,689 35,080 42,241 68,480

Ratio between the top and bottom deciles

Ratio
Original income 30.4
Gross income 11.5
Post-tax income 13.9
Final income 6.5

As you can see, the welfare state triples the income of the bottom two deciles and cuts the ratio between the top and the bottom from more than 30:1 to less than 7:1.

Yes, we could and should be doing more – ten and a half thousand pounds a year is very little to live on – but it simply isn’t true that the welfare state fails to make a difference – we need more welfare state, not less.


Note for fellow-wonks: the figures are for average incomes by decile groups (ranked by equivalised disposable income, using the modified OECD scale) of all households in 2008/09. I’ve used Office for National Statistics data for the article “The effects of taxes and benefits on household income”, 2008/9”, specifically table OECD 14 from Appendix 1.

Richard Exell is the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues.

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Richard is an regular contributor. He is the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues.
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Reader comments


I suspect they know very well (as is very obvious) that benefits do reduce inequality, but use this type of claim as a rationale to publicly justify their desire to remove benefits.

For the real Randian libertarians, if the market has not ‘naturally’ allocated someone sufficient money for a reasonable standard of living, that shows not only that giving them that money would be economically wasteful (since the market is assumed to naturally direct money to where it is best used), but also demonstrates that they do not morally deserve the money (since the assumption is that the market is fair to all). Therefore any moral problem with causing destitution is resolved, in most cases at least.

However, despite the best efforts of the Daily Mail (and various TV comedy shows, it has to be said), only a hardline minority are really prepared to believe that the vast majority of the poor are poor only because a free and fair market has passed judgement on their immorality and sloth, and that therefore benefits are, by and large, throwing good money after bad.

So alongside the demonisation of benefit claimants as immoral, foreign, chavvy, living it up off your taxes etc – other more humane-sounding justifications are required (benefits don’t really help the recipient, a rising tide lifts all boats, etc, etc) to shore up support among the waverers…

I hate to point this out, but you are not addressing the issue which the quote you select is related to in the original source. This is clearly in a section entitled ‘high rates of welfare dependency and poverty’, and this relates not to the failure of the welfare system to help raise people out of absolute poverty (or even the more political aim of redistribution) but to the problem that people born in that lowest decile (if we are assuming that equates to those on benefits, which is not shown above, but is clearly assumed) are disproportionately likely to stay in that decile. That is to say, this relates to social mobility, not the effectiveness of welfare. I would have thought that should be pretty clear from the use of ‘intergenerational’ in the quote, but a quick glance at the context of the quote makes this clear anyway.

Indeed, I can’t see anywhere in the report where welfare as a whole is described as a failure, as opposed to a focus on areas which are failing to achieve the desired aims (people incentivised to get jobs, no dependency on welfare etc), a major difference. But far be it from me to suggest that rather than setting up straw men, you actually address the issue. After all, Richard is presumably so comfortable with welfare-dependent families that rather than consider the problem, he invents something else to attack. Very poor I’m afraid.

There’s no point responding to right-wing arguments on social policy in a rational and empirical manner, because right-wing approaches to social policy are never based on observation and experience. Problems are defined in a totally ideological manner and ideologically motivation ‘solutions’ to these problems are proposed (and, regrettably, often implemented). It would be better to expose the hollow foundations on which right-wing approaches to social policy inevitably stand (and to expose the ideological zealotry of those arguing for it).

Alun,

For your point to be valid, it has to be shown that left-wing approaches are not ideological but merely empirical, which I do not think can be admitted. But feel free to try to show the foundations of right-wing thinking here, because it would be interesting. Can I offer a hint that equality of opportunity and personal freedom are two key elements?

Oh, and in this case are you denying that there is a problem with welfare dependency, and that it is only an ideological construct?

5. Flowerpower

The issue of “intergenerational disadvantage” is one on which, pace Alun @3, right-wing arguments are very much based on observation and experience.

Why is it that young people whose parents are not in work have lower labour force participation rates and higher unemployment rates than young people with at least one parent at work?

How come young people with one or both parents in work are significantly more likely to have found stable employment over a one-year period than young people whose parents were not in work?

The answers appear to be as much cultural as economic.

As Watchman says, the writer of the OP appears to have misunderstood what the quote was about.

Welfare dependency is as much the cause of some social problems as a symptom of them.

Good post.

Just on this stuff about welfare dependency, it is worth remembering that Iain Duncan Smith’s big idea, supported by a whole merrie band of people with impeccable right-wing credentials (though not the Treasury) is to pay more welfare benefits to people in work.

Even the Taxpayer’s Alliance have proposed that someone who is unemployed and living at home with their parents, should get their benefits doubled to £116 per week.

@2, Watchman nails it perfectly. This is about social mobility, or rather the lack of it. It’s been suggested many times that welfare payments do have the effect of limiting social mobility, and indeed there does seem to be some correlation between the fall of social mobility and the rise of the welfare state, although many other factors are surely involved.

Now, I am no socialist, but it seems to me that the intended purpose of welfare is to improve the lot of the poor, and this purpose is not being served if the actual *effect* of welfare is to keep them poor. Hence, the welfare system is in need of some reform.

@6,

don. Why is it odd for a right-winger to think higher benefits might be appropriate in this case? Right-wing does not mean opposed to benefits, it means, if anything, opposed to excessive state control and in this specific case the creation of an effective clientelle population, dependent on the state for benefit, but economically unable to come off benefits.

And right-wing thinking generally believes in incentives, which would be what increased benefits for those working would be. Currently the costs of working actually act as a disincentive to coming off benefits.

@8

If what you say was true, no-one who ever went on the dole would come off it. There is more value in work than the wage (and fwiw the money is better when in work).

@9

The added cost (in terms of time committed to doing work) does not in many cases seem to be outweighed by the added value (the small extra increase in income), and there are cases where taking a minimum wage job would actually reduce the amount earned by a household.

In general there is no problem, but there is clearly something causing a notable fraction of the population to not work, and benefits must play a role (I know social change, education etc do as well – but to be fair the coalition seem to be trying to change all those as well, at once).

@10

Hm, what I mean by value is the actual moral & spiritual (for want of better words…) well-being of the person involved*. When you’re on benefits it’s disheartening and demoralising (with the added affects on health etc). Also when you’re in work you’re not (for example) limited to where you can or can’t live (unless you have pets or are a smoker, I suppose) in terms on the rental market so being in work gives you more freedom than being on benefits. Sure there are some cases of benefits being (when combined) better than the minimum wage – I personally see that as an argument to increase the minimum wage to an actual “living” wage rather than subsistance, but I’ve never heard the right argue for that case. I also think that job security should be improved and the temping agencies need to be tightened up in terms of conditions and pay. Naturally the argument is that if they were so terrible no-one would use them but I happen to think that is bollocks .

*This well-being is somewhat diminished when forced to take a really crappy job, for instance working at McDonalds.

“It’s been suggested many times that welfare payments do have the effect of limiting social mobility, and indeed there does seem to be some correlation between the fall of social mobility and the rise of the welfare state, although many other factors are surely involved.”

I don’t know who has been suggesting this, as social mobility is greater in countries which have larger welfare states:

http://www.equalitytrust.org.uk/why/evidence/social-mobility

http://www.timesonline.co.uk/tol/life_and_style/education/article385160.ece

“I don’t know who has been suggesting this, as social mobility is greater in countries which have larger welfare states:”

No, try reading the graph again. Lordy, if you’re going to rely upon nonsense like The Spirit Level the least you could do is actually say what they do say. Which is that social mobility is higher in countries with less income inequality.

And no, less income inequality is not the same as larger welfare states. As The SL itself says, it doesn’t matter whether the income inequality is natural (ie, the market outcome is low income inequality) or constructed (ie, large redistribution or a large welfare state).

As to the basic point of the post, as @2 says, it’s nonsense. Doesn’t address the point it claims to at all.

Although I would like to commend the writer for highlighting not just cash benefits but benefits in kind as well.

£10k a year might not, as he says, be much to live on, but by any global or historical standard I think we can safely say that we’ve managed to abolish poverty.

The idea that the creation of the welfare state was solely motivated an attempt to eradicate poverty and promote equality is only a partial part of the story.

The ‘social security state’ at the beginning of the century was supported by Liberals and Conservatives because of concerns about ‘national efficiency’ as a bunch of Boer farmers fought Imperial Britain to a standstill and we lost markets to foreign competitors.

The post war welfare state was introduced by Atlee as a the implementation of a socialist ideal, but also because the Soviet Union was very popular at the end of the war and the both Labour and Tories were worried about the growth of Communism in the UK and a possible revolution.

As for “The welfare system has failed to tackle intergenerational disadvantage and poverty”

We usually talk about “disadvantage and poverty” not ‘intergenerational disadvantage and poverty”.

What IDS is doing here is *nudge nudge* “look the parents are on benefits and now the children are living on benefits too”.

Well I grew up in working class north Manchester and this never used to happen till the 1980s came along and the Tories decimated our manufacturing industries and large areas of Britain.

This ‘reserve army of labour’ (and I’m not even a Marxist) is all part of the neo-liberal dystopia, which all three parties are still signed up to despite it obviously having crashed and burned in 2008.

IDS is just carrying on what Blairites like James Purnell started.

(Interesting to see Purnell has just been appointed Chair of the IPPR. It was the IPPR that provided much of the ideological basis for his ‘welfare reform act – incorporating workfare’ – it’s the old revolving door again isn’t it?)

15. Flowerpower

The debate about welfare dependency certainly throws up some strange statistics.

Why, for example are 26% of the people of Blackpool claiming out-of-work benefits while in immediately adjacent Fylde (a 5 minute bus hop) the figure is less than half that at only 12% and half an hour’s drive away in Ribble Valley it’s down to 8.9%?

@15

have you ever been to any of those three places? trust me, if you had done it would all become clear…

15 – a combination of assortive selection and cultural/environmental effects, I’d expect. If I’d moved back to Doncaster when I broke out of the underclass (and I’ve have been really ‘lucky’ to be able to, since there aren’t really any of the jobs I’m qualified for there), I’d have helped to reduce the unemployment statistic. But I’d have been in Doncaster *shudder*. No thanks – I’m staying in nice quiet York, 20 minutes away by train and with a much lower incidence of violent crime and drug addition.

Hi Tim,

Is this some new kind of Not Even Pedantry?

The LSE research looked at social mobility in eight countries. It found social mobility was highest in the four Scandinavian countries, then Canada, then Germany, then Britain and the USA.

So the countries with the biggest welfare states (Sweden, Finland, Norway, Denmark) had the highest levels of social mobility, while the country with the smallest welfare state (USA) had the lowest.

It certainly doesn’t support the assertion that “there does seem to be some correlation between the fall of social mobility and the rise of the welfare state”.

Worth noting also that the report authors specifically recommend that Britain expands its welfare state in order to increase social mobility:

“Our evidence indicates that income and educational attainment are causally related, through research that tests this hypothesis using a number of approaches to control for observed family differences and to isolate the impact of transitory income shifts. However, they also indicate that equalizing educational attainments by redistribution alone would be unrealistic. To improve this situation we need also to use more direct means such as early years’ education, improved schools for poor communities and financial support to pursue post-compulsory education. Indeed, this is the policy direction that the Government seems to be taking through programmes like Sure Start, Excellence in Cities and the Educational Maintenance Allowance (EMA).”

Oh, and it’s probably worth noting that Doncaster is all Margaret Thatcher’s fault too.

It’s always worth repeating the maggie-is-a-cow meme. And not solely because I’m quite bitter.

20. Get Over It

the country with the smallest welfare state (USA) had the lowest.

Average unemployment payment in the USA is $293/week. Rates vary according to where you live: $230/week in Mississippi to $628/week in Massachusetts.

“Job Seekers Allowance” in the UK is $102/week.

The usual ignorant preconceptions in this thread by Europeans pontificating on the USA, I see.

21. Flowerpower

S Pill @ 16

have you ever been to any of those three places? trust me, if you had done it would all become clear…

Yes, when I worked in the eeevil arms biz I lived in all three of them. Which is why I raise the question, ‘cos I used to find it pretty difficult when driving along Clifton Drive to know whether I was in Blackpool or Lytham St Annes (Fylde), so seamlessly did the twain merge.

I could always tell when I was in the Ribble Valley though, ‘cos of all the fields and sheep and stuff. But there didn’t seem to be a huge number of job opportunities there to account for it having one of the lowest unemployment rates in the country.

20 – you forgot to include housing benefit, council tax benefit, etc. in those numbers…

23. Get Over It

you forgot to include housing benefit, council tax benefit …

Housing Benefits covers the mortgages of the 70% of Britons who are home owners when they lose their jobs?

I reckon even including other benefits, the British welfare state is still less generous than the supposedly tight-fisted American version. Yet you are taxed to the hilt to pay for it. Deluded suckers.

@21

[Token booing and hissing at the arms industry here]

I personally think it’s quite easy to tell when one goes from Fylde to Blackpool simply by counting the stag and hen parties… Ribble is middle class country, lots of second homes and retired folk so if people live there and need a job they’re probably more likely to move to Burnley or the surrounding area (still a couple of factories open) than stick around and add to the unemployment figures. Also I’m betting the young population there are mostly university students who don’t move back to the area once they’ve graduated. Blackpool is certainly an interesting case for the roving anthropologist and has more problems than unemployment, some are symptoms of it but I think it’s been in decline since its hayday (heyday?) of being a popular tourist resort. You can go to Ibiza for the same price these days. Fylde has never had the same sort of reputation or culture as its sister town (being generally quieter) and as with the Ribble valley I reckon its unemployed population seek work elsewhere – ie:down the road. Then when they can’t find work or lose their job (job security being non-existent) they add to the figures.
All guesses, of course. There are a trillion other factors involved I daresay.

@23

Three letters: NHS. :P

Nah, housing benefit covers rent, not mortgages. not sure why giving the money to the landlord is less acceptable than giving it to your bank, but meh. It’s a difference in approach, and by itself, doesn’t really indicate that british welfare is teh evilzzz.

If I were claiming JSA at the moment I’d be getting JSA + housing benefit at £430/month (half the average rent in this area) + council tax benefit (£90/month).

Works out at around $350/week?

‘Unemployment insurance compensation’ in America operates at a state level and varies from state to state.

(And unemployment compensation is a completely different thing from welfare in America).

From the highest weekly compensation, Massachusetts ($628-942, 72 weeks) to the lowest, Mississippi ($230, 59 weeks)’

It is also time-limited, with Rhode Island with the longest duration (79 weeks, $528-660) and Louisiana with the shortest (46 weeks, $284).

(2008 figures)

In 2009 Obama extended unemployment benefits by additional 14 weeks.

And last month the Senate cleared the way for passage of a bill that will extend unemployment benefits for more than two million Americans out of work for more than six months. To get the bill passed Democrats had to overcome severaal Republican procedural roadblocks. This is part of a response to the unemployment crisis in America.

And: “The broadest measure of unemployment and underemployment (which includes people who want to work but have stopped actively searching for a job, along with those who want full-time jobs but can find only part-time work) reached 17.4 percent in October, which appears to be the highest figure since the 1930s.

‘How a New Jobless Era Will Transform America’

http://www.theatlantic.com/magazine/archive/2010/03/how-a-new-jobless-era-will-transform-america/7919/

@ 23

Myth.

Europe’s welfare systems are much more generous than America’s (though the UK has some of the lowest benefit rates of any major western European nation).

“We have used a microfunded model in which workers have the opportunity to partially self-insure against unemployment risk to measure and compare the generosity of a European and American unemployment insurance system.

Appyling our model to France and Ohio, we find the first to be much more generous……we can say that France three times more generous than the state of Ohio.

Additionally, our methodology allows us to understand why the generosity differs across the two regions. We find the large discrepancy is due mostly to a combination of higher benefits after unemployment insurance eligibilty and a longer unemployment duration in France”

http://www.operationspaix.net/sites/politiquessociales.net/IMG/pdf/dp3869.pdf

When looking at social inequality it would be interesting to see the percentage of people who are illiterate, innumerate and unskilled. Scandinavian Countries, Germany and Austria have good education and technical training which means that very few people are illiterate, innumerate and unskilled. A country cannot produce well paid jobs unless it educates and trains people to a skilled/craftsman level.

@12, I’m referring specifically to British history here. Very high social mobility when there was basically no welfare state in the 19thc, declining ever since. But it isn’t just the growth of the welfare state. Education has also declined along with law and order – these must be related. Along with well-meaning (but awful) urban renewal projects.

It’s disgraceful that there are large towns where almost nobody works. (I know a social worker who has worked in several of them in the northeast.) The populations of these towns are kept going by welfare, the long term variety (IB, housing benefit, etc.) Here, welfare dependence spans generations within families. Conventional wisdom is to blame Thatcher for closing down unprofitable industries, making so many people redundant. I don’t do this. Instead I blame welfare for keeping these people in a place where there are no jobs, and where there will never be any jobs outside the social services bureaucracy so long as welfare is keeping the poor in their poverty trap.

I have no idea if this sort of problem also exists in other European countries: for some reason we do not tend to hear about failures of welfare systems and must actively go looking for them. Based on the contrast between the NHS and other nationalised healthcare systems, though, I do suspect that the state bureaucracies in those countries are probably better managed. Perhaps they are able to avoid this apparently systemic failure of the UK system.

@2 you don’t have to be a Randy* libertarian maniac to question the assumption made by the OP post, which is that if benefits were stripped out of everyone’s income everything else would stay the same.

For one thing, taxes would be lower, and that is important because, as we know, the poor pay a large share of their income in taxes. Second, the relationship between labour and capital would be different. Where employers paid wages below the cost of living, the state would not attempt to pick up the tab for the difference. This might suppress wages but it might lead to the greater organisation of the workforce through, err, unions and the workforce might strike for better pay and conditions. If incomes were lower, rents would necessarily be lower – which would deprive landlords of their incomes – and so on and so on.

Had the benefit system not been introduced in its current form society would be very different. It is likely (but not inevitable) that some mechanism would have arisen to carry out the function currently carried out by the welfare system – either through self help, class struggle, or the continuation of paternalistic Victorian charity. Some such hypothetical systems would have been better than the present one and others far worse. (Which is why you don’t have to be a Randy libertarian to object to the premise of the OP)

The logic of the OP’s argument is that if welfare had never existed, the nation’s income profile would be exactly as it is now except that nobody would receive any State benefits. This argument doesn’t hold any water at all. Not only is it taking aim at a position that IDS wasn’t taking but it doesn’t make the case that the poster thinks it does. All the figures show is that the benefit system is broadly redistributive.

* surely better than Randian

“For your point to be valid, it has to be shown that left-wing approaches are not ideological but merely empirical”

On the contrary, I made no comment on left-wing social policy. But I think most of the comments on this thread prove my case nicely. How nice it must be to know the cause and solutions to all social problems, and all of that from a few little principles as well! Freedom is, of course, an objective sociological term, as are dependency and choice. And correlation equals causation whenever the iron laws of freedom, choice and so on demand that it must. Moreover, it is of absolute importance to remember that context is only of importance in certain contexts.

I’m referring specifically to British history here. Very high social mobility when there was basically no welfare state in the 19thc, declining ever since.

Is this a joke or are you insane?

It’s disgraceful that there are large towns where almost nobody works.

I suppose it would be if there were such places in Britain, but there aren’t. It is very easy to find accurate British labour market statistics, so making stuff up to fit into your pre-determined theories won’t wash. Or shouldn’t.

(I know a social worker who has worked in several of them in the northeast.)

That social worker must have lied to you, as there are no such places in the North East.


Reactions: Twitter, blogs
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  6. Andrew Ducker

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  16. >>Nostalgia For Infinity - Linkfest: August. Um, all of it.

    [...] Does social security do nothing in reducing poverty? – One of the claims in Iain Duncan Smith’s Twenty-first Century Welfare really annoyed me when I first read it, and it has been niggling away at me ever since: The welfare system has failed to tackle intergenerational disadvantage and poverty. I suppose the reason I find this statement so annoying is that you come across it so often – after a century of social security, we still have poverty and inequality. So obviously social security/the welfare state is a failure. This is a claim that fails to take into account what would happen if we didn’t have the welfare state. Tags: welfare poverty classwar statistics analysis britain [...]





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