Thursday, November 23, 2006

Relative Poverty and the fallacy of redistribution

Much waffle has been spoken today about this document revealed to the world by Guido Fawks (Big hat tip to Guido again). The document is not a policy document but a discussion document by Greg Clark MP and Peter Franklin. Guido has it here.

It seems to me much of the the vacuous chattering classes assume we have signed up for some sort of massive tax based redistribution of wealth. We haven't.

It seems the document looks at measuring poverty in relative terms defined as those living in households with 60% of contemporary median household income.

Fine, but there is an issue. Firstly what about young single people living on their own? How much of a problem would it be if their income was less than 60% of the median household income?

The second issue is that many families now have dual incomes, out of which they pay for child care. Families with much lower overall income who have a stay at home adult look poorer, but do not have the expense of paying for childcare either. People make choices. Some want a high pressure high pay job, others don't. Some have good luck others don't. Some work hard through school and then a career and others don't. The people who don't are not bad or indolent, they may just choose to enjoy life a little more and have less ulcers or what ever. Some people do difficult high pressure jobs that don't pay very well because either they enjoy that job or they feel called to do it. It would be daft to consider any of that a problem that should concern the state.

That said we do have a hard core underclass who are either unemployed or are not in full time well paid work. This group is much harder to help.

Some seem condemned by postcode in that because of where they live, people make assumptions about them which then limit their ability to get a job, and education or socialise with some other people.

Some people have poor literacy and/or numeracy severely limiting job prospects, whilst others may have mental health issues or drug addictions.

The question is would redistribution help, and what do we mean by redistribution any way.

If we mean that we try to remove people on low incomes from the tax system altogether then the Conservative party has been in favour of that for years.

If however we mean taking tax revenue and giving it to people on low incomes then we need to look at all the implications of that. People who do poorly paid work do so because they either can't or won't get better paid work, for a variety of reasons, however employers who engage people on low incomes do so because they can. If the state then tops up those earnings, then we are all subsidising an employer who is not paying a reasonable wage for the work he is asking people to do for him. In a free market you would hope as employment rises that employers would be competing for staff.

Alas a lot of unskilled, and indeed semi and fully skilled work gets filled by immigrants who will accept lower wages because they have their household in another country where living costs are less. This makes it impossible for low wage earners to have their wages driven up by scarcity of supply.

In short I take the view that if you pay people to be poor, then as there is money in it, people will be poor.

If we want to genuinely tackle poverty we have to deal with a number of issues.

  • As Greg Clark's report rightly says people are becoming entangled in our welfare states safety net. We need to find better ways to assist the transition out of it.
  • Many people end up with a poor education because no one thinks they can or should do better.
  • We need an immigration policy to suit the whole country not just the economy. By that I mean we need to beware of the effect on wages of large numbers of unskilled immigrants.
In short the situation is complex. Just throwing money at it is not the answer.

Incidentally Iain Dale links to this piece on Conservative Home by Greg Clark whilst Borris Johnson has written this for the Telegraph.

I forgot to mention Greg Clark's piece on Conservative home points out that whilst those just within the 60% of median household income has fallen, those in the bottom 40% of median household income has risen.

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