Tackling Poverty and Social Exclusion

Published in Bottomline, Summer 2004

In recent months there have been numerous reports which have shed light on the government's record on tackling poverty and social exclusion. The government itself has produced its second annual report on poverty and social exclusion, Opportunity for All(1). This is a follow up to the government's first report, published in September 1999, which outlined how the government's progress on tackling poverty and social exclusion was to be measured. This report listed 32 indicators covering different aspects of poverty including education, housing and health as well as income. In September of this year the Joseph Rowntree Foundation(2) produced a comprehensive report which in comparison with the government adopts a different approach to measuring poverty.

It was the initial aim of this article to highlight and compare the key findings from both reports. Unfortunately this has been made difficult by the way in which the data on income are presented in the government's report. The government report contains two income indicators which look at, firstly, the proportion of children and working age adults on relatively low incomes and secondly, the proportion of children and working age adults on absolutely low incomes (see Box 1 for a description of these measures). To assess progress on these indicators the government draws on statistics from the annual publication, Households Below Average Income, a source which is widely used to look at issues of poverty and inequality.

However, there are two main problems with the way the government presents the data on income. Firstly, the data are presented only as percentages which do not allow small changes to be traced. Secondly, the data quoted in Opportunity for All do not marry with the data in the latest edition of Households Below Average Income. The reason for the second problem is that the government's report takes 1996/1997 as a baseline year against which to make comparisons whereas the latest edition of Households Below Average Income takes 1994/95 as the year against which comparisons are made. These differences make a close and critical examination of the government's figures problematic.

Box 1 Measures of poverty and inequality

Relatively low income is defined as the proportion of the population who live in households with an income below a percentage of the current average, usually half the average. This is commonly known as the poverty line.

Absolutely low income is defined as the proportion of the population living below half average income fixed at 1996/97 levels in real terms, i.e. half average income in 1996/97 uprated by inflation. The latest edition of Households Below Average Income uses 1994/95 as the baseline year.

In Households Below Average Income data are given for income before and after housing costs and including and excluding self-employed. In this article the after housing cost figures and including the self-employed are used.

Rather than presenting only the figures from the government report, this article uses the latest edition of Households Below Average Income(3) to identify trends in poverty and inequality over the last few years both nationally and regionally. The main findings from the Joseph Rowntree Foundation report are also highlighted. Finally, the government's strategy for combating poverty and its prospects for success are discussed.

National Trends

Opportunity for All was launched with the headline grabbing claim that the government had made significant progress in combating poverty and social exclusion because between 1997 and 2000 there were 250,000 fewer children living in households without paid work. This reflects the central theme of the government's policies on poverty and social exclusion, which are discussed later, that the route out of poverty is via work. However, this one figure conceals more worrying trends as the figures taken from Households Below Average Income show.

• In 1998/99 a quarter of the population, 14.3 million people, were living on less than half average income (£144 a week). Since Labour came to office an additional 300,000 people have fallen below the poverty line. Moreover, the numbers living below the poverty line have increased by one million since 1994/95.
• Between 1997/98 and 1998/99 the number of children living in households with less than half average income increased by 100,000. More than a third (35%) of all children now live below the poverty line compared with 31% in 1994/95.

These figures appear to contradict the government's claim that there are fewer people in households without paid work. How can an increase in employment occur at the same time as an increase in poverty? Whilst the government places much emphasis on work as the route out of living in poverty, work in itself is not a guarantee of a reasonable standard of living as the figures in table 1 show.

It is only in households where there are two earners that there have not been significant increases in the numbers and proportions living on less than half average income. More than a fifth (22%) of households where there is only one full-time worker and the other not working were below the poverty line in 1998/99, a significant increase from 16% in 1994/95. Households that rely only on part-time work have fared badly over the last few years. In 1994/95 28% of this group had incomes below half the average and this increased to 35% by 1998/99. These statistics imply that there has been an increase in in-work poverty. In particular, the figures show that earnings of only one worker or two part-time workers are not enough to keep a household out of poverty and on a reasonable income.

There have been many debates about the value of looking at the changes in the numbers falling below half average income. Some commentators have pointed out that if the income of those with relatively low standards of living rise by a smaller proportion than the overall average then the numbers below the poverty line increase whilst if, in contrast, the decline in income of those on below average incomes is smaller than the average then relative poverty declines. In the first situation poverty increases even though income has risen and in the second, poverty falls, even though income has fallen.

Whilst this is a valid point it is still important to track the proportion of the population living on incomes below half the average as this indicates what is happening to inequality. The government has emphasised the enormous challenge they face in tackling poverty because of the immense gap between the incomes of the highest and lowest that widened during the 1980s and 1990s. Whilst the government may have succeeded in improving the incomes of the lowest it has not been able to make significant inroads into curbing the increases in income for those at the top end of scale. Between 1994/95 and 1998/99 average income increased by 12%, for the poorest 10% of households income increased by 10% and for the richest 10% income increased by 12%. As a result the government has not succeeded in reducing the gap between the richest and poorest households.

Moreover, the government is concerned not only with poverty but also with social exclusion. One useful way to think of exclusion is to make a comparison with the average. If more and more people are falling behind the average, even if that average is rising, then this points to greater numbers being excluded from the increasing wealth that exists in society.

The government's report provides figures on absolute poverty by looking at the proportion of children and the working age population who in 1998/99 have an income below half the 1996/97 average uprated by inflation. This is defined as an absolutely low income. The figures show that there has been a reduction in the proportion of the population living on absolutely low incomes.

• In 1998/99 almost a third (32%) of children lived in households with an absolutely low income compared with 35% in 1996/97.
• In 1998/99 18% of working age adults lived in households with an absolutely low income compared with 21% in 1996/97.

The latest edition of Households Below Average Income takes half average income in 1994/95 and uprates it by inflation to look at the numbers living in absolute poverty. This confirms the government figures. In 1994/95 there were 13.3 million people, including four million children, living in households with less than half average income, by 1998/99 the number of people who were below the same 1994/95 level of income in real terms was 11.5 million, including 3.7 million children.

Whilst these figures show improvements it is still the case that significant proportions of the population are living on absolutely low incomes. These figures are useful in revealing the extent and scale of the problem that the government has to tackle.

Regional Trends

A research paper produced by the House of Commons(4) presents regional data for 14 of the government's 32 indicators of poverty and social exclusion. This enables variations between regions to be highlighted. One of the government's targets is to reduce the proportion of children and working age people living in households without work. Table 2 shows the progress that has been made over the last three years.

According to these figures, there has been no improvement in the national figures with the proportion of children and working age people living in households without any work remaining at 18% and 13%. In six regions, there has either been no change or an increase in the proportion of children and working age people living in households without work. It is only in four regions (Yorkshire and Humberside, East Midlands, Eastern and South East) that there has been a reduction in the number of children and working age people living in households without work.

There is a stark contrast between the North West & Merseyside and the North East on the one hand and the South East on the other. In 1999 the proportion of working age people in households without work in the North West & Merseyside was more than double the proportion in the South East whilst the proportion in the North East was nearly three times that in the South East.

It is of concern that these figures do not reveal more improvement given that the last few years has been characterised by economic growth and job creation. It can only be assumed that much of the increase in employment that has occurred over the last few years is in households that already have one earner. If this is the case, it is of concern that there may be a further polarisation between households with and without work.

Poverty and Necessities

The Joseph Rowntree Foundation takes a different approach to measuring poverty. The report is critical of the relative and absolute poverty measures adopted by the government. It points out that whilst they are useful in allowing comparisons to be made across countries there is a problem in that these measures do not relate poverty to the needs of individuals. It is this which their survey attempts to do, to show how poverty impacts on people's everyday needs.

The survey firstly draws up a list of socially perceived necessities which is based on household goods and activities that more than 50% of those surveyed believed 'all adults should be able to afford and which they should not have to do without'. From this a list of 35 necessities was drawn up. Those surveyed were then asked what items they could not afford. The key findings portray in concrete terms what it means to be poor in today's society.

• Whilst 58% of the population lacked none of the necessities over a quarter (26%) lacked two or more items.
• 17% of households, 9.5 million people, could not afford adequate housing conditions, that is they could not afford to keep their home adequately heated, free from damp or in a decent state of decoration.
• More than two million children (18%) were going without two or more necessities and four million (34%) were going without at least one essential item.
• Those who were more likely to lack two or more items were lone parents and the unemployed. Two thirds of lone parents and more than three quarters of the unemployed were poor by this definition.
• Using findings from previous surveys shows that the situation has deteriorated over the last two decades. In 1983, 14% of households lacked three or more necessities because they could not afford them, this increased to 21% in 1990 and over 24% by 1999.

This study has been criticised on the basis that the list of socially perceived necessities will be constantly changing as people become richer and new goods and services are invented. The critics go on to argue that whilst the report may provide an interesting view of current society it cannot be used as a tool to measure progress at tackling poverty because there will always be a proportion who cannot afford these items.

Surely it is only right that the criteria for meeting basic needs change according to the standards prevailing in the society in question. Moreover, there are goods and activities which are necessary to ensure an adequate life in a given society which may not have been deemed essential in previous times. For example, to lack access to a telephone in today's society is to be fundamentally disadvantaged and excluded whereas half a century ago access to a telephone would have been regarded as a luxury. It is right that poverty is defined in relational terms. As society becomes more prosperous all of its citizens should expect to benefit from that.

Conclusion

In conclusion, the only figures that give rise to optimism are the falling numbers living in absolute poverty. However, these are figures that were on a downward trend anyway. It would be fair to say that the high level of income inequality that marked the 1980s and 1990s continues to exist. A counter argument that would undoubtedly be made by the government is that the figures do not yet reflect the impact of policies such as the working families tax credit and the national minimum wage. Therefore it is worth giving some consideration to the likely future impact of the government's policies on poverty and inequality.

At the heart of the government's strategy on poverty is work. This is reflected in the government's policies all of which are designed to encourage more people into work. For example, tax credits guaranteeing poor households with children a higher minimum income are aimed at encouraging people to take up jobs they would previously have turned down. Similarly the rates at which benefits and credits are withdrawn from those in work have been graduated to give more people an incentive to move into employment. Programmes such as the New Deal aim to equip unemployed people with the skills to take up employment opportunities. However, there are three main problems with the emphasis on paid employment as the solution to poverty.

Firstly, the government argues that work is the catch all remedy because poverty and inequality are related to unemployment. Whilst this is true, it does not automatically follow that the remedy lies in assisting or even forcing everyone into jobs. Very large sections of those living in poverty, disabled people and the elderly, cannot realistically be expected to enter or re-enter the labour market. The emphasis on work may mean that those who cannot take up work are reduced to permanent second class status. Therefore, treating work as the primary means for reducing inequality could in fact end up operating as a mechanism which increases social exclusion.

Secondly, the income guarantees offered to families with children by increasing the incentive to accept low paid jobs, effectively subsidises employers offering such jobs. Furthermore, an increase in employment is unlikely to make a significant impact on poverty levels if wages are too low.

Finally, the government proudly points out that the last three years have seen sustained economic growth, the creation of a million jobs and historically low levels of unemployment. Therefore the economic situation has been favourable for making some very minor inroads into poverty. Given the scale and extent of poverty and inequality, it is difficult to conceive how it is possible to overcome the deeply entrenched inequalities that exist without more radical policies such as the re-distribution of wealth through higher taxation. Unfortunately re-distribution is a word that has been wiped from the government's vocabulary. Unless the government is prepared to challenge the current distribution of resources then poverty and inequality will continue to be the defining characteristics of British society.

(1) Opportunity for all - One year on: making a difference published by The Stationery Office, September 2000.
(2) Poverty and Social Exclusion in Britain published by Joseph Rowntree Foundation, September 2000.
(3) Households Below Average Income 1994/95 - 1998/99, Department of Social Security, 2000.
(4) Regional Social Exclusion Indicators, House of Commons Research Paper 00/71, August 2000.