I must confess to being taken aback by the emphasis in popular comment about the impact of the CSR on the poor. I completely ignored the issue both in my comments on Jeff Randall’s show and in the IEA/TPA briefing. Having said that, the government has, to some extent, brought this on itself by trying to publish measurements of the impact on income distributions and through its continual expression of the desire to promote “fairness”. The left-wing history of the Liberal Democrats means that, when Nick Clegg talks about “fairness”, people think he really means “equality”. Perhaps we should also not forget the role of the BBC in this debate. Journalists love precise figures and the BBC have their own agenda (if only I could have their pension scheme…but then life isn’t fair is it?).
Both on the Jeff Randall show and at the IEA/TPA briefing I emphasised the need to move the debate on to the supply side of the economy – and an aspect of that is the welfare system. What determines the prospects for the poor as a result of recent (and future) decisions will be the important but unmeasurable impact of supply side reforms for reducing the dire problem of workless households in the UK. The measurable but comparatively unimportant first-round distributional aspects of this week’s decisions should not be hogging the debate. Serious pressure needs to be put on government to deliver meaningful welfare reform that really helps the poor – instead we are hearing pressure for more income redistribution.
The IEA will be publishing some very important work near the new year on the measurement of poverty. It shows how measured poverty will often go up when people in general (including the poor) are more prosperous. In turn, measured poverty will often go down in a recession! Furthermore, the people at the bottom of the income distribution are often there temporarily – they are therefore not poor in the conventional sense.
The UK does have a high level of child poverty but one important cause of this is that it has one of the highest proportion of children living in single parent households. Putting aside the moral arguments, the division of labour, ability to work full time and the ability to save are all impaired in these circumstances. Secondly, we have one of the highest proportions of single parents not working.
The first-round effects (as so often in economics) are of a second order of magnitude; the second-round effects are more important. Whether single people on welfare get a few more pounds a week is less important than whether they get a job or form wider family relationships.
The important aspects of this CSR – and on these issues the jury is still out – are the following: to what extent will welfare reform really bring about an escape route for the poor where individual self interest runs with the grain of the interests of society as a whole? To what extent will the supply side of the economy respond more generally so that private sector employment replaces public sector employment? And, to what extent will there be public sector reform – especially in education? Some of the omens are bad: two more welfare measures that overtly discriminate against family formation; some very misjudged things said about the financial sector; more employment regulation from Brussels and Westminster. But there are still reforms that might bear fruit in education and welfare.
IDS has no doubt studied Wisconsin and other welfare reforms and has learned from them – he now needs to implement them with no holding back. Michael Gove has studied US education voucher systems that exist in some states and the Swedish model – he now needs to implement them with no holding back. With regard to other supply-side aspects, I have one piece of advice to George Osborne: get on a plane, go to Washington, see what President Obama has done to the US economy, come back, and do precisely the opposite. On the spending front he has done that – the best way to get a non-US outcome on the employment front is to do the opposite when it comes to regulation, tax increases, green measures and the general bashing of the financial and business sector too. This is how to have a pro-poor budget.