For too long the government has been pushing up living costs through over-regulation and taxation. The poverty lobby has failed to tackle this basic cause of poverty in the UK, instead focusing on redistribution through the welfare system.
This new report from the IEA shows that by eliminating government interventions in areas such as planning, energy markets and childcare; living costs can be reduced dramatically, taxes could be cut, and the welfare state could be reformed to meaningfully address poverty in Britain. The research in Redefining the Poverty Debate: Why a War on Markets is No Substitute for a War on Poverty. estimates that these reforms could make some families up to £750 a month better off.
Poverty in Britain
- The UK currently spends a greater proportion of national income on transfers than many Germanic and Scandinavian countries. Also, the extent of redistribution through state welfare systems is as great as that in Sweden. Furthermore, we have now reached the position where at least 68 per cent of all households with children in Britain are in receipt of one form of major transfer payment other than universal child benefit.
- The UK is an outlier in terms of the failure of employment and family policy. Nearly 30 per cent of British children live in households with no adult in full-time work. Britain spends more on family benefits than virtually any other country in Europe. Furthermore, Britain is unique in Europe with its combination of high levels of single-parent families and high worklessness among single-parent families. The poverty lobby argues that there are high levels of poverty among those in work. While this is true for households where parents work part-time, poverty rates among families where one or two parents work full-time are low for single-parent families and negligible for two-parent families.
- These problems require a multi-pronged attack. The government’s much-trumpeted ‘universal credit’ will not address the underlying issues. Instead, employment protection legislation – which tends to entrench long-term unemployment – should be liberalised; a new benefits system should remove penalties against family formation; effective marginal tax rates should be significantly reduced; and specialist assistance to those with weak labour market attachment should be managed and financed at local level.
- Over the last 50 years, incomes before housing costs for the least well off have doubled whereas incomes after housing costs have risen by only 60 per cent because housing costs have risen so substantially. The evidence suggests that high housing costs are largely policy driven.
- The poverty lobby’s response to this problem is to propose the extending of housing benefit. It seems oblivious to the huge problems that this policy would cause. Increasing housing benefit would exacerbate the already very serious poverty traps as the benefit is withdrawn and increase housing demand (and therefore prices). It is a myth that our population density justifies the UK’s restrictive approach to land-use planning. Reforming the planning system should be the focus of policy.
- Liberalisation of the planning system could reduce housing costs by around 40 per cent. However, planning reform needs to run with the grain of the market so that development decisions reflect the value of environmental amenities. This would involve localisation of planning responsibilities and tax-collecting authority.
- Food prices in the UK are considerably higher than in comparable EU countries.