Thursday, November 12, 2009

Divide and rule with the Resolution Foundation

The Resolution Foundation works to achieve better outcomes for low earners, which it defines as "living on below average income but independent of state support. For analysis, we use income deciles 3, 4 and 5, which currently means living on between £11, 750 and £27,150 per annum."

Jenni Russell, writing in the Guardian, reports that, "Clive Cowdery, the City financier who created the Resolution Foundation with £20m of his own money, is a passionate advocate for this group. These people are, he says, active, courageous, and determined to make something of their lives. That's why they haven't surrendered to a life on benefits."

So these people are not "the poor", or the "benefit dependent", and are independent of state support.

Here's a couple of stats from the Resolution Foundation's own research:

  • The average income of these "low earners" is £14,600 per year. They pay £7,100 in tax (the majority in indirect taxes like VAT). And they receive £12,600 in benefits (half and half between direct cash benefits and benefits in kind).
  • To put it another way, for every £1 in tax that non-retired low earners pay, they receive £1.06 in benefits. (Retired low earners receive more in benefits for the tax that they pay).

I'm slightly struggling to see the distinction between people who are "benefit dependent" and those who are not "benefit dependent" but receive about half their income from benefits.

The proportion of low earners' income which came from benefits rather than wages increased between 1977 and 1997, as well as between 1997 and 2009. Between 1977 and 1997 low earners got poorer relative to higher earners, since 1997 they have slightly closed that gap.

Fact is, about half the population, including those not officially classed as 'poor', don't receive wages which are high enough for them to live on. So the government has had to step in and top up their income. It happened under Thatcher and Major just as under Blair and Brown, and the Big Idea of Iain Duncan Smith's Centre for Social Justice is that the government should spend billions more on topping up the wages of poorly paid workers.

Meanwhile the people at the top, like the man who set up the Resolution Foundation, have become vastly more wealthy, at least in part because they can boost profits while holding down wages. It's not the government paying benefits that cause "benefit dependency", but employers paying low wages.

The 12 million people who are classed as living in poverty, and the 17 million people classed as living on low incomes have many common interests and priorities, from good quality public services to jobs that pay a decent wage.

To prevent these people from coming together and using their power to achieve change, there is a constant flow of propaganda from the rich and powerful designed to drive people apart and set them against each other - about scroungers, illegal immigrants, lazy British workers and "benefit dependency".

The quality of the work that the Resolution Foundation does seems to be high, and they could use their substantial resources to do a lot of good. But their own statistics show that the division which they are trying to draw between low income people who are "active, courageous, and determined to make something of their lives" against those who have "surrendered to a life on benefits" is a false and misleading one, and is part of the problem, not part of the solution.


At 10:10 am , Anonymous matt@resolutionfoundation said...

Thanks for picking up on our report Don. You raise an issue that we struggle with from time to time. We make clear in all our reports that we don't consider low earners to be the most vulnerable group in society, just one that is uniquely exposed by the workings of the mixed economy and yet often overlooked.

Given the plethora of organisations working with members of the lowest income groups, the Foundation deliberately chose to add value by focusing its attentions on the experiences of those who tend to miss out on qualification for state support despite being in vulnerable positions.

Defining this group for the purposes of analysis is quite difficult because, as you point out, it's hard to know what constitutes "independence" from state support - especially as we all qualify for some benefits. We use a working definition of income deciles 3,4 and 5 which we tighten where possible by excluding those households that receive more than 20 per cent of their income from income-related benefits. This allows us to identify a number of the pressures faced by low earners, but it obviously remains an imperfect measurement.

In relation to the figures on benefits you've quoted, it's worth pointing out that they include benefits-in-kind (i.e. consumption of health and education). Because they are significant consumers of such goods, large increases in public sector spending in the last decade has helped improve the position of low earners on this measure. Future spending cuts are likely to reverse many of these gains however, without necessarily showing up in any financial assessment of low earners' positions.

Our current report focuses on the impact of the economic slowdown on low earners. Circumstances have highlighted the exposure of the group. While policymakers and others tend not to think too much about low earners when the economy is ticking over, in truth they're perilously positioned. While life certainly hasn't improved for those in the lowest income groups as a result of the recession, it is those just above who are being hit hardest - because they have somewhere to fall.

So I think it's right and proper to consider the needs of low earners as being somewhat different from the needs of those living in poverty or in workless households. Efforts designed to help low earners retain their relative independence, and avoid falling into long-term unemployment for example, means that more interventionist support can be targeted on those in the most need.

Of course, movement between the groups is highly fluid and we certainly don't stop caring about low earners who drop out of the group for any length of time. There are some bigger themes of social mobility and persistence of poverty which we aim to do more work on and we'll be considering how mixed markets can be improved during a period of restricted public spending to improve the long-term position of low earners. For the moment, however, we are clear that there is more still to be done around the recession, to ensure that those who have been just about coping for so long, do not get pushed into crisis.


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