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Poverty Is a Policy Choice

14.5 million people in Britain live in poverty, exposing the vast holes in our social safety net – this isn't an accident, it's the result of a welfare system which denies people the means to live a dignified life.

Last week, the Fabian Society’s year-long study of public attitudes to welfare revealed widespread public backing for permanently retaining the £20-a-week increase to universal credit as part of more generous social security benefits for disabled people, carers, and young adults. This is positive news – the UK’s social security system is a tragic failure. But an extra £20 a week for universal credit claimants will not solve our income crisis.

Before the pandemic, the UK’s social security system was comprehensively failing to provide a decent safety net. Three in ten people in the UK had to live on incomes below the level needed to reliably meet their day-to-day costs, known as the ‘minimum income standard’ (MIS) and developed by the Joseph Rowntree Foundation.

This living standards crisis has only been exacerbated by the uneven effects of the pandemic, with those on lower incomes, from minority backgrounds, or with disabilities particularly badly hit. A recent study by the Legatum Institute estimated that almost 700,000 people had been driven into poverty in the UK during the course of Covid-19.

Extended lockdowns have prevented people from working for months on end, and despite large numbers of jobs being supported through the furlough scheme, there has been a significant toll on employment rates and earnings. As a result, the amount of people relying on the social security system to help make ends meet has rocketed upwards. The number of people on universal credit has doubled from 3.0 million before the start of the pandemic to 6.0 million in April 2021.

And that universal credit system is riddled with holes. Even with the £20 uplift, families relying on welfare will be a combined £10.5 billion worse off than if the welfare system we had back in 2010 was still in place. That’s not to mention the (up to) 1.4 million migrant workers that have been excluded from receiving any support at all through the government’s ‘no recourse to public funds’ policy.

The UK’s social security system doesn’t provide an adequate income floor. It is weak by both international and historical standards. Before the pandemic, of the 37 advanced economies in the OECD, the UK safety net has one of the lowest ‘replacement rates’, meaning a person in the UK can expect to receive a much smaller proportion of their previous income when they use out-of-work benefits than in almost any other OECD country.

Too many people are living below a decent standard of living in the UK, which is harmful to them on an individual level and harmful to the rest of society. Deprivation can have devastating consequences for people and families: without enough income, millions of people are forced to choose between buying food, heating their home, or getting new shoes for their kids. Over the past few years we’ve seen a plethora of news stories about food poverty, fuel poverty, housing poverty, or period poverty. All of these are linked by a common underlying cause: poverty in and of itself.

The lack of acceptable living standards across the population has exacerbated spiralling inequality, contributing to a segregated society and a deterioration of social cohesion. This rise in inequality has important political ramifications, too: it can lead to the so-called ‘capture’ of democratic and civic institutions, where public decisions over policies are consistently directed away from the public interest and towards the interests of a wealthy elite. In turn, this reproduces the conditions for ever-increasing inequality.

In addition to the social problems, persistently low living standards have implications for the economy, too. Weak living standards may increase the depth of future recessions. Low incomes contribute towards rising levels of private debt as people rely on taking out expensive loans to meet basic needs, which can generate financial instability more widely: if the large numbers of low-income, low-wealth people who’ve taken out loans default at once, under certain circumstances, this can lead to problems across the financial system – which is what happened in the 2008 financial crisis.

There’s no shortage of recession risks on the horizon, including automation, climate breakdown, and future public health crises. For as long as people can’t afford to make ends meet, future recessions will likely be more severe in the UK. A bolstered social security system would act as a strong automatic stabiliser in the event of future economic downturns—if people lose wages or jobs, the social security system would see to it that they still have money in their pocket to spend in the economy—ensuring that the economic downturn does not worsen through reduced economic demand.

Inequality and poverty have likely been key contributors to weak growth in both national income and labour productivity over the last decade. There are two reasons for this. First is a persistent lack of aggregate demand—that’s the overall spending in the economy by families and firms—leading to economic stagnation and weak productivity growth. Second, people in poverty have less opportunities to invest in themselves and their future, leading to both lower national output and productivity.

Millions of people in the UK are living in crisis. The New Economics Foundation is calling for the creation of a new social security system, or ‘Living Income’, alongside policies to support higher paying and more secure work and to expand public services. Our social security system is failing and needs drastic reform: in the sixth largest economy in the world, now is the time to guarantee all people living in the UK a decent standard of living.