Why has the proportion of relatively poor increased?

A few other piece of little-known information about modern ‘poverty’:
“…according to the government’s Households Below Average Incomes survey, more than half the people defined as in poverty are homeowners but many of these are pensioners who are asset rich but income poor.
“Can an elderly person living on 60% of average income but with a very valuable property and no mortgage be considered poor?”
(From BBC Online ‘The changing face of poverty’)
“Between 1996/97 and 2000/01, income inequality rose to its highest level since comparable records begain in 1961 as measured by the Gini coefficient. Since then, income inequality has fallen back to roughly the level Labour inherited.
(From the Institute for Fiscal Studies – IFS – press release 8/3/06. My italics.)
“With the government focusing resources on families with children and pensioners, poverty amongst the working-aged non-parent population has received less attention. Poverty in this group is now about one percentage point higher than it was in 1998/99, on both BHC and AHC measures”.
(IFS press release as above. BHC means “Before housing costs” and AHC “After housing costs”.)
Perhaps most important of all:

“Although poverty is below its 1996/97 peak, it remains considerably higher than before its steep rise during the 1980s. For example, the AHC poverty rate was about a third lower on average in the 1960s and 1970s than it is today.”
(Source: IFS press release, as above. My italics.)
Now why should this be? Why should ‘poverty’ which according to the definition used by the IFS and most others is really ‘the proportion of relatively poor people’ have gone up since the 1960s and 1970s? I would suggest that the main reason is that over time, welfare benefits have enticed more and more people of working age not to work and or save. It is this benefits trap which has condemned millions of people to be relatively poor.
The welfare state has been in operation all these years. Its purpose has been, in part, to equalise wealth. Its effect has been the opposite. People have been tempted by benefits into working and saving much less than they otherwise would have done. In the end, they have done themselves financial damage.
Of course there will be some who offer theories of the changing nature of work to explain the rise in the proportion of the relatively poor. I do not believe international comparisons make this argument sustainable. More credibly there will be some who say the rich are now taxed less and that the value of benefits compared to average incomes has fallen in the past quarter century. But what is an undoubted fact is that there are many millions more people who now live on benefits than before. Meanwhile the vast majority of those who relatively poor are on benefits. I belive that the increased disparity of incomes is primarily due to this.
The Institue for Fiscal Studies press release is here.

  1. Mr Brown taxes the poor (another angle)
  2. If poverty is increasing, how come ownership of consumer durables is also increasing?
  3. Mr Brown taxes more of the poor
  4. Welfare reform reduced poverty in America. When will the Tories endorse it?
  5. Tax the workers!
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One Response to Why has the proportion of relatively poor increased?

  1. Phil Taylor says:

    The poor are on benefits and their income is typically linked to inflation rather than wages so they will always go backwards unless we can get them off benefits. What is worse their expenditure is dominated by taxes, rents, transport costs and utility bills, typically all State controlled, that increase faster than inflation. The minimum wage is not helping incentivise them as much as it might because Gordon Brown uses fiscal drag to take a higher share each year of the minumum wage in tax.

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