First Choose Your Parents

As regular readers will know, BOM has always had the highest regard for Frank "think the unthinkable" Field. So we were very pleased when Cam appointed him Poverty Czar with a brief to take a good hard look at what we can actually do about it. In particular, what can be done about child poverty?

Today we got his report, and it contains a giant helping of what the Major calls good old fashion common sense.

To begin with, Field wallops Labour's obsession with its meaningless child poverty target - ie the aim to ensure by 2020 that no child lives in a household below an arbitrary line drawn at 60% of median income. Field says:

"The anti-poverty agenda is driven along a single track of hunting down families who live below this line and then marking up a success as a family is moved across the line, no matter how marginal is the advance in their income. It does little to concentrate on those children who endure persistent poverty. Worse still, this approach has prevented a much more comprehensive strategy emerging on how best, in the longer run, to counter child poverty in a way that prevents poor children from becoming poor adults."

Spot on Frank. We have long believed that dishing out yet more cash to poor families is missing the point. In general, even the lowest incomes today have moved far above what most of us mean by poverty (eg see this blog). Here's what happened to incomes on that 60% benchmark over the last half century (in real terms, adjusted for inflation):

As we can see, income on Labour's definition of the Poverty Line more than doubled from around �6k pa to nearly �13k. That is not a meaningful definition of poverty.

What's more, taxpayers can no longer afford to fund poverty relief on that scale. As Field says:

"To meet a target of cutting child poverty to 5 per cent of all children by 2020 a further �37 billion per annum in tax credit transfers is required... an unthinkable sum in current conditions. Can anyone seriously maintain that sums of these sizes will be forthcoming over the decade, to 2020?"

Much more usefully, Field focuses on the real problem - what on earth can we do to prevent poor children from becoming poor adults?

And here, he spells out something we all know, but which PC squeamishness has for too long excluded from the public debate on child poverty:

"Even if the money were available to lift all children out of income poverty in the short term, it is far from clear that this move would in itself close the achievement gap.

... there is much more beyond just improving short-term family incomes in determining the life chances of poor children. A healthy pregnancy, positive but authoritative parenting, high quality childcare, a positive approach to learning at home and an improvement in parents� qualifications together, can transform children�s life chances, and trump class background and parental income.

A child growing up in a family with these attributes, even if the family is poor, has every chance of succeeding in life."

That resonates so strongly with Tyler. As he's blogged many times, he had the great good fortune to grow up in a family with little money but absolutely outstanding parents. And when it comes to a choice between those two, there is no choice - first, choose your parents.

Fine. Common sense.

Except unfortunately, there just aren't enough good parents to go round. And there are especially not enough to go round down in the depths of welfare dependency.

So what to do? How do we get those problem parents we've blogged so often take their responsibilities seriously? And even if we manage that, how do we get them capable of discharging those responsibilities?

Frank's solution is to expand the support services available to help. He wants organised training for parents. He wants to refocus the floundering Sure Start programme on helping the weakest parents who really need the help. He wants pre-school foundation programmes to have resource priority ahead of more spending on Child Tax Credits. He wants to get charities and voluntary groups more involved. And he wants to formalise the responsibilities of local councils and schools for lifting the attainment levels of disadvantaged kids.

Now all of that sounds quite sensible - certainly the way Frank tells it. The whole thing is geared to breaking the dire intergenerational spiral of dependency and decline visited on us by the welfare state. And it has to be better than Labour's bone-headed pursuit of arbitrary income targets.

But what we don't want is to exchange Labour's socialist poverty disaster, with a different socialist poverty disaster.

Because although this report points in the right general direction - ie less reliance on ever-expanding welfare payments and more reliance on the poor taking back responsibility for their own lives - Frank is still a socialist. Deep down he may still believe that government can find technical solutions - ways of applying the very best brains to crack even the toughest problems.

And Tyler found himself shifting uncomfortably as he read the following (quoted approvingly by Frank from a couple of eminent education Profs):

"We seem to know as much in principle about how parental involvement and its impact on pupil achievement as Newton knew about the physics of motion in the seventeenth century. What we seem to lack is the �engineering science� that helps us put our knowledge into practice. By 1650 Newton knew in theory how to put a missile on the moon. It took more than 300 years to learn how to do this in practice. The scientists who did this used Newton�s physics with modern engineering knowledge. We must not wait three hundred years to promote stellar advances in pupils� achievement. We need urgently to learn how to apply the knowledge we already have in the field."

No, no, no.

You see, the problem with that is that physics is physics. Whereas pupil achievement is all about horribly messy human beings. Human beings who can't even manage their own behaviour, let alone manage the behaviour of other human beings.

Let's hope Frank doesn't really believe we can somehow engineer our way out of this.

Rule By Failed Rock Star

Al finally makes it into the Merseybeats

BOM's old friend Rockin' Al Johnson has finally made the big-time. He's got his own rock show on the BBC. Even better, you're paying for it.

OK, it's called Alan Johnson: Failed Rock Star, but at least he's up there in the limelight, grooving alongside such all-time greats as the Merseybeats (pic). And as he cheerfully admits, if only he'd made it first time around back in the swingin' 60s, he need never have settled for politics to get the attention he craves.

And he's not the only one - from Bliar down, stacks of NuLab's ministers went into politics only after they'd bombed as rock gods. Even now, given half a chance to join the Merseybeats, most would drop their current has-been minister jobs like a shot.

Tyler was reminded of this on Wednesday afternoon strolling along a sunlit side-street in Westminster. Coming the other way were the Blues Brothers - stylish sunglasses, linen suits, hand clappin, foot stompin, funky-butt ... podgy. Obviously they were jive talkin', but as they passed, Tyler managed to catch a word. It began with eff and ended in ucking. At which point Tyler recognised disgraced Brown spinner Charles Whelan and disgraced Brown enforcer Nick Brown, making their way back from some lunchtime gig in a karaoke bar.

The thing is, rule by failed rock star turned out to be a great gig for those doing the ruling, but not quite so great for rest of us. If only Al had made it in the 60s, he need never have ended up floundering around as Home Secretary, or "at the helm" of the NHS or our social security system.

The man now at the helm of our nightmarish �200bn pa social security system is most assuredly not the rock star type. The one time he tried his hand in showbiz, his performance was devastatingly mocked by one critic as "the Walmington-on-Sea amateur dramatic society does Henry V". There's no way he'll ever be invited to join the Merseys.

Yet, as we saw once again yesterday, this self-styled Quiet Man of British politics is actually the one who looks like finally gripping the crippling inconsistencies and contradictions at the heart of our welfare system.

The most difficult question there, of course, is the one we blogged several times last week (eg here and here), and the one we investigated for the TPA's new paper Welfare reform in tough fiscal times. How do we make sure work pays for the near 6m working-age poor who currently depend entirely on welfare? And even more difficult, how do we do it now that the failed rock stars have blown all the bread?

As IDS spelled out once again in yesterday's consulation paper, after 60 years of our gargantuan welfare state, Britain's workless poor face a welfare trap of life-mangling proportions.

The paper contains the following chart, showing how the trap works for a couple with a single earner on the Minimum Wage, and two children. The family can certainly increase its net income (vertical axis) as the earner works more hours (horizontal axis), but only by a horribly small amount (ignore all the various bands in the chart - they simply show how the various benefits taper away as the family's own earnings increase: focus on the top line which shows how net income increases as hours of work increase):

This means "that someone at the National Minimum Wage would be less than �7 per week better off if they worked [up to]16 extra hours and earned an extra �92 (an effective wage rate of 44p per hour)". It also means that he faces "a Marginal Deduction Rate of 95.5 per cent on earnings between �126 and �218".

As the report puts it, "a system that produces this result cannot be right".

So what's to be done? The report offers three possible approaches:

1. A Universal Credit - all existing benefits abolished and combined into one simple to understand and administer universal benefit.
2. A Single Unified Taper - retains the existing range of individual benefits but "withdrawal would be through a taper that would be applied to their overall benefit eligibility, rather than the individual benefits as is currently the case".
3. Single benefit/negative income tax model - as recommended by the TPA (marking the very first time ever a TPA policy proposal has been explicitly picked up in an official government publication - hurrah!)

We can only welcome IDS's boldness and give him every support.

True, his paper does not mention the other key aspect of the TPA proposal - ie the need to fund these reforms by lowering the poverty line - but we can work on that.

The main thing is that after all the opportunities wasted by those wannabe rock stars, we finally have a government that has the guts not only to think the unthinkable, but also to do it.

We hope.

PS So who is ultimately responsible for the fact that we ended up being ruled by fourth rate rock stars? Fundamentally you've got to blame these guys:



Their intoxicating combination of teen beat and cocking a snook at authority changed the world for people like Rockin' Al. As he says "everything changed and changed forever at the dawn of civilisation - the arrival of The Beatles... I used to try to model myself on Paul McCartney." No wonder he ended up in Bliar's government.

And while we're on the subject, Mrs T has been scouring the darkest recesses of the Tyler attic (filthy dirty, covered in cobwebs... but she's good with the kids). As we've certainly mentioned before, at about the time J Lennon was asking the Queen Mum to rattle her jewelry on live TV, Mrs T was bunking off school to visit the Fab Four in their Surrey mansions. In those days, it was nothing for 13 year old convent girls of a certain disposition to bunk off, hitch a ride, and knock on George Harrison's front door. And Mrs T has the snaps to prove it. Well, that is, she has the snaps somewhere. But unlike the granny who's flogging hers next week, Mrs T hasn't found a single one. Bah!

How We All Ended Up On Welfare

Something must be done, and it was... the trouble is it's since been overdone

Once upon a time, long long ago, welfare was paid to the poor. And only to the poor.

But these days, welfare is paid to pretty well everybody. Even Jonathan Ross and those plutocrats on the Wharf get welfare. It doesn't matter how rich you are, there'll usually be some way of getting your snout into the welfare trough. From Child Benefit, to free bus passes, to the winter fuel allowance, the opportunities are there. If you want some, you can get some.

We've been reminded of this by reaction to last week's TPA report on welfare reform (see below). It's been pointed out that the TPA's proposal to redefine the poverty line - lowering it from 60% of median income to 50% - would remove welfare support from families who, while not poor, would lose a substantial chunk of their current welfare income.

Now as it happens, the Office for National Statistics has recently published its latest annual report on the effect of taxes and benefits on household incomes. It covers 2008-09 and it shows us just how much welfare is received by households at different income levels.

Let's leave pensioner households out of it (as we did in the TPA report), and focus on non-retired households. The ONS figures show that households on around median incomes (gross incomes of �32-35k pa) on average get well over �3,000 pa in cash benefits. A 10% top-up to their own not insubstantial incomes from welfare benefits, including Child Benefit and Brown's various tax credits.

And here's how it looks across the entire income distribution (non-retired households only - excluding pensioner households):

So as we can see, under our current welfare system, even the richest 10% of households, with average gross incomes in excess of �100 grand pa, still get welfare - in their case averaging �1300 pa.

On what possible basis can that make sense?

The alarming and unpalatable truth is that after 60 years of the welfare state, pretty well all of us have ended up on welfare.

It's no way to run a 21st century economy, already burdened with a massive fiscal crisis, and facing a competitive onslaught from the East.

In the famous words of our most famous playboy prince during a previous economic crisis, something must be done.

*****

Much reaction to last week's post on redefining the poverty line. Mainly supportive.

Picking up from the TPA report on welfare reform, we argued that the official definition of the poverty line should be cut from 60% of median income to 50%. We calculate that would save �20-30bn pa in welfare costs currently spent on the able-bodied working age poor, money that could be better spent making work pay (ie reducing the scandalously high effective marginal tax rates faced by the working poor). As far as we can see, that is the only realistic and affordable option for reforming the current iniquitous system that traps so many millions on welfare.

Of course, the left will never buy it, and Labour blogger Hopi Sen spells out why:

"If you�re the Taxpayers� Alliance, the way to cut the gordian knot of Welfare reform without spending any money seems to be to redfine poverty to a much lower level, reduce support for those a little above that level, and abandon pretty much all support for those on medium-low incomes.

In other words, if you�re near the current definition of poverty, struggling to get by, and find tax credits and child benefit and income support useful- Watch out. They�re coming to get you."

We've posted a full response to Sen on the TPA site, including the fact that he and the left offer no affordable alternative for reforming our current shambolic and dysfunctional system. But there's one point that it's worth amplifying here.

As things stand, the official poverty line is benchmarked off a median income figure that includes existing welfare benefits. And Sen reckons it ought to stay that way.

We reckon that's wrong. The reason is that it's a circular calculation. It means that both median income and the poverty line are artificially inflated by the welfare system itself. The system ends up chasing its own tail towards ever higher costs and an ever worse welfare trap.

This highlights a key difference between us and the left on welfare. Whereas the left see welfare as a tool for compressing income relativities throughout the income range, we believe that for able-bodied adults of working age, welfare payments should, in principle, be confined to a safety net, designed to relieve absolute poverty among those towards the bottom.

Paying income support to those who are at or around median incomes means paying them with one hand and taxing it back with the other. Which is not only administratively expensive and wasteful (we have previously estimated the cost of this so-called fiscal churn at at �5-6bn pa), but it is also certain to distort the way people choose to work, and to spend their own earnings.

The dispute over the definition of poverty goes back half a century. That's when the left dreamed up their definition of poverty as a relative concept. They have since argued that welfare should focus on relative income distribution, and they have prevailed, which is how we ended up with the current official definition of the poverty line at 60% of median income.

But that's not what most of us actually think of as poverty, which tends to focus on not having enough food, or a roof over your head, etc. That is the traditional definition of poverty, known as absolute poverty, and in principle, it is the approach we favour. Which is why in Appendix C of our paper we recommend that the Department for Work and Pensions conduct some proper analysis in this area and publish a measure of absolute poverty, comparable to the one produced by the US Census Bureau.

Meanwhile, Labour have left us with a gigantic unaffordable mess, in which welfare is paid not just to the genuinely poor, but also middle income earners, and in some cases all the way up the income distribution - as noted above.

*****

What exactly is a negative income tax?

As you will recall, the TPA welfare reform calls for the scrapping of a slew of existing benefits and their replacement with a single negative income tax (NIT). But no less a person than the Devil himself has since asked us to explain exactly what the devil a NIT actually is. So here goes.

The NIT is an idea atrributed by many to the late great Milt. It's easiest to think of it as a particular kind of means tested welfare benefit. All households are guaranteed a certain minimum income paid to them by the government, whether or not they have any income of their own. But instead of being paid through a separate benefits agency, this one is paid by the tax authority. So it ought to be a lot cheaper to administer. And it ought to make it easy for poor households to increase their own earnings without constantly worrying about how that might impact their benefit entitlements and their net incomes.

Each household is assessed for eligibility on its gross income, much as current income taxes are assessed. Households with no other income get paid the maximum possible amount for their type and size of household (eg more children generally means more cash). And that is paid by the tax authority as a negative income tax - ie instead of money being deducted from their pay packet, a payment is made directly to the family.

Households with some income of their own get scaled back from the maximum, according to an agreed and explicit "taper rate". And depending on the taper rate, at some level of own income, households lose all entitlement to a negative income tax payment.

Now, Milt's original proposal envisaged that the taper rate would be the same as the standard rate of income tax. So as a household's own income increased, their negative income tax receipt would run smoothly into an income tax payment - they'd hardly notice the join, and the whole scheme would be very cheap to administer. In fact, in its simplest form, the NIT idea has often been combined with a flat tax - ie a single rate of income tax no matter how high your income. As in this neat chart:

Unfortunately, given the existing level of welfare benefits a NIT will have to replace, such simplicity is not currently an affordable option. Which is why the TPA proposal envisages a taper rate for the NIT at 55%, rather than the 31% standard rate of income tax plus National Insurance.

OK, is that any clearer? If not, there's more here.

Time To Lower The Poverty Line

The one-minute summary

[Another long one I'm afraid]

We've blogged the welfare trap many times - the scandalous situation where millions of the workless poor find themselves with virtually no financial incentive to get off welfare and into work, trapped in a life of "indolence and vice" (as a previous generation of reformers so graphically put it)

Yes, we can blame the moral depravity of the welfare recipients themselves, but if you were facing an effective marginal tax rate approaching 100%, would you drag yourself out of bed at 6.30 on a cold wet morning to catch the number 27? Honestly?

The fundamental reason we're in this mess is the structure of the welfare system itself. And that is what we have to attack.

The problem essentially arises from the fact that most welfare benefits are means-tested. So the more cash you earn for yourself, the less you get in welfare. As your own earned income increases, your benefits are withdrawn, and that combined with the fact that you also have to pay tax and National Insurance, leaves you facing those monstrous effective marginal tax rates - much higher than those faced by the highest wedged denizens of the Wharf.

And overlaid on that, there's another problem - complexity. Whereas the Wharf banker faces a fairly straighforward tax schedule - ie he knows what is going to be taken from every extra pound he earns - the welfare recipient faces an extraodinarily complex and opaque system of rules and regulations governing what he will lose in benefits if he earns more. The system has grown up piecemeal over decades and there are now over 50 different benefits, all with different rules and withdrawal rates, and a total of 8,690 pages of guidance for DWP benefits alone. Even the officials can't always fathom it, let alone the recipients. Fraud and error costs us �4.5bn pa.

So what are the potential solutions?

Well, one is to scrap welfare for those of working age altogether. And Tyler has certainly met people who would do that. But old softie that he is, Tyler worries about children starving in gutters. Scrapping welfare is a non-starter.

A much more attractive solution is the Citizens Basic Income, which we have blogged several times. Under CBI, all adults get a standard handout from the state which is theirs to keep whether they work or not. It's a great idea, and would eliminate at a stroke all those crippling marginal tax rates - what you earn is on top of your CBI welfare benefit, not in place of it. The trouble is, in practice, it would simply be too expensive - try as we might, we've never been able to get the sums to add up (see this blog).

And right now, getting the sums to add up is vital. Like the man said, there's no money left. Any welfare reform that needs more money is out.

Which is why down at the TPA we've been crunching some numbers to see whether we could reform the system without spending any more (see full report here).

Fundamentally, what we need to do is reduce those high marginal tax rates facing the workless poor, and give them a real financial incentive to work. The trouble is that to do that we need to reduce the rate at which benefits are withdrawn as a family's own earned income increases. And that makes the system much more expensive.

The solution is one we've blogged many times - in order to fund a reduction in the withdrawal rate, we need cut the basic level of welfare provided. A cut which would in itself increase the incentive to work.

You see, as in so much else, there is an iron law trade-off here. Given a fixed pot of money, we either have to accept the current high rates of benefit withdrawal - with all their disincentive effects - or a lower level of basic welfare provision. We can't have both a high level of provision and low withdrawal rates.

What we've done is to model this trade-off, using official data on the circumstances and incomes of individual UK households.

We propose scrapping most of the existing welfare benefits for able-bodied working age people and replacing them with a single simple benefit - a negative income tax (NIT).

The maximum possible level of the NIT for an individual family would be set as a policy determined percentage of the median income across the country, much as the current official poverty line is already set. But whereas the current poverty line is set at 60% of the median, we've looked also at cheaper alternatives, setting it at 55% and 50% (which is where it was originally set decades ago).

Families with no other source of income would receive this maximum NIT (flexed according to family size). Families with some income of their own would receive lower amounts of NIT, with the amounts tapering away as income increases. This taper is the effective marginal tax rate faced by the family. Crucially, it is clear and open, fixed by policy rather than jumping around all over the place as under the current opaque and shambolic system. We have modelled tapers from 50% to 70% - all a vast improvement on the current 80-90% effective marginal tax rates faced by the poor.

So under our system, with a 50% poverty line, a workless two adult two child family would receive an NIT payment of just under �14000 pa (2008). If they then started earning for themselves they'd lose some of that, and the higher the selected taper rate, the more they'd lose. But the idea would be to keep the taper rate as low as we can afford to encourage work. With for example a taper rate of 55%, that same family earning �10000 pa (gross) would keep �4500, taking their overall income up to �18500 - much more than they'd retain under the current system.

So what would it cost, and what is the trade-off? The following table summarises the results for 2007-08 (click on image to enlarge):

Now in that same year of 2008-09, the current system of welfare for the able-bodied working age poor cost us �63.7bn (see paper for calcs). So that's the maximum amount we can spend.

Which means that 7 of our 12 modelled alternatives - ie all the nicest ones -  are simply unaffordable. We can put them from our minds.

It also means that the lowest possible taper rate we can afford with our current 60% poverty line is 70% - still way too high in terms of work incentive.

And that my friends is why it really is time to lower the poverty line. The current official target of 60% of median income is a major obstacle to improving work incentives for the workless poor. Reducing it to 50% would not only increase the incentive to work directly, it would also free up �20-�30bn pa to spend on allowing the poor to keep more of what they earn for themselves.

And to those who say that dropping the poverty line to 50% would give us children starving in gutters, we say rubbish. Incomes today are so high that even a poverty line at 40% of the median would hardly have people starving. For example, as we blogged here, families in the bottom quarter of today's income distribution are better off than families in the top quarter of the distribution 50 years ago - and they were living the life of Larry (whoever he was).

It's time to take some of those really tough decisions.

PS Yes, we would still rather define poverty in absolute terms rather than relative to median income, as the left prefer. But we are where we are, so let's take one step at a time. A step from 60% to 50% would take us a long way in the right direction (see Appendix C in the report for some more on this).

How The Poor Got Richer

They've never had it so good

You'd never guess it from the constant wailing of the poverty lobby, but over the last half century the poor have got a whole lot richer.

A standard measure of poverty is net income of the poorest 25% of households (specifically, the bottom quartile point). And as it happens, the Institute for Fiscal Studies have recently published a compilation of the official figures going back to 1961 (obviously it's far too much to expect HMG to publish its own compilation). They have helpfully adjusted the figures for inflation so we can see the underlying trends in real income.

The figures show that the real income of this poorest group has approximately doubled since 1961, an average annual growth rate of 1.4% pa (ie the growth in income at the bottom quartile point).

In fact, it turns out that in real terms the bottom 25% are now considerable richer than were the top 25% in 1961*.

Just think about that.

Tyler remembers 1961 very well. His family were most definitely not in the top 25%. They had no car, no TV, no phone, no fridge, no central heating, and certainly no foreign holidays. Yet in truth they did not consider themselves poor. His father was earning the average national wage in manufacturing (�16 pw), and the Tylers were all housed, fed, and clothed. Not what anyone could call dollar-a-day out and out poverty.

But the top 25%, wow, they were living the life of larry:




So what we're saying is that the bottom 25% today have a higher real income than those people in the 1961 Saab 95.

How on earth can that be called poor?

As we've blogged many times, poverty as defined by the poverty lobby and the government today is miles away from what most of us actually think of as poverty. Today's poor have material resources way beyond those of the affluent middle classes back in the days of SuperMac and never had it so good. And even further beyond what Tyler and millions of others knew as children.

Ah yes, I know - the world has changed since 1961. Everyone's so much richer today. Virtually every household has a telly, a fridge, a telephone, and central heating. 75% have a car. Having those things may have made you rich in 1961, but these days it's a given. You can have all of that and still be poor.

Except of course, you can't. If you're housed, clothed, fed, and in possession of a fortune in consumer durables, then sorry, you are not poor. By both historic and international standards, you are in fact pretty rich.

And as Iain Duncan Smith sets about his much heralded welfare reform programme, he needs to remember that. Poverty in Britain was conquered long ago.

Yes, there are plenty of people who live sad dysfunctional workless lives. But that's nothing to do with lack of material resources. That's to do with poor education, destructive personal behaviour, and our grotesque level of welfare dependency. None of which will be solved by yet more welfare cash.

Which is why we have long argued for reformulating our definition of what constitutes poverty. Ideally, we'd like to switch to an absolute standard of poverty such as they have in the US. But if we have to stick with a definition measured relative to median income, we'd settle for dropping the current poverty line at 60% of median income, and switching to a 50% line.

Why?

First, because we estimate it would save �20-30bn pa from the current welfare bill. And second, because it would increase the attractiveness of work relative to welfare (ie it would make the poverty trap problem a whole lot easier to solve).

And as it happens, Tyler has recently been working on a TPA paper on precisely this issue - watch this space.

*Footnote update - Tyler has quite rightly taken to task for slack use of statistical terms in this post. Matthew T has spotted that our figures for the bottom 25% and the top 25% relate not to the average income of those two segments of the population, but to the quartile points - ie the income of the 25/100th  household in the distribution. So all we're showing is that the 25/100th household in 2008-09 is now richer than the 75/100th household in 1961. It's a fair cop, but we'd argue the 25th percentile point is still a widely used "breakpoint" between the poor and the not poor. We'll do some more digging within that bottom 25% when we have a moment.

Politics Of Envy - Latest

Never mind about them - it's the poor we need to sort out

For this morning's edition of BBC R4 Today, there was only one possible lead story: a new report on inequality commissioned by Commissar Harperson (but paid for by us). And to give you a flavour, here's how the BBC's print edition (aka the Grun) headlines it:

"A detailed and startling analysis of how unequal Britain has become offers a snapshot of an increasingly divided nation where the richest 10% of the population are more than 100 times as wealthy as the poorest 10% of society...

...Much of it will make uncomfortable reading for the Labour government, although the report indicates that considerable responsibility lies with the Tories, who presided over the dramatic divisions of the 1980s and early 1990s."

Ah, yes, back to the old favourites - wealth as the embodiment of capitalist exploitation, and the Tories are evil. But at least the report has some nice charts.

Let's kick off with this one, which shows weekly net incomes (ie after the deduction of direct taxes, and the addition of cash benefits) as they are distributed across the UK's 25 million households (actually, these are "equivalised" households containing a commissariat standardised 2 adults and no children - see chart footnote - but don't let that distract you from the big picture):

As we can see, the top 1% of households (aka the 99th percentile) have a weekly net income of at least �2 grand (�104 grand pa). The top 10% (aka the 90th percentile) are on at least �806 pw (�42 grand pa). In contrast, the bottom 10% (aka the 10th percentile) are on �191 pw or less (�9,900 pa) - remembering of course, these are notional 2 adult households (the single adult equivalent would be �6,650).

Still with this? OK, the gap between the incomes of the top 10% and the bottom 10% is one of the most widely used measures of income inequality deployed by the poverty lobby: it is known as the 90:10 ratio. And from the chart we can see that it's currently standing at 4.2 to 1 - ie �806 pw is 4.2 times �191 pw.

What should we make of that? The report has no doubt:

"[This represents] high levels of inequality by comparison with those in the UK a generation ago, when, for instance, the ratio... was just over 3 to 1... most of this increase occurred during the 1980s."

The 1980s - it's That Evil Woman again, the one who destroyed the workers paradise we all enjoyed so much during the 70s.

Just in case you missed it, pre-Thatcher Britain had become the sick man of Europe. Our growth rate lagged far behind everyone else's and the economy had stagnated. And a key reason was that successive governments had taxed and regulated high earners to buggery, totally undermining enterprise and effort. We were equalised in poverty and national decline.

The report continues:

"A similar gain in the shares of those with the highest incomes occurred in other English-speaking countries in the 1980s and 1990s, but not in continental Europe. Earnings and income inequality in the UK are now high in international terms, compared with other industrialised countries."

Weeellll.... that's often said, but the facts are rather less clearcut. Here are the latest OECD stats on that 90:10 ratio:

Yup, there's the UK on 4.2 all right (in red). But it's right next to the overall OECD average, which in Tyler's book is not "high in international terms compared with other industrialised countries".

So to recap, the fact that measured income inequality has increased since the 1970s simply tells us we wanted to progress from our wrecked Austin Allegro economy. And on this widely used 90:10 measure, inequality in Britain today is bang in line with the OECD average, neither better nor worse.

So does this report actually tell us anything useful?

Yes. It reminds us that we have an appalling problem in our state education factories. As we've blogged many many times, they are failing large numbers of our children, especially those at the bottom. Here's a very striking chart from the report, showing points scored at GCSE (5 grade C's - the absolute rock bottom minimum "pass" - is equivalent to a points score of 200):

That long tail of failure is a shocking indictment of Labour's equalising education policies - especially when you factor in a suitable adjustment for their dumbed down exam system, and the fact that this chart is based on total GCSE scores (ie not restricted to those whose A-C GCSEs include Maths and English).

Whatever Hattie and the BBC may say, we simply cannot afford a return to politics-of-envy style taxes and income policies. Especially in current circumstances, they are a recipe for national penury. If we are serious about helping those at the bottom - and Tyler is - by far the most important thing we need to fix is our woeful state education system.

This is now down to Cam. As we've said many times, on Day One he must tell Gove to get on with the school reforms pdq. And when the unions threaten to strike, and when the BBC and the Grun start screaming, Cam will have to be Tough Tough Tough.

School choice and vouchers - whatever label they go by - are totally non-negotiable.

PS I've just seen Reverend Easton's sermon based on this report. Apparently, equal societies are happier societies - a fact so well known, his Reverence didn't feel the need to offer any evidence (see previous BOM posts on so-called happiness economics eg here and here). Which reminds me, I really must find out why the suicide rate in Sweden is twice what it is here. I guess it must be all that pickled fish. Or maybe they've actually all been murdered by those white supremacists who caused such grief for Wallander in the last series. And come to that, how come everyone in Wallander is so miserable all the time? I mean, it's a great TV series, and Ken is superb, but it's Sweden FFS! Equality central! You'd think they could lighten up a bit. Maybe Rev Easton should go over and give them a couple of sermons.

Lowest Class - Vicious, Semi-criminal

Always with us

The Major has long believed in the criminal class. That is to say, he believes there is a criminal class, and it carries out most of our crimes. As you may imagine, this week's headlines have given him the opportunity to remind us all of his bracing views:

"You do realise the scumbag who robbed Mr Hussain had 50 previous convictions. 50 for God's sake! And they still haven't locked the bastard away! We should have banged him up years ago - permanently. Three strikes and you're out - that's it! And as for those two little savages who tortured the kiddies in Doncaster, it is beyond belief that the so-called authorities hadn't locked them up in an approved school. I mean, everyone seems to have known they were out of control and dangerous, and yet bugger all was done. Why the hell do we put up with it? The only way of dealing with the criminal class is to lock them away."

"But Major," I said, "this is 21st Century equal opportunities Britain, not Victorian London. They can't help being criminals... they haven't had the chances you've had. What about rehabilitation? What about re-educating these people to be productive members of society?"

The Major snarled. "Are you trying to wind me up? For one thing, I've had to make my own opportunities in life. And for another, nobody has the faintest idea how to rehabilitate the criminal classes. It simply can't be done - or at least it can't be done with enough certainty to make the rest of us safe. Locking them up is all we can do, and I'm just amazed we don't insist on it."

"But Major - even if I agree with you about adult criminals - these two appalling boys in Doncaster are kids themselves. It's not their fault."

"Well, you can say that if you like, but dangerous wild animals still have to be locked up. Anyway, it's the parents we need to focus on. According to the papers, the mother was a drug addict, the father a violent alcoholic, and they lived entirely on benefits - benefits, I might add, that have been hugely boosted by this brainless socialist government of yours. It is literally insane that we actually pay the criminal classes to have kids. Is it any wonder we get things like this happening?" He fixed me intently with his good eye. "I've said it before - we need to stop them breeding... by all means at our disposal."

*****

In 1898-99 the businessman and philanthropist Charles Booth published his famous poverty map of London. It mapped the city's streets in terms of their social composition, identifying seven separate classes.

At the top were the Upper Middle and Upper Classes, described a "wealthy" and marked on the map in yellow. Right at the bottom - below the Comfortable, and the Poor, and the Very Poor, were the Lowest Class, marked in black and described as "vicious, semi-criminal".

Has anything changed?

Yes, sure, the material poverty has long since disappeared - swept away by Beveridge. But if there's one thing the last 50 years should have have taught us, all the socialist largesse in the world cannot make people live better lives. In fact, it all too often tends to deprave and corrupt (we've blogged before- eg here -how things came seriously unglued when the 1950s Prog Con extended the welfare state way beyond Beveridge's minimalist safety net).

As we saw when we looked at Shannon Matthews' council estate in Dewsbury (see this blog), there are now whole areas of the country plagued by high crime, poor education, high unemployment/incapacity/lone parent welfare dependency, and family dysfunction. Booth could doubtless produce some very striking maps.

But what to do about it?

Indeed, can we do anything?

According to the Major's theory, we ultimately have to stop these people breeding, by all means at our disposal.

But for those of a more sensitive disposition, there is a gentler approach we should try first - the one we hope Mr BrokenBritain Cam has in mind.

According to the Charles Murray underclass theory, the essential problem is that over-generous welfare benefits have encouraged the growth of a jobless criminal underclass, especially through the creation of single parent families with no male role model in the household. We could reverse all this simply by cutting back on benefits, especially child benefits. In particular, we need to stop rewarding single women for having kids.

Ah, you say, but that wouldn't have stopped those yobs in Doncaster, because the parents were married, and there was a male role model on the premises. It's just that he was the wrong type of model.

And you're right. Changing the welfare system would not necessarily have helped in that particular case. Maybe they really are members of the irreducible criminal class, the ones identified by Booth long before the welfare state.

And for cases like that there may be no alternative to the Major.

PS It was sickening to see the abominable Balls slithering around on Newsnight, trying to explain why his published summary of the Edlington serious case review is so grossly misleading. According to Newsnight, who have a leaked copy of the full review, details of the child protection system's most catastrophic failings have been deliberately suppressed. Our expensive childcare service gives every appearance of being a dangerous shambles, and taxpayers have a right to know the facts.

PPS As it happens, almost all Tyler's Victorian forebears were poor or very poor - just like yours probably. But Tyler likes to think his great great grandparents were the respectable working class, and even when they were struck down by illness and job loss, they stayed honest. Well, that's what he likes to believe anyway.

Labour's Poverty Trap

Don't you dare lecture us on poverty

One of the most striking sections of Cam's speech yesterday was when he accused Labour of letting down the poor - the very people they always claim to help.

We've blogged Labour's poverty trap before (eg see here): how low income households are trapped on welfare by effective marginal tax rates that can easily exceed 90%. The complex interaction of tax and benefits is notoriously difficult to unravel, and varies from one household type to another, but Cam quoted this jaw-dropping example:

"In Gordon Brown�s Britain if you�re a single mother with two kids earning �150 a week, the withdrawal of benefits and the additional taxes mean that for every extra pound you earn, you keep just 4 pence.

What kind of incentive is that? Thirty years ago this party won an election fighting against 98 per cent tax rates on the richest."

He got his figures from the Centre for Social Justice, which recently published a weighty report on this very subject.

Here's their chart showing the effective marginal tax rate (MTR) for a lone working parent with two children for earned income levels up to �30,000 pa. It shows how straightforward income tax and national insurance rates (the blue blocks) interact with a complex mix of withdrawal rates for various welfare benefits (all the other colours) to give effective marginal tax rates of up to 100%. Cam was quoting the 96% marginal rate that applies to annual incomes between about �6,000 and �11,000:

As we've noted before, effective marginal tax rates at these levels make it very difficult for welfare recipients to take paid employment of any kind. And it can be even worse for other groups (such as childless single adults).

Now, of course, most welfare systems have issues with poverty traps, because of benefit withdrawal as people earn more for themselves*. But the CSJ report also gives some international comparisons, showing how Labour's regime is among the most poverty-trapping anywhere.

For example, here's their chart showing the so-called Participation Tax Rate (ie the effective tax rate for those moving from unemployment to employment - PTR) for a childless single adults (25+) at 60% of the average wage. The UK's tax rate of over 70% is higher than any country, bar four:

Brown may have started out with good intentions. But his horrendously complicated array of welfare benefits and tax credits has done the working age poor no favours at all: it has trapped even more of them in poverty and welfare dependency, with no realistic chance of escape.

*Footnote - Yes, we realise there are alternatives to means tested welfare that avoid poverty traps altogether. And in principle, we are very attracted to the concept of Citizens' Basic Income, whereby all adults get a standard handout from the state which is theirs to keep whether they work or not. The trouble is, in practice, it would simply be too expensive - or at least, we've never been able to get the sums to add up (see this blog).

And Another Thing...

No - you listen to me for a change

As we said right at the outset, Tyler started BOM because Mrs T got fed up with him shouting at the telly. Her view was - and is - that all blokes of a certain age get grey hair and glasses (plus maybe trousers that are an inch or two short), and then start pontificating loudly and uncontrollably to the extreme annoyance of those around them.

The traditional remedy was to shoot them. But post the Human Rights Act, you can't do that (well, not without written authorisation from the Secretary of State, anyway). Instead, you have to send them down the pub. Or a day centre. Or latterly, you can start them blogging. Anything to tidy them up out the way.

The above pic illustrates her point precisely. It shows three old gents arguing on a pavement in central London. They're obviously having a whale of a time, but it's quite clear that not one of them is listening to a word the others are saying.

The pic was taken in the mid-80s*, and the pavement in question is outside a day centre called the Insitute of Economic Affairs. The three gents were (L to R) Ralph "Lord Harris of High Cross" Harris, Arthur Seldon, and Prof Friedrich "Road to Serfdom" Hayek.

And those three were among the most influential free market/anti Big Government figures of the last half century.

Which just goes to show that batty old blokes with grey hair and glasses still have their uses.

But here's another thing...

In the final ghastly days of Labour, they keep telling us that at least they've (more or less) ended poverty. In his Gruaniad interview (blogged here), Gordo himself boasted:

"Poverty has fallen, and you'll see it continue to fall over the next year or so... Removing people from poverty must be our priority."

That is complete bunkum.

On any meaningful definition, Labour has not reduced poverty. Even if you accept their ridiculous definition of poverty as being measured relative to median income, real poverty has not fallen under Labour.

True, Brown has managed to reduce the proportion of those on less than 60% of median income (which is his entirely arbitrary definition of poverty), but the proportion in real poverty has not fallen one jot.

As we can see from the following IFS table (and see this blog), the proportion on less than 40% of median income has actually increased, and more than one-tenth of households are still on less than 50% of the median:

So when you're next watching Newsnight and some government minister goes on about Labour ending poverty, please feel free to shout at the telly.

Loudly.

*Footnote - that outstandingly posed pic is taken from a new biography of Arthur Seldon, one of the founders of the IEA. I haven't yet read it, but as a "member in good standing" (nice to know), I've just been sent a free copy by the good folk at the Institute. And no, I don't really think the IEA is a day centre - it continues to produce some excellent papers, several of which we've blogged in the past.

DYK - New Orleans Remix

So Dina just got back from New Orleans - I believe she was attending ASCD's annual conference. She writes:

So I tried to write about New Orleans.

About what it was like to see azaleas blooming in March. About the rich muddy waters of the Mississippi, who �ain�t never gave us no trouble,� said one lifelong resident to me, as if the river is a quiet neighbor who keeps the grass cut. About the cabby who recommended a local�s restaurant so far out of the tourist center that it amazed the second cabby who picked me up there. And about the feeling, as tangible as breath, that emanates from the citizens who talk about Katrina� every last one. It took me until the flight home to realize why I felt like it was familiar to me. It is the exact feeling that comes from European family members when they speak of surviving World War Two.

I was nursing a seven month old baby and managing a toddler when Katrina hit in 2005. My sympathies were abstract, my mind elsewhere. My lip service didn�t do it then, and it doesn�t now.

So I gave up on writing about New Orleans. This came out instead.

What came out, you might ask? This.



I think she asks some interesting questions at the end. What are your answers?

Spiky World Thought for the Day 3-31-07

In that same article from the February issue of Money Magazine:

In 1970 the average American had a 7% chance of experiencing a 50% drop in family income; by 2002 it was a 17% chance.

There's more going on here than offshoring - such as jobs being supplanted by technology, the rise of two-income families and divorce, and the decline of unions.

Whatever the reasons, the results are scary: The child poverty rate is about 20% in any given year, but more than half of American children will fall below the poverty line for at least one year, Hacker notes.

These, remember, are the kids we'll all be counting on to keep the economy humming in a more competitive world.

Okay, I'm sorry to repeat part of the quote, but how is it possible that we allow this in America?

"The child poverty rate is about 20% in any given year, but more than half of American children will fall below the poverty line for at least one year . . . " [emphasis added]

I know the statistics are probably just as bad - or much worse - for children in lots of places around the world, but I don't live in lots of places so I can't comment too much on them. But I do live here, and I know we have the resources to combat this - not only here but around the globe. As Mr. Chase suggests:

My thinking then becomes intertwined. While I agree the conversation about how learning and educating should be changing, more important global applications of these tactics are waiting in the wings. Imagine a similar approach to the one Karl suggests - only it's applied to poverty or Darfur or hunger or joblessness.

How do you motivate? A stake, right? The thing is, everyday folk do have a stake in solving these problems, but they don't have an urgency behind them. Imagine the Gates Foundation opening a challenge to the globe where they placed all of the important data and resources about a given global or national crisis on a page or wiki or whatever and then facilitated an open forum engaging experts and invested amateurs in solving the problem.

Think of the educational implications of such a challenge. A civics class selects a chunk of data and works collaboratively to analyze and contribute to the cause, an English class utilizes the information to write to governments and other non-civilian change catalysts urging their investigation or - better yet - asking what they can do to help.

Am I thinking too big? Have I said too much? I should pull back? Someone tell me they can see the vision.

Mr. Chase, I can see the vision. Pay It Forward meets Web 2.0 meets The World is Flat. Mr. Gates? Mr. Buffett? Edubloggers? Are you listening? Your move.

Until then, I'm thinking the world still looks pretty spiky to these kids . . .