Miscellany
The latest poverty statistics, for the year to April 2009, were published by the Department for Work and Pensions on 20 May. The huge increase in Child Tax Credit and Child Benefit in that year were enough to halt the rise in child poverty over the previous three years. In the depths of the worst recession since whenever this is no small comfort. Our considered reaction will appear here shortly. But our immediate response, which appeared on the Guardian's Comment is Free site, drew attention to the seemingly inexorable rise in in-work child poverty, that is, children belonging to working families whose income is nevertheless below the poverty line. As the Guardian headlined it: it suits politicians of all parties to claim that work is the route out of poverty, but the statistics suggest otherwise.
21 May 2010
All major political parties now accept that the public sector deficit must be cut and the growth in the debt brought under control. With total public spending as a share of GDP close to the 1975 record, and with current spending (excluding investment) at record levels now, all parties must also accept that the great bulk of the adjustment must come through getting spending down rather than putting taxes up.
History show how difficult it is to get current spending down (investment spending is a different matter). Years in which current spending has been cut in real terms are rare: just four in the last forty years, none of them (contrary to what both left and right fondly believe) in the tumultuous early 1980s. Over these four decades, there has never been a year in which current public spending has been cut in cash terms.
Against the historical difficulty of cuts must be set the strength and longevity of the period of growth in current public spending, in excess of GDP, not just during the recession but since 2002/03. If the 40 year spending record means that a sustained programme of real cuts proposed by the next government would be unprecedented, the more recent growth means that what is unprecedented should not be unthinkable.
To succeed, the new government must develop a language of priorities to adjudicate between competing claims for public money. With social protection, health and education absorbing two thirds of current public spending, choices have to be made both between these three large areas and also within them, for example between children and pensioners. Politicians and public alike also need to appreciate how things like the aging population, or the growing number with the qualifications and ambition to enter university, drive public spending and mean that is only ever partially under political control.
The Comprehensive Spending Review promised for after the election is the place where these choices will be made. All previous reviews have been conducted in periods of growing public expenditure. This one won’t. Not only does the public have a right to be involved, only by involving it can the next government expect to get through.
The full report, by Meghnad Desai and Peter Kenway, can be downloaded here.
23 April 2010
At first glance, the dispute in February among economists about how and when to cut the level of government borrowing, waged through letters to newspapers, seems to have had no decisive impact.
The comfort that the Conservatives could take from the first letter to the Sunday Times, calling for faster cuts, was neutralised by the comfort that Labour could take from the responses to it in the Financial Times broadly supporting the government’s current plan.
As the dispute subsided, the general view among commentators, the BBC and others seems to have been that the difference between the two sides was fairly slight anyway. A reading of the letters that pays close attention to the qualifications each side attaches to their argument may seem to support this view.
We believe this interpretation is not just wrong but dangerous.
These economists are not engaged in some academic parlour game. Rather, they are trying to alert outsiders – politicians and policy makers of course but also the general public who are shortly to give their verdict on those politicians – to the perils that they see in the present situation.
Instead of being lulled by the similarity of their conclusions, we should be alarmed by the fact that the perils highlighted by each side are different – and not in the least mutually exclusive.
This article, the first in a series of economic posts over the coming months, explains why.
Peter Kenway
24 February 10
January's figures for the number of people claiming Job Seeker’s Allowance (JSA) show small falls in both the total number of claimants and the number making a new claim. But the very high number of people who sign off from JSA without finding a job raises the question of how well this benefit is actually working.
In December, the total number of people claiming JSA stood at 1,606,500, some 15,000 lower than in November, and the second successive month in which there had been a fall.
But this difference of 15,000 in the stock of people claiming JSA is dwarfed by the flows of people making new claims (on-flow) and ending claims (off-flow). In December, the on-flow was 290,000. The off-flow was similarly high, and the very small difference between the two figures accounts for the small decline in the total number of claimants.
That there should be so many new claims at a time of recession is not surprising. The fact that the figure is slightly lower than the previous month is a somewhat encouraging sign.
But what is not clear is why so many people would stop claiming JSA in a month in a recession. When we analysed these figures in the middle of 2009 we found that only half of people leaving JSA were going into work or training. The rest were 'lost' to the system – not working, not training and not claiming.
This observation still holds as the claimant count starts to decline. Even though the numbers ceasing to claim JSA because they have found a job are markedly higher than a year ago, they still only represent a minority of those leaving JSA.
One of the reasons why so many people cease claiming JSA but remain out of work is that the contributory version of JSA, to which anyone who loses their job and has made enough National Insurance contributions is entitled, ends after just six months. After that, all that is available is the means tested version of JSA, to which a workless person with a working partner or spouse would almost certainly not be eligible because household income was too high.
We believe this six-month effect to be significant. The graph shows the size of off-flows by quarter for the last three years. It compares them to on-flows six months previously.
Though obviously it is not true to say that all claimants stop claiming after
six months, the numbers match surprisingly well. This suggests that even if
on-flows are a good measure of labour market activity, off flows are more a
reflection of how the JSA regime itself works.
The fact that so many people leave JSA after six months without finding work is a double cause for concern. For one thing, it means that people who are out of work are not getting the support they need. But it also means that people are either leaving the labour market altogether, or at least becoming more detached from it. This is the opposite of where the government wants people without work to be.
A solution to both these problems would be to extend the period for which people can claim the contribution-based JSA from six months to nine or twelve whilst unemployment remains high. This would be a proper response to the legacy of the recession and one which it would be easy and appropriate to reverse once the economy and employment start growing again strongly.
Tom MacInnes
20 January 2010
Low paid workers who rely on public transport to get to work have been hit especially hard by the higher fares on London’s buses and tubes that came into effect at the start of the New Year.
London’s bus and tube fares have just gone up by an average of 12.7% and 3.9% respectively. Yet among those who use them for getting to work, the bus is much more likely to be used by low paid workers than others who are paid more. According to official figures, half of Londoners who travel to work by bus earn £10 an hour or less. By contrast, only a quarter of those who do so by tube (and just a sixth of those going by train) earn this little.
As well as being more likely to be low paid, those using the bus for work are more likely to be women than men and more likely to be going to part-time rather than full-time jobs.
As a result, increases in bus fares fall much more upon the shoulders of low paid workers than do increases in tube (or rail) fares. This year’s threefold difference in the increase as between the two forms of transport is therefore profoundly to the disadvantage of low paid Londoners.
Londoners travelling to work by public transport by hourly rate of pay (Source: Labour Force Survey, Q4 08 to Q3 09)
|
|
Under £10 |
£10 to £20 |
£20 to £30 |
Above £30 |
Total |
Total (people) |
|
Bus and coach |
53% |
38% |
5% |
4% |
100% |
490,000 |
|
Tube, light rail and tram |
24% |
43% |
18% |
15% |
100% |
600,000 |
|
Train |
17% |
48% |
19% |
16% |
100% |
440,000 |
The overall scale of the fares increase has of course been criticised. Faced with the need to find more money, it is not so surprising that a Conservative Mayor should plump for putting up fares; a Labour Mayor would, presumably, have looked to get more money from council tax instead. When more money has to be found for London’s transport, political disagreement along these lines is almost inevitable.
But the big increase in bus fares over and above tube fares was not inevitable. Rather, it reflects a choice that the Mayor has made, signalled in Transport for London’s 2009 business plan, to bring about a systematic shift in subsidy from buses to tubes. Over the period up to 2017/18, this shift will total £1.5bn.
This is a choice that the Mayor was free not to make. Its economic wisdom remains unclear to us. In terms of its social impact, however, it is clearly unjust. It is no less an act of redistribution, from poorer workers to richer ones – and indeed from women to men – than anything that a Chancellor of the Exchequer might do.
For further discussion, see the archive webcast of the London Assembly's seminar on the future of London Buses.
Peter Kenway
6 January 10
