Labour Market

Child poverty in Wales: increase employment not benefits


Labour Market
“Approximately 32 per cent of children in Wales – 192,000 children – live in poverty”, argues a condensed report by the Joseph Rowntree Foundation. The paper (which builds on an earlier study addressing child poverty in the UK as a whole) calls for concerted action by the Welsh Assembly and the national government. It raises a number of important issues, and some of its proposals point in the right direction. This is surely to be welcomed, regardless of whether or not one believes that the Welsh headline poverty rate is the appropriate focus. (I believe that it is not, because if the rate per se was the problem, here’s an easy way out: Secede from the UK. This would make the annual poverty threshold drop by about £1,000 for a two-person household, due to a lower median income in Wales.)

The report identifies long-term economic inactivity of parents as a major risk factor of child poverty, and rightly states the aim of moving people out of worklessness. However, it also calls for a “regular and predictable uprating of benefits […] for families who are out of work“. This overlooks the fact the benefit system already provides huge disincentives for parents, especially single parents, to enter the labour market. For the ‘median single parent’, leaving the workforce is associated with a loss in disposable income of just over one third, even ignoring job-related costs like transport. Worsening these disincentives hardly serves the JRF’s goal of tackling worklessness.

The report also argues that “welfare-to-work policies must recognise the specific circumstances in Wales“. It proposes a transfer of competences in this field from Whitehall to the Welsh Assembly Government, which should then develop local solutions. Very well so far. But what is actually meant by local solutions is that benefit sanctions for those who fail to seek work should be used more reluctantly in Wales then elsewhere, because of structural weaknesses of the local economy. This is, in fact, contrary to the concept of local self-government. Giving local governments free reign in the management of expenditure programmes, but having national government footing the bill, would introduce major moral hazard problems.

The whole theory of federalism is based on the principle of ‘institutional congruence’, which is roughly the notion that the beneficiaries, the paymasters and the decision makers of any policy area should be the same people. The devolution of social policy to local governments is a very sensible proposal, but only if it is accompanied by a shift in fiscal responsibility. This would make a region with structural problems like Wales more, and not less likely to experiment with unorthodox ways to tackle worklessness. Given the longer-term detrimental effects of worklessness, the affected parents’ children could stand to gain most.

Head of Political Economy

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).