Poverty
Remember April 2015? The tail end of the coalition government seems a long time ago. The bien-pensants now have a majority Conservative government and Brexit to get in a tizzy about, but before we forget the era of Clegg and Cameron it is worth casting our minds back to the day before yesterday when ‘austerity’ was grinding the faces of the workers in the mud and handing all the money to the one per cent (allegedly).

The Office for National Statistics recently published poverty and inequality figures for 2013/14 to 2014/15 which take us up to the end of the coalition story. Statistics for all but a month of the administration’s five years in power are now available to us, and what a story they tell if you like stories where nothing much happens.

You must remember – for it was not that long ago – when the coalition was being blamed for spiralling inequality and ever-growing poverty. The government was making cuts to the public sector. The Trussell Trust was opening food banks. There had been riots in Tottenham. The Institute for Fiscal Studies predicted that there would be a rise in both relative and absolute poverty (and the IFS is “independent” – whatever that means – and therefore infallible). What more evidence could you need that poverty and inequality were out of control?

Empirical evidence was, admittedly, in short supply in those fevered years but since it takes the Office for National Statistics a long time to get its data collated, it was always easy to suppose that a crisis was happening which would only be documented later. By 2015, The Observer was so convinced that poverty must be on the rise that it did not bother to wait for ONS figures to be released before using its front page to announce that they were ‘expected to show [a] clear increase in child poverty, as charities blame bedroom tax and benefit cuts’. A few days later, there was bad news for The Observer and good news for children when the ONS revealed that, once again, rates of child poverty, adult poverty and inequality had all declined or stayed static.

The latest set of figures bringing us to the end of the coalition era were published a few days after the EU referendum and so struggled to get press coverage. Given the timing, the lack of interest is understandable and yet they would surely have received more attention had they confirmed the repeated assertions of so many pundits for so many years. Alas, they did not. As the graphs below show, every standard poverty measure is either lower than, or the same as, it was when the coalition took charge.

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The same is true of the inequality. Supposedly rampant in the years of brutal austerity, it has actually been one of the most tediously static indicators in the British economy for well over a decade (as Ryan Bourne and I discussed in a recent IEA report).

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As for the Institute for Fiscal Studies’ predictions which substituted for evidence in the early years of the coalition, they continue to be very wide of the mark. The absolute measure, which counts the number of people on incomes below 60 per cent of the median income of 2010/11, rose when the economy was doing badly, but has fallen since. The relative measure (which uses a poverty line of 60 per cent of the current median income) fell when things were going badly and has since risen (although the ONS says the rise is not statistically significant). Both are well below the rates forecast by the IFS.

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The greater focus on the ONS’s ‘absolute’ measure of poverty is a welcome development. Aside from having a terrible name – it is clearly a relative measure – it has the benefit of allowing us to compare inflation-adjusted incomes over time. It is based on the reasonable presumption that people who had an average income in 2010 were not in poverty in any meaningful sense. By using 2010 as our benchmark, it gives us a realistic poverty-reduction target to aim for. Such a target is missing with relative poverty because it is more of a measure of inequality and can persist forever regardless of how wealthy a society becomes.

‘Absolute’ poverty figures were destined to paint a bleak picture in the short term when the economy was doing badly, wages were flat and inflation was running at well over two per cent. It looks better now that average incomes have finally moved above their 2010 level (ie. they are now at an all-time high), but the use of two very different measures means that there will always be a stick with which to beat the government. If average incomes fall, absolute poverty will tend to rise. If average incomes rise, relative poverty will tend to rise. And so, in today’s Guardian, Polly Toynbee has used the rise in relative child poverty to show that she was right all along.

Writing about this a year ago, I said:

‘If you think that inequality is more important than the material living conditions of the poor, you should pay attention to the relative poverty figures. If you want to know whether the poor are getting richer, watch the absolute figures. Pick your priorities, because some day these figures are going to move, and they will not necessarily move in the same direction.’

That day has now arrived. If the country is lucky, the left will spend the years ahead talking about relative poverty. If it is not, they will revert to the absolute measure.

Chris Snowdon Final

Head of Lifestyle Economics, IEA

Christopher Snowdon is the Head of Lifestyle Economics at the IEA. He is the author of The Art of Suppression, The Spirit Level Delusion and Velvet Glove; Iron Fist. His work focuses on pleasure, prohibition and dodgy statistics. He has authored a number of publications including Sock Puppets, Euro Puppets, The Proof of the Pudding, The Crack Cocaine of Gambling and Free Market Solutions in Health.

1 thought on “Poverty, inequality and the day before yesterday”

  1. Posted 22/07/2016 at 20:28 | Permalink

    I’m too lazy to investigate personally but I wonder about the impact of low-skilled immigration on these figures. Someone could come from an A8 EU country and get work in the UK at 58 of median income. Assuming that family is rational, then they will be better off having immigrated, but they show up as making the average family in the country poorer while themselves becoming richer. Is the ONS comparing the same people in 2010 with 2015, which would require retrospective data on the EU nationals incomes before they came here, or do they just compare the people who are here at the time of their survey year?
    Assuming the latter it’s another example of free movement for work being imv the EU’s greatest success story, and also one of the UK’s.

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