Wednesday, 5 September 2012

"Poverty" is at its lowest level for 30 years

The super-charity Save the Children has decided, for the first time in its 93 year history, to raise funds to help children in the UK.

The charity – founded in 1919 – is now aiming to raise £500,000 amid fears levels of poverty in Britain are “tearing families apart”.

Justin Forsyth, the charity’s chief executive, said the Government must do more to help protect the “poorest and most disadvantaged from further cuts".

Let us leave aside the fact that the "cuts" are so "savage" that the national debt will increase by £600 billion in the course of this parliament. Instead, let us look at Save the Children's definition of the poor, which is based on the conventional measure of relative poverty ie. a disposable income of below 60% of the national median income. On that basis...

The charity defines living in poverty as having a family income of less than £17,000 a year.

Fine. Not everyone would agreed that such an income equates to poverty, and it is surely misleading to describe it as the "bread line" (as Newsnight did last night), but the relative measure is standard in rich countries like the UK.

The trouble is that relative measures tell you very little about material circumstance. In his excellent book, A New Understanding of Poverty, Kristian Niemietz quotes Save the Children saying:

"...in the UK, 3.9 million children live in poverty. Many don't have access to warm winter clothing, nutritious food, decent housing or education."

As Niemietz notes, this is a non sequitur.

It may, of course, be true that many of those living in relative poverty do not have access to such things, but the relative poverty figures tell us absolutely nothing about the extent to which this is so. Hard data from one measure are being used to imply something about a measure for which these particular data reveal nothing.

He also quotes the following from Oxfam GB:

The UK is the fifth richest country in the world. Until the recession hit in 2008, it had experienced an unprecedented period of growth over the last 10 years. Yet this has not benefited the poorest in society.

This is more than misleading. It is simply untrue. Between 1977 and 2006/07 the bottom quintile (ie. the bottom twenty per cent of earners) saw their disposable incomes rise by 60 per cent in real terms. In the ten year period Oxfam refers to, disposable incomes of the bottom quintile rose by 25 per cent. This represents a "benefit" to the poorest in society, by any objective measure.

But whilst the bottom quintile saw its average disposable income rise by 60 per cent between 1977 and 2006/07, middle earners enjoyed an increase of 92 per cent and the incomes of the top quintile rose by 143 per cent (all in real terms). Consequently, inequality increased and the number of people living in relative poverty rose.

In 1979, 13 per cent of the population had an income below 60% of the median and, therefore, were classed as being in (relative) poverty. By 1990, this had risen to 22 per cent and the figure remained between 18 and 22 per cent for the next 18 years. Disposable incomes of the poor rose rose almost every year in this period, but because average earners continued to get richer too, there was no significant decline in either relative poverty or inequality.

And then something happened that should have gladdened the hearts of those who focus only on relative measures. The financial crisis led to the biggest fall in GDP since 1949. That, combined with rising inflation, resulted in the first drop in average earnings since 1981. As in previous recessions, people on median and high incomes saw their earnings fall the most—a decline of five per cent for the top quintile and 3 per cent for the middle quintile, while the bottom quintile saw a fall of just 1 per cent. The graph below comes from the Office for National Statistics (click to enlarge):

As a result of all this, inequality fell by a full two points (see below) and half a million people were "lifted out of poverty". There are now fewer people living below the official poverty line than at any time since the early 1980s (16 per cent). Quite brilliantly, a measure of poverty has been devised which allows the poverty rate to rise when the poor are getting richer and fall when they are getting poorer.

I won't be celebrating this sharp drop in "poverty" because I consider a drop in the income of the poor to be a Bad Thing. Nor will I be celebrating the decline in inequality, even though The Spirit Level tells us that it will make everything better (I look forward to the big fall in infant mortality and violent crime that their model predicts).

You won't find Save the Children celebrating either, but by their own logic they should. Throughout the good times, they have had a single-minded focus on relative measures despite the poor getting markedly richer by any other standard. By their own preferred criteria, things are now better than they have been for thirty years, which makes it an odd time to start the only UK anti-poverty campaign in the charity's history.

Alternatively, we might conclude that the relative poverty measure is a load of old cobblers that tells us nothing about the material conditions of people on low incomes. Considering that there are now 500,000 fewer people living below the "breadline" than there were before the "savage cuts" began, despite everybody having less money, that's the conclusion I draw.

UPDATE

The Telegraph mentions the interesting fact that Save the Children's CEO used to be a top advisor to the Labour party. The article also has a quote from me, pointing out that the charity did not run similar campaigns when the poor were much poorer than they are today.

About Me

Writer and researcher at the Institute of Economic Affairs. Blogging in a personal capacity.
Author of Selfishness, Greed and Capitalism (2015), The Art of Suppression (2011), The Spirit Level Delusion (2010) and Velvet Glove, Iron Fist (2009).

"Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience."