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2016-07-19 11:05:20
British economy policy is not helping those at the bottom
Jul 15th 2016, 11:58 by C.W. | LONDON
WHAT should the new chancellor, Philip Hammond, do? Some sort of fiscal boost
seems likely in light of Britain's slowing economy. Much of the talk has been
about infrastructure: Stephen Crabb, who challenged Thereas May for the
prime-ministership, proposed a 100 billion to fund it. A focus on
infrastructure is welcome; but the government also needs to do more for those
at the bottom. This would make sense both economically and politically.
Current government policy is extremely regressive. The plan is to save 12
billion in working-age welfare between now and 2020. The Institute for Fiscal
Studies has forecast that over that period tax-and-benefit changes will hit
those at the bottom much harder than those at the top (see chart). Someone in
the second-poorest income decile is expected to see their income fall by about
12% as a result of welfare changes, whereas those towards the top will see
little if any change. It is surprising quite how few people realise Britain's
direction of travel in this regard.
The result is that it is quite possible that by 2020 people at the bottom will
be poorer in real terms than when the Conservative government took power in
2010. Absolute poverty has already been rising for about a decade (see the
second chart), and that trend may well continue. Working poverty has risen as
various in-work benefits, like tax credits, have been scaled back. To many,
this may not seem an acceptable state of affairs.
A speech by Andy Haldane, the chief economist of the Bank of England, is thus
right to argue that Britain's economic recovery (which in any case may be at an
end) has been "for many partial and patchy and for some invisible". 12 billion
of cuts only saves about 1.5% of expected government outlays in 2020; but it
makes a big difference to people at the bottom.
On political grounds, reversing some of these tax-and-benefit changes makes
sense. There is a growing sense in Britain that the country is divided. Making
it more so is not a good idea. And Mr Hammond will surely be keen to distance
himself from his predecessor, George Osborne.
In addition, it may make sense economically to help those at the bottom. In
econo-jargon, poor folk have a higher "marginal propensity to consume", ie,
they tend to spend, not save any extra money they get. This is good for
economic growth. So I, for one, hope that welfare policy gets a bit looser in
the coming months.