The perfect storm hitting the UK’s poorest and how to stop the next storm from brewing

Inequality, Livelihoods, Poverty in the UK

In the UK, homelessness on the rise and the number of people relying on food parcels has doubled in the past year. Our research reveals that deep-seated inequality and draconian spending cuts are resulting in the UK’s poorest being the hardest hit.

Oxfam’s new report, launched today, attempts to document the reality of the last four years or so for people living in poverty in the UK. Since those four years have been characterised by recession, slow recovery, and then recession
 – in all, an economic crisis deeper even than the Great Depression – it is in one sense a tale of the expected. Incomes are falling; unemployment has risen; and a hole has opened up in the government finances.

The impacts of a recession are unpleasant – especially, of course, for those directly affected by a job loss or a wage cut – but mitigated better in the UK than in most places, with a national system of unemployment benefit, and universal public services like health and education. Yet, scratch beneath the surface – as our report does – and you discover that people in poverty are being hit hardest of all. And you also discover that that troubling fact is the result of political choices – those made over decades and which define the structures of our economy and our society, and those made
in response to the current crisis.

Much of the drive for writing the report came from our partners to begin with, and we carried out a survey of over 70 organisations late last year. The results told us that the majority of partners were facing perfect storms of their own – rising demand for their services, just as government funding cuts were really starting to bite. The problems service users were seeking help with – debt, the effects of benefit cuts and welfare reform, a loss of local public services – speak to a combination of falling incomes, the rising cost of living (especially the cost of essentials like food and
heating), and enormous public spending cuts, all of which are being felt at the level of individual people’s lives.

Our research of national-level indicators and analysis proved that our partners’ experiences are far from isolated. Unemployment has been rising; incomes have been falling; food and energy prices have been increasing; and housing is more expensive than ever. It is increasingly hard to make work pay, with the minimum wage falling in real terms, and full-time jobs increasingly scarce, while part time and temporary work partially – but only partially – fill the
shortfall. At the same time, public services have been cut back, and benefits have been reduced and eligibility tightened.

Some of the human consequences show up in the statistics. The number of people relying on food parcels has doubled in a year. Homelessness is on the rise. The number of people in work but relying on Housing Benefit has more than doubled since the recession started. ‘Frustrated part-timers’ – those who want and need full-time work – are at record levels.

On the one hand, much of this is not new: the UK was a deeply unequal society before recession hit, and in the preceding decade, incomes of the richest tenth rose by 37% while those of the poorest tenth fell by 12%. On the other hand, this period of economic stagnation is exacerbating those trends (whereas inequality typically falls during recessions), and while average incomes are falling faster than at any time since the mid-1970s, the directors of FTSE 100 companies saw their incomes soar by almost half last year (while waiters and cleaners got poorer).

This brings us to the political choices being made. Spending cuts are deeply regressive, hitting the poorest thirteen times harder as a proportion of income than the richest, partly due to lower incomes, and partly due to greater reliance on those services. Benefit cuts, of course, hit people in poverty hard – indeed, 72% of those announced in 2010 will be paid by women. It is therefore very significant that the government has chosen to meet its fiscal deficit reduction targets primarily through spending cuts (a planned 77%) rather than tax rises (23%). Most of the tax portion has come through an increase from 17.5% to 20% in VAT (an indirect tax on consumption), which impacts twice as hard on the poorest tenth of people as on the richest.

In a time of recession, there are economic as well as social justice arguments for protecting the incomes of the poorest. And there are a range of alternative options for achieving this without necessarily questioning the depth or pace of deficit reduction. The report suggests a few: clamping down on tax avoidance and evasion to close the £36 billion tax gap; introducing a Robin Hood Tax on financial transactions; doing more to prevent high energy prices; and putting limits on interest payments for those forced into debt.

As well as tackling the immediate livelihoods crisis for people in poverty, any steps the government takes should help to build the foundations of a fairer, more sustainable society. The report points to a range of evidence suggesting that high levels of inequality contributed to financial instability, and ultimately pushed us towards recession. We know already that inequality harms the whole of society, not just those at the bottom. And we need to think
about building an economy that serves people – not the other way round.

This report shows us that there is a perfect storm buffeting the livelihoods of people in poverty in the UK. But it also shows that, given different political choices, those same people would be far better placed to weather it. And those choices could also build the foundations of a fairer society – to stop the next storm brewing in the first place.

Photo by Tim Sheets

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Download the paper: The Perfect Storm.

Author: Oxfam
Archive blog. Originally posted on Oxfam Policy & Practice.