Bad news on the economy and Tax Credit cuts will make it worse.

The Scottish economy is slowing and cuts to tax credits for low paid workers won't help.

Strathclyde University’s Fraser of Allander Institute has published its latest commentary. It shows that the Scottish economy had slowed both in absolute terms and relative to the UK. The divergence with the UK has occurred even though expansion in the UK as a whole was slowing significantly.

Editor, Brian Ashcroft, also urged Chancellor George Osborne to think again about his planned £4.4 billion per annum of cuts in tax credits. He highlighted the impact on domestic demand and UK economic growth. He said: “The overall plan is to take £12 billion out of the economy, which is quite large. Tax credits are quite a large component of that. You are taking money away from individuals who would spend that money, whereas other people with more money would save more of it. There is a direct impact on spending that is going to affect demand in the economy.”

This supports the message of UNISON General Secretary Dave Prentis on tax credits, he said: “Mums and dads – who are already walking a financial tightrope because money is so tight – have been having sleepless nights at the thought of losing as much as £50 a week next April. Working families will now hope the government re-thinks its heartless decision to snatch so much away from so many.”

This is because Tax Credit cuts cannot be balanced simply by raising wages. Tax Credits were introduced to support working families by recognising the extra expenses of raising a family, a role businesses cannot be expected to fill, and are paid to households rather than to individual workers.

The Allander analysis has been reinforced by today's labour market statistics. As the STUC commentary says:

“This was another disappointing set of statistics which confirms the swift reversal in Scotland’s labour market recovery. Over seven and a half years since the recession took hold, Scotland’s unemployment rate is still precisely 50% higher than its pre-recession trough. While all age employment has seen a very small increase over the year, growth is now basically stagnant. If jobs cannot be found for people returning to the labour market then unemployment is unlikely to fall over the coming year. The prolonged period when women benefitted disproportionately from the labour market recovery has now ended with women accounting for most of the rise in unemployment. The small increase in total all age employment also disguises a significant fall in employment for women."

And there is little good news on wages. As this TUC chart shows, today’s Average Weekly Earnings figures show what is beginning to looks very like a pause in the recent improvements. This is reason to worry that stalling earnings may again act to stifle household demand.

The Chancellor's Autumn Statement on 25 November will be an important indicator of what action he will take to support the economy. The Scottish Government will then publish its spending plans for next year. Action on jobs and wages should be their priority.

 

Why the social security system is vital to low paid workers

As we await the the assault on working people in the first Tory budget next week, new data points to better ways of supporting the low paid and reducing inequality.

The Joseph Rowntree Foundation has published its annual research on the The Minimum Income Standards (MIS), which asks members of the public what goods and services they think different types of households need to live to an adequate level. They turn this into a useful calculator that lets you compare your income to MIS.

The pause in inflation helped people on low incomes to become slightly better off relative to their needs in 2015, despite working-age benefits and tax credits rising by only 1 per cent. However, households on low incomes remain much further behind what they need than before the recession. The gap between family incomes and what the public think people need for an acceptable living standard has grown sharply.

The earnings required to achieve the MIS for a single person stayed stable at £17,100 a year. Earnings requirements fell for families with children, helped by a small increase in Child Benefit and tax credits. A working couple with two children must each earn £20,000 to reach MIS.

A predicted return of modest inflation combined with a planned freeze in benefits, tax credits and Universal Credit will create a less favourable environment for households reliant on help from the state. The July 2015 special Budget is likely to make matters much worse.

The Institute of Fiscal Studies(IFS) has published a short analysis of the annual DWP statistics on the distribution of household income.

After inflation, median (middle) income grew by just under 1% in 2013–14, following a similarly small rise in 2012–13. This represents a slow recovery in average incomes, which follows the sharp decline between 2009–10 and 2011–12 when workers’ real earnings fell rapidly. It did mean that real median income had crept back to within about 1% of its pre-recession (2007–08) level, though it was still almost 3% below its 2009–10 peak.

In 2013–14 incomes grew at a similar rate across almost all of the income distribution, resulting in little change in income inequality. At 0.34, the Gini in 2013–14 remains at around the same level as in the early 1990s, but lower than before the Great Recession. This is largely explained by the fact that while real earnings fell sharply between 2009–10 and 2011–12, benefit incomes were more stable. Since poorer households get a greater share of their income from benefits, their incomes have risen relative to higher-income households. However, once you take account of falling mortgage payments, overall inequality fell less than those numbers suggest since it is largely better off households who benefited from this reduced cost.

The latest data show little or no change in poverty rates, for the population as a whole and for the major demographic groups (pensioners, working-age adults and children). However, as IFS warns, we need to look at trends over several years.

We also need to look at how geographical is the wealth gap. The richest place in Scotland is a third better off than the poorest. ONS data shows that gross disposable income averages just over £20,000 a year in Aberdeen and Aberdeenshire and in Edinburgh, compared to just under £15,000 a year in Glasgow and North Lanarkshire.

As we approach the special budget and the likely attack on social security for working people, the TUC and the Child Poverty Action Group (CPAG) have urged ministers to improve Universal Credit rather than raising the income tax threshold to £12,500. In a study of 13 options, the tax threshold proposal cost the most and came bottom for reducing child poverty. A package of improvements to Universal Credit including increasing work allowances, would reduce child poverty by 460,000.

Alison Garnham, chief executive of the CPAG, said: "This comprehensive analysis shows the Chancellor must be careful not to back the wrong horse when it comes to the Government's flagship policies. Rather than committing billions on the costly and poorly targeted policy of raising the personal tax allowance, the Treasury should stop starving universal credit of the investment it needs to fulfil its poverty-reducing potential and justify the massive upheaval surrounding it. The evidence is clear that investment in tax credits is incredibly effective in lifting children out of poverty."

While increasing wages remains hugely important, these reports highlight the importance of in work benefits to families in particular. Despite the 'strivers' rhetoric, these are likely to be the biggest losers next week.

 

 

Tackling poverty in Scotland

Higher employment will help reduce poverty in Scotland, but won’t eliminate it unless we address pay and employment standards.

In recent weeks there have been a flurry of reports addressing poverty in Scotland and the UK. In this post we highlight some of the key findings.

A briefing written by the New Policy Institute (NPI) and published by the Joseph Rowntree Foundation (JRF) looks at the challenge that Scotland would face to tackle poverty, even with a much higher employment rate. Scotland’s employment rate has remained at or above the UK’s employment rate for the last eight years. It currently stands at 73.5% and could reach 80% by 2025. At current population levels, this would mean an extra 300,000 jobs in the economy.

The report authors analysed the impact of this growth, looking at what would happen to poverty levels under two scenarios, depending on whether the extra jobs were full or part-time. They found:

• If the 80% benchmark was reached by the creation of only part-time jobs, poverty among working age adults and children could fall from 800,000 (19.4%) to 670,000 (16.2%).
• But if most of those extra jobs were full-time, the number in poverty would fall further, to 600,000 (14.6%). 65% of them would be in working families.

This highlights the importance of a higher ‘work intensity’ – where families are able to access jobs with more hours. But this brings problems of its own: policy makers will need to ensure there are sufficient high quality, flexible and affordable public services such as transport, childcare, adult social care and health services, to make it possible for a family to work longer hours.

Housing is also highlighted as a key issue by the JRF. They say that the focus of debate on housing has been dominated by the bedroom tax,  and while this is important we must not lose sight of the bigger picture: more families facing higher housing costs and rising levels of poverty among those living in private rented homes. A point UNISON has made strongly in our submission on the Housing Bill.

The Scottish Government’s Expert Working Group on Welfare has published its second report looking at the principles, which could underpin the welfare system in an independent Scotland. 

This report and its 40 recommendations also recognises that paid employment is the best route out of poverty for anyone who can realistically be expected to work. However, it also identifies the importance of an effective social security system, not just as a safety net, but as a springboard to a better life.

While Scotland has many advantages, we still have a more unequal society than many other OECD countries and it is that inequality that is a drag on economic performance. Employment rates amongst older workers, particularly women, who also suffer from underemployment and need additional support in balancing care with paid work.

While the proposals are modest, rather than radical,  it is encouraging that the report welcomes the importance of the quality rather than just the availability of work. Particularly important is the call for an increase in the Minimum Wage to a Living Wage level.

Work carried out by the Improvement Service (IS) revealed there are strong relationships between positive and negative outcomes in Scotland, with areas experiencing one form of deprivation tending to be disadvantaged in several other sectors too. This was a feature of the Christie Commission report published three years ago this month. 

IS has analysed three groups comprising the 330 most deprived neighbourhoods, 330 central neighbourhoods and 330 least deprived neighbourhoods in Scotland over 10 years. They found that the disparities in multiple life outcomes are generally persistent and in some cases continuing to grow. The significance of this study is that it looks at neighbourhoods rather than individuals. People born into a deprived neighbourhood in Scotland have a higher chance of being income deprived, of needing emergency hospitalisation, being a victim of crime, and achieving poorly in education. In this respect, the neighbourhood in which you live can have a substantial impact on your future experiences and outcomes.

Another JRF funded report, notes that one in five Scottish children live in poverty and there is a strong and enduring association between low household income and low educational attainment. Social inequality in educational attainment at school level in Scotland appears to be around the OECD average. However, there are many countries that have narrower gaps include Norway, Japan, Canada, the Netherlands and Australia; and the attainment gap is also slightly lower in England. The JRF review concludes that narrowing this gap has not been a social policy priority in Scotland. It notes that the agenda around poverty and educational achievement in Scottish education is, “virtually invisible in the key documents that provide advice for schools and on-the-ground examples of policy and curriculum development.”

Taking a wider UK view, two reports published this week should act as a wake-up call to the government and society at large, as welfare reforms drive millions of the most vulnerable in the UK into destitution. Oxfam’s “Below the Breadline”, compiled in conjunction with Church Action on Poverty and the Trussell Trust, revealed a 54% rise in the number of food parcels distributed in Britain over the past 12 months. Oxfam has also pointed to the Bedroom Tax and limits on Local Housing Allowance driving over 80,000 Scottish households deeper into poverty.

The Social Mobility and Child Poverty Commission has also reported that 3.5m children would be in poverty by 2020 without strong measures aimed at low-income households. It forecast that the UK government will fail in its legal duty to reduce child poverty by 2020. Together these reports tell an all-too-familiar tale about the impact of UK government policy on the poorest in society. It is one in which the poorest and the most vulnerable are penalised for their poverty.

There is a lot of analysis in these publications that paints a pretty bleak picture in Scotland and the rest of the UK. Possibly more important, also some recommendations for action. However, they all require policy makers to understand that inequality is holding everyone back.

The real cost of the bedroom tax

The Scottish Federation of Housing Associations (SFHA) has published a report 'The Real Cost of the Bedroom Tax' that estimates a bill of almost £80m for Scottish Housing Associations and Co-operatives. 36,000 housing association tenants and 47,000 council tenants will be affected by the Bedroom Tax.

It breaks this down into tenancy management costs covering expenses such as the reallocation of homes as thousands of tenants look to downsize, unpaid rental income and legal costs which it says will amount to at least £55,264,800 over the first three years of the policy.

Communications such as advice provision, tenant surveys and newsletters were costed at £9,250,000. System changes such as staff training and updating policy, procedures and IT systems are expected to cost £14,592,800.

Maureen Watson, SFHA head of policy, said the extra cost has not been built into the business plans of its members. She said: "This will drive up rents for all tenants and increase the housing benefit bill for the UK Government.The SFHA is strongly opposed to the bedroom tax. We are continuing to make representations to the UK Government, seeking to have this unfair and incompetent policy repealed."

Workfare may actually be aimed at replacing public service jobs

George Osborne's workfare plans will not only criminalise those on benefits, but public service workers should also be worried about its secondary aim to replace their jobs.

As False Economy points out, the plans will in effect criminalise the unemployed. The workfare requirement at 780 hours is already more than twice as long as the longest community service sentence. It also doesn't work. Very few get real permanent jobs and 71% of people sanctioned on the scheme reported going without food; half went into debt.

However, the secondary aim may well be to substitute the unpaid unemployed for public service jobs. This is already happening in some areas, primarily in England, with councils and charities lining up to do this.

When a similar scheme was introduced in the US, thousands of jobs in the Parks Department were lost in New York alone – to be replaced with forced unpaid workers. District Council 37, a union which represented municipal employees, took Mayor Giuliani to court, saying that his workfare programme “had illegally replaced nearly 2000 unionised clerical workers with unpaid welfare recipients in three agencies."

A rubbish scheme that doesn't work, but may actually be aimed at replacing our members jobs.