How food banks trump the welfare state

On the face of it, the figures are damning. Food banks in Britain helped over 900,000 people last year, up around a third over the year before. It seems Britain has a real problem with food poverty. Our benefits system just isn’t coping.

But, like so many media headlines, the truth is a lot more subtle. Nearly all food banks in Britain are run by a single Christian charity, the Trussell Trust. In the last few years it has found a niche, sharpened its act, and opened a lot more. So not surprisingly, care professionals have been sending more people along. It may not be that the underlying problem is getting worse, just that it is being better served.

Nor is it the government’s benefit reforms that explain the rise. Food banks were growing long before the measures were passed in 2013, and many of the reforms have not even been implemented yet. And by merging scores of benefits into a far simpler universal benefit, the reforms should hopefully help ensure that people do not in fact fall through the gaps in the over-complicated welfare net.

The underlying problem that food banks help solve is not food poverty, any more than it is shoe poverty, clothes poverty, electricity poverty or water poverty. It is the temporary crises that people sometimes get into when they are unemployed or on low pay. Around 60% of food bank users are once-only users. They hit a crisis and can’t afford the groceries; that is why care workers refer them.

Around 30% of them have problems because their benefits payment has not arrived in time, or they are being penalised for not showing up at interview, or they have simply filled in a form wrongly. And you can blame that on our over-complicated, bureaucratic, distant and unfeeling state benefits system. We spend £94bn a year on it, a seventh of all government spending (and the government spends a lot). If we devolved the process to local communities and voluntary groups, it would work much better.

No government can do much about the fact that food prices have risen nearly 35% since 2007. Well, actually, they could stop subsidising biofuels, which has diverted huge amounts of agricultural produce out of human mouths and into gasoline tanks. And they could do something about the fact that other essentials have been soaring in price too. Government-mandated to renewable energy adds about 15% to the fuel bills of businesses and private sector organisations, plus about 6% on the gas bills and 11% on the electricity bills of domestic customers. That is why poorer people run out of cash and economise by going hungry.

Nearly everyone in Britain is well fed – some too much so – because Britain is a peaceful, trading nation with an established rule of law. Our farmers are not afraid to plant crops in case they are stolen by thugs or invading armies. Our traders bring produce to us from all over the world. If you want to see chronic poverty, look at countries that do not have this thriving market system.

Because this market system makes us a rich country, we can afford to help people who run into problems. The biggest philanthropic sector on the planet is that of America, the world’s richest country. In fact, America, Canada, New Zealand all have large food bank movements. That is because they are rich, and because they have a strong sense of community too. In Britain, too much of that sense of community has been crowded out by our state bureaucracy.

It is actually good to see charities taking on these problems. The state is inevitably large and lumbering. Private charities are much better at tackling individual human issues, like families who run out of cash from time to time.

Of course, the state could help in a very simple way. A large number of people referred to food banks are actually not those on benefits, but people on minimum wages. The government has pledged to take everyone on minimum wage out of tax, and about time too – it is absurd to tax people who are on the breadline. And yet we are still charging them and their employers another, hidden tax, namely National Insurance Contributions. Again, it’s crazy. If you want to help people in poverty­–and get people into the world’s best welfare programme, namely a paying job–you should be making work pay, which for many of the nation’s poorest, is appallingly not the case.

Being economically worth less does not mean you are worthless

I’ve just been on Channel 4 News discussing Lord Freud’s comments about letting people with disabilities choose to work for below the minimum wage. I haven’t watched it back but I gather from Twitter that I fluffed it a bit – unfortunately the producers put me up against two people without telling me, so I got flustered. 

The thing I said that upset people the most was that some people with severe disabilities or learning difficulties may be economically worth less than people without. (One of the people I was debating apparently thought I said ‘economically worthless’.) 

Lots of people have taken this to be a comment on the moral value of people with severe disabilities or learning difficulties. This is an error. The value of a person’s labour is equivalent to what others will pay them for a given amount of time, also known as their productivity. When Lord Freud talked about people not being ‘worth’ the minimum wage, this is what he meant.

It has absolutely nothing to do with how important they are as a person. Some very good people are unproductive because they are inexperienced, they don’t have economically-valuable talents, or they are disabled. Some very bad people are very productive because they did well in the lottery of life. Indeed this is something I care about very strongly, and it has led me to abandon beliefs I once held quite strongly in favour of mechanisms that would redress some of this imbalance.

Perhaps it was a bad choice of words to say ‘economic worth’ because many people are unaware of the above. I can understand that if you heard me say someone was ‘economically worth less’ (let alone ‘economically worthless’!) that you might think I was making some comment about that person’s value as a human being. I’m pleased, at least, that many people who disagree with me nonetheless give me the benefit of the doubt, and I hope I’d do the same.

I think Freud’s comments were motivated by a sincere desire to make disabled people’s lives better off by allowing those that want to work to do so, with their wages topped up by the taxpayer. Whether or not you agree that this is a wise move it does nobody any favours to suggest that anybody in this debate thinks people with disabilities are not valuable as human beings.

You can have cheap pensions and you can have interventionist pensions

But you cannot have cheap and interventionist pensions investment. That combination being what The Guardian is demanding:

Indexation keeps charges low – Nest is fantastically cheap. There are lots of good reasons to spread your investments over a diversified range of international companies, which Nest is doing. What’s more, in achieving returns of 10%-plus a year since launch, it hasn’t had to face too many awkward questions.

Nest is cheap, that’s the way it has been designed. And the only way to have it that cheap is to be sticking the money into low and no load index funds. Any other system would mean having to cream off substantial parts of any likely return for those who do the managing to make the return. In fact, that’s rather why Nest was first designed: to make it quite clear that there was a way of gaining pensions savings without having to pay over all of the gains to the Men In The City.

All of which is fine but it’s entirely incompatible with this next demand:

Conventional City of London ideology is informing its investment decisions. Yet in Singapore, the country’s compulsory pension fund has been mobilised to held build local housing. Ottawa’s pension fund is extraordinarily interventionist. Given that we will be throwing hundreds of billions of pounds into a pension scheme for British workers, could we at least have a wider debate before sending half of it to Wall Street?

We’ve had that debate. And the answer was that we’d rather not send 2 and 20% to hedge fund operators, one or two percent to more traditional fund operators, for we’ve noticed that those fees almost inevitably eat up, and more, any extra performance they produce. And that’s why all of these schemes for different methods of pension savings crash into a brick wall set up by reality. Yes, even these ideas that pensions should be in bonds to pay for infrastructure. The extra costs of managing the money, the extra costs of the requirement to have the people managing the money, are greater than the increased returns from having done so.

That’s why indexation. For you can have pensions with cheap charges and you can have pensions with interventionist, active, management strategies, but you can’t both pay for the activity and also have a cheap pension.

Do we need state children’s services?

Our children need care and protection from abuse.  The question is whether the responsible bureaucracies give value for money, or indeed provide that care and protection at all.  Following each scandal, we are told that no one is to blame: the problem is systemic.  Then we are told that the bureaucracies will work better together in the future.  Then history repeats itself.  Rotherham should be a wake up call.

In fact, the problem really is systemic and it needs a systemic solution. It is not a question of money. From 2001 to 2010 English and Welsh councils’ child social care expenditure nearly doubled from £4.7bn to £8.6bn at 2010 prices (while the number of under 15s fell slightly). Would anyone suggest that the quality and extent of childcare has doubled?

Of course the problem is hugely complex and there is no single, simple solution but surely one factor is the excess of bodies paddling in the same swamp: Local Authority children’s services, schools, doctors and hospitals, police and charities such as Barnardo’s and the NSPCC.  Each case is like Gerard Hoffnung’s performance by solo violin and massed conductors.

Serious child abuse of any form is a crime.  Where a teacher, doctor or any social worker believes that a crime may have been committed, or may still be in progress, then that should be reported to the police like any other possible crime. The police should investigate without fear, favour, concerns for being branded racist or other politically correct excuses for doing nothing – or passing the buck to social services.

The bigger question is then whether children’s services are necessary at all.  If the current Local Authority bureaucracies did not exist, what would we put in their place?

Rotherham demands a systemic solution and that in turn suggests we start with a blank page.

Clearly we need the youth justice system and adoption facilities alongside those offered by the voluntary sector (e.g. Barnardo’s).  But Local Authorities’ manifest incompetence in adoption suggests maybe that should be turned over to the voluntary sector and perhaps arrangements for fostering too.

If taxpayer value would be improved, as it is being for schools, by channelling taxpayer funding through the voluntary sector, then why not?  Equally well if something like the existing services can be radically rebuilt to give our children the protection they need, then so be it. But if we just go on tinkering and adding more boxes to tick, more Rotherhams could follow.

The Negative Income Tax and Basic Income are pretty much the same thing

I’ve been talking about the Negative Income Tax lately, and equating it with the idea of a Basic Income. I think most of the policies’ respective advocates would deny that they’re the same policy. In this post I’m going to outline why that’s incorrect and I’m happy to say that they’re basically the same thing.

For the uninitiated, a Negative Income Tax is a form of welfare that replaces most existing welfare schemes with a single payment that supplements the income of the unemployed and low-paid. The payment is withdrawn as your earnings increase, ideally at a gradual enough rate that increasing your earnings (and hence reducing leisure time) is always worthwhile.

An example: a £5,000 basic payment at a 50% marginal withdrawal rate (this means that for every additional pound earned, the worker will receive 50p less in NIT payments). Someone with an income of zero would receive an NIT payment of £5,000, or just under £100/week. If they took a job that paid £5,000/year, they would receive a top-up of £2,500/year; that paid £7,500, a top-up of £1,250/year. Once they reached £10,000/year, they would receive nothing in NIT.

This idea was supported by Milton Friedman, among others, and has a reasonably strong pedigree on the right. Even libertarians who object to income redistribution in principle usually concede that a Negative Income Tax is the least bad form of welfare, because it is administratively simple and perverts incentives less than most welfare schemes. It is particularly appealing to many liberals and libertarians because it is unpaternalistic.

A Basic Income, on the other hand, is usually conceived as a flat payment to everybody irrespective of circumstance. This leads to a very big problem: assuming it replaces most forms of welfare as an NIT does, a basic income high enough for unemployed workers to subsist on would simply not be affordable to pay to everyone. A policy that ideally would be designed to help the poor ends up being a very expensive subsidy to people who do not need extra money.

Advocates of the Basic Income recognize this, and their solution is typically to use the tax system to ‘claw back’ the payment from relatively high earners. So everyone gets the money, but it is withdrawn according to earnings.

In practice, that’s more or less the same as a Negative Income Tax – the only difference is whether the withdrawal takes place at the ‘front’ of the payment (as with the NIT), or the ‘end’ (as with the Basic Income). Strange as it may seem, the policies advocated by Milton Friedman and the Green Party are the same in all but the technical detail.

But even if there is a surprising amount of agreement in terms of the kind of welfare we’d like to see, the detail may be more difficult to agree on. How much should a ‘basic income’ be? When should it begin to be withdrawn, and at what rate?

Questions like this are, I think, likely to be where what breaks up this (unholy?) alliance. But maybe not. Traditional policies like the minimum wage probably do more harm than good, and, rightfully, the question of how to improve the lives of the low paid does not seem to be going away. It will take compromise, but in the Negative Income Tax / Basic Income, we may have an answer.