Adam Smith Institute

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Absolute poverty numbers prove a couple of things

Much whingeing about the absolute poverty numbers. The Joseph Rowntree folk seem to be taking over the The Guardian about it - situation normal in fact.

Absolute poverty, in this sense, is who is below the relative poverty level of 2010/11. The relative poverty level, as we know, is less than 60% of median household income adjusted for household size (and etc, etc). Absolute poverty, in this sense, is using the 2010/11 measure of relative poverty and comparing to that. There’s a trick used here. We’re old enough to recall when it was relative poverty in 2000/01 that was used. Given that poverty by that measure seemed to be disappearing real fast the rebasing was done. After all, calls for ever more stringent taxation to beat poverty cannot be maintained if poverty is disappearing before our very eyes now, can they? As Chris Snowdon points out, properly measured absolute poverty has fallen from 85% of the population in 1961 to the 14 to 18% of today.

From which we can gain one useful lesson. Economic growth is important - it kills poverty. This means that we can reject all that degrowth nonsense because as we keep being told beating poverty is our prime economic directive.

Cool.

But there’s also one more thing here. This rise in absolute poverty is more an artefact than a reality. Because this:

Inflation-linked benefits and tax credits will rise by 6.7% from April 2024, in line with the Consumer Prices Index (CPI) rate of inflation in September 2023. For example, in 2024/25 Universal Credit standard allowances will increase: From £292.11 to £311.68 per month for single people aged under 25.

Significant portions of - if not all - income of those in absolute poverty will be coming from the benefits system. Benefits are uprated for inflation after the inflation has happened. The measures of absolute poverty are before those benefits upratings. The problem will be - largely - solved when the benefits are uprated. We’re just in that interregnum before they are.

But we can also take another lesson from this. Which is that Modern Monetary Theory does not work. The inflation was indeed caused by that vast money print and spending into the real economy. Which is MMT of course. But if MMT increases poverty in this manner - which it does, the inflation is compensated for later - then we cannot achieve our prime directive of reducing poverty if we use MMT.

So, two useful lessons from these absolute poverty numbers. Both degrowth and MMT are bad ideas not to be used. Well, sure, we know that anyway but nice to have another string to the bow - they increase poverty, see?