The people's bailout


Oxfam has a new report out today, calling for a 'people's bailout'. Their argument is that a fifth of the population already lives in poverty and millions more will become more vulnerable as a result of the recession, and that something must be done.

Of course, Oxfam uses a relative definition of poverty, whereas what really matters is absolute poverty. Poverty is about being unable to satisfy basic needs, not just about having less than others. But let's leave that aside for now, because however you define 'poverty', it is clear that there are already plenty of people in Britain who struggle to make ends meet, and that the recession is only going to make that worse.

What, then, of Oxfam's policy recommendations? On the plus side, they recommend raising the personal allowance so that people on low incomes pay less tax. As I outlined in this briefing paper, raising the personal allowance to £12,000 would take 7 million people out of paying income tax altogether, and be equivalent to giving the average worker an extra £1730 per year in gross pay, making them £100 per month better off. And it would only cost the exchequer £18.9bn – a sum that could easily be covered by quite modest efficiency savings (see here). In short, it's a very good idea.

On the downside, however, Oxfam wants higher benefits, more social housing, and so on. And that poses a few problems. Firstly, such measures are not affordable, especially when the government has already run up gigantic debts. But just as importantly, such measures are likely to make the benefits trap even more severe than it is now. Moreover, Oxfam's call to put welfare reform on hold is very short-sighted: it may be harder to tackle the dependency culture when times are tough, but it's actually more important than ever.

In the long run, we'll only help people out of poverty if we get the economy growing again. And that's going to be pretty difficult if uncontrolled social spending is driving up the taxes on entrepreneurs and employers.