For richer... for poorer

November 8, 1996

Tony Atkinson demands an official United Kingdom poverty target and explains how lessons learned from the setting-up of a report to beat inflation could be relevant.

In October 1992, after the pound left the Exchange Rate Mechanism, the Government launched a new macro-economic strategy, at the heart of which was a formal target for the rate of inflation. Although low inflation had long been an avowed objective, previously there was no explicit quantitative performance standard. The Government then announced its intention to keep inflation within a range of 1 to 4 per cent. More-over, by mid-1997 the rate was to be in the lower half of the range.

These were fine words; the problem was to make them credible. Credibility was sought by increasing the role of the Bank of England, including the innovation of a quarterly Inflation Report, providing statistical evidence about inflation and its prospects, together with a commentary.

There are relevant parallels between macro-economics and poverty in Britain. I believe we should establish a national performance target for the abolition of poverty. Reducing poverty should become an explicit object of policy, and there should be a poverty report, just like the Inflation Report, assessing success in meeting the target.

One reason we can learn from the parallel with the conquering of inflation is that macroeconomics has been remarkably successful in its public relations, with much political attention and media time being devoted to it.

Aggregate economic performance has come to have first call on our attention, with issues of social justice appearing irregularly and less urgently in political debate. The setting of an inflation target is an example of such dominance.

It is also evident that macro-economic policy interacts with anti-poverty policy. We cannot separate economic and social policy. Nowhere is this more apparent than in the case of the Maastricht criteria limiting public-sector borrowing. Achievement of the convergence criteria may require a level of unemployment that seriously damages the earnings prospects of the poor; adjustments in public spending may directly reduce their incomes. This has been recognised by countries such as Sweden, which have argued for employment targets to be placed alongside those for government borrowing and debt.

In the case of the United Kingdom, establishing a poverty target would mean adopting for the first time an official poverty line. Other countries have long done so. In the United States, an official poverty line was adopted in 1965 by the Office of Economic Opportunity, and it still forms the basis for the Bureau of the Census annual report on poverty in the United States. It is not therefore an outlandish idea. Indeed, the nucleus of a poverty report already exists in the form of the publication Households Below Average Income developed by the Department of Social Security. If the official poverty line were to be simply 50 per cent of average income, as with the European Union poverty standard, then we already have much of the necessary material.

What are the arguments against? The first is that there would be no agreement on the definition of a poverty line and the contents of the poverty report. There is indeed bound to be disagreement. The EU 50 per cent poverty line may be regarded as too high or too low. It may not be adequate to measure poverty in terms of income: social exclusion may be a broader concept.

Yet we should be able to identify common ground even where there is not complete agreement. People may agree that the poverty line for a single person should be at least Pounds X a week, even if they disagree about how much higher it should be. People may accept an oversimplified definition like 50 per cent of average income on the grounds that its simplicity is positively an advantage in terms of transparency in public debate.

The second set of objectors are those who would be sceptical as to whether the adoption of an official poverty target would contribute to the reduction of poverty. At worst, its establishment could be cathartic and have a negative impact on anti-poverty policy. At best, sceptics hold that announcing such a target would be mere words and would add nothing to the concrete policy initiatives taken. After all, the Americans have had an official poverty line for 30 years and their record on anti-poverty policy is in many respects worse than that of European countries.

In my view, rhetoric does make a difference. A national poverty target would provide a focus for concern, and the poverty report would inform public discussion. The press and media would find such a poverty standard easy to describe, and there would be topical interest in the performance according to this target. In the US, newspapers know when the annual poverty count is to be released and line up academic commentators. The regular performance test would contribute to keeping the issue on the public agenda.

The serious objection is that, as used to be alleged in planned economies, planning targets distort government decisions in favour of the chosen objective and against other goals, with the DSS disregarding all other functions of social security. This is a major ground for concern, since the objectives of social security are much broader than the alleviation of poverty. I would therefore like to see the terms of reference of the poverty report include a requirement to identify situations where an improvement in the poverty figures had been achieved at the expense of other social goals.

A third set of objectors are those who can see no reason why politicians should agree to any performance target. Why should the Labour party, for instance, give such a hostage to fortune? The answer lies in the parallel with the Inflation Report - it provides credibility. Labour has set its face against spending promises, but many of its members are concerned about the extent of poverty in Britain. Commitment to a target would reassure both those anxious to reduce poverty and those sceptical that Labour would keep spending down.

The important feature of the proposal here is that it decouples the poverty commitment from benefit spending. It focuses on the outcome, not on the means by which it is achieved. The outcome, of course, depends on the choice of benefit levels, but also on other policies. Macroeconomic policy, employment policy, training programmes, and health policies can all contribute to the reduction of poverty.

Tony Atkinson is wardenof Nuffield College, Oxford. This article is based onhis delivery of the Eva Colorni Lecture at London Guildhall University this week.

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