Chill winds are sweeping Britain’s economy with a general expectation that poverty will increase in the coming years, and that poverty reduction targets will be missed. Alarm bells rang loudly after hints that the Government is considering changing the way it measures poverty. They wouldn’t just do this because unmet targets are embarrassing. Difficult times mean that politics in Britain has primarily become an exercise in allocating pain, not spreading butter. It may be tempting to just try to protect those with access to power, a voice, or those likely to vote because they still believe the status quo can work for them.

But this would be like applying sticking plasters to a breaking dam. Ignoring the 13.5 million people suffering below the poverty line wouldn’t just be immoral, it would be nonsensical. For two reasons, economic weakness has made tackling poverty more important, not less. Firstly, the solutions to Britain’s economic malaise require the inclusion of people on low incomes. Secondly, poverty in Britain is caused by a dysfunctional economy, and in this financial crisis, this underlying dysfunction is dragging down the living standards for growing numbers of people.

Why is solving poverty more important than ever?

If Britain is going to rebalance its economy to take advantage of new global opportunities in the way that the Government and business organisations like the CBI want, then our people and their skills will become more important determinants of growth. Some economists argue that because middle classes have become more educated, they are likely to provide fewer productivity gains in future. This means that improving poor peoples’ economic inclusion is even more important – a stable, decent standard of living is a precondition for realising potential.

Instead, increasing numbers of people are being subjected to the kinds of pressures and vulnerabilities that have existed at the bottom for years. The share of national income that goes to workers has not only declined inexorably during recent decades, but has kept falling during recession. This problem is affecting the majority of people in Britain as well as those below the poverty line. People are increasingly realising that while they’re working for the economy, the economy isn’t working for them.

This isn’t really new, it’s just worse than ever. UK economy has become supremely ineffective at including people. The proceeds of growth are not allocated where they are due. So as the numbers of those struggling with unemployment, underemployment and in-work poverty all rise, the gap between an “underclass” of the workless and millions more people in work will become more blurred. Now is the time to make common cause, to commit to tackling the underlying drivers of poverty, because it is more obvious than ever that doing so will benefit the majority. This is why a plan to come together to deal with the fallout of the economic crisis is an essential part of a bright, attainable vision of the future.

What needs to happen?

Firstly elites need to change the way they talk and think about poverty, being clear that it’s a problem for everyone. For most people, although extreme deprivation persists, poverty is decreasingly a question of ‘them’ and ‘us’.

Secondly, Britain needs big changes that work for the majority. Policymakers must make sure new forms of growth include society from the bottom up, and commit to reversing the rise of economic inequality that is making the financial crisis more painful for millions. And economic policy must focus on increasing the quality as well as the quantity of work. Work is now a debasing experience for millions of people: it offers low pay, few chances of progression, and little security. This is why, if you are a British child in poverty, the chances are, at least one of your parents is working. A work ethic can’t thrive when work is becoming an increasingly ineffective way to support a family.

Thirdly, policymakers need to inject urgency into making policy across the board pro-poor. There are plenty of low-cost and no-cost ideas out there that need a hearing. For example improving the Welfare Reform Bill should be an urgent priority, a Robin Hood Tax to protect services and safety-nets for the poorest should be another. Strong signals from the top that reducing poverty is a priority will give bureaucrats and junior ministers the courage to innovate.

Finally, leaner years require a more equitable distribution of the crop. A majority of people seem to think two things about the deficit: it is real and needs to be dealt with (56 per cent in a November YouGov poll), and that it’s not being closed fairly enough (57 per cent). In Westminster, closing the deficit can seem like the crucible of the political contest. But people outside the bubble know it’s not a game. For some communities it’s a question of life or death. To policy elites deficit reduction looks like a myriad of ‘difficult decisions’, each one subject to intense lobbying by those who can afford a voice. But the important question is do we get through this together or split apart? Does society share the burden, ensuring a decent standard of living for everyone – or do various interests fight over the scraps in a contest that can only condemn the vast majority to a poorer future? It’s the decision over the kind of society we want our children to grow up in.

Ben Morgan is Oxfam Advocacy and Policy Officer on poverty in the UK.

The Welfare Reform Bill starts ‘Report Stage’ in the house of Lords today – a five-day debate, where the House decides whether to change the legislation by voting on amendments proposed by individual Peers.  The Welfare Reform Bill contains a radical set of reforms that will affect the lives of millions in the UK. The implications of even the most minor errors in design are practically unimaginable. So today Peers are trying to fine-tune the government’s reforms, to ensure mistakes are nipped in the bud.

Today’s debate, from about 3pm, will cover a number of vital issues. However, one particularly critical decision will be over whether the new Universal Credit will be paid monthly, or fortnightly as Baroness Lister of Burtersett and a group of other Peers from across the aisle has proposed.

Not such a big deal? Well, for millions of people on low incomes, particularly women, it will be.

The government is rolling a range of benefits into a single ‘Universal Credit’ (UC), which they plan to pay once a month. Lots of these old benefits are currently paid weekly or fortnightly, often on a fairly flexible basis. For example, tax credits may be paid every week, or every four weeks, according to what is most convenient for a claimant (although they don’t get the final say). Housing Benefit can be paid at intervals of a week, two weeks, four weeks, or monthly, depending on the frequency with which rental payments are due. Child benefit, which is especially important to causes like increasing gender equality, reducing domestic violence, and ending child poverty, is paid weekly. Even Jobseekers’ Allowance is paid fortnightly. A shift to monthly payments for all these benefits is a big change, so it is worth weighing carefully.

The problem with paying Universal Credit on a monthly basis

The government’s argument for paying UC monthly is pretty straightforward: it reflects the frequency at which wages are paid, and therefore prepares people for that experience, making it less of an upheaval.

That sounds pretty sensible; after all we’re all paid monthly to work, why can’t benefits be paid the same way? But we aren’t all paid on a monthly basis. Three quarters of people employed in Britain are paid monthly, something Department of Work and Pensions recently acknowledged. Predictably, lower paid, lower skilled jobs are less likely to be paid monthly. Actually, only around half of jobs paid under £10,000 a year are paid monthly. Sadly, more vulnerable benefit claimants are more likely to graduate into these jobs first.

The government does recognise the change will come at a cost. In its white paper ‘Universal Credit: welfare that works’ (Cm 7957 November 2010), it conceded that:

We understand that many people on low incomes will be used to managing fortnightly payments of benefits and will ensure that, whatever the period of payment, there will be appropriate budgeting support to ensure recipients are supported effectively.

More vulnerable claimants are certainly less well equipped to budget on a monthly basis. DfES research shows that numeracy skills are painfully low amongst some groups. Five million people have ‘poor’ numeracy skills, while 1.7 million people have ‘very poor’ numeracy skills. Providing support to deal with monthly payments will cost more money. Those with lower skills are more likely to enter unskilled work that pays more frequently, so the upheaval will have been unnecessary.

Particular groups are clearly more vulnerable. Organisations such as Mind, the National Autistic Society and the Disabilities Benefits Consortium have all expressed real concern about a plan to pay UC on a monthly basis is a recipe for debt. Put together with the current plan (also in the Bill) to abolish crisis support through the Social Fund, a strict system of monthly payments is more likely to drive vulnerable claimants towards lenders and loan sharks.

Oxfam would add women to this lengthy list. Our experience and research in the UK shows that women tend to take responsibility for budgeting for essential living expenses and the needs of children, which all tend to be spent on a weekly basis. In couples, and particularly in abusive relationships, women sometimes rely on the weekly payments like child benefit as their sole source of independent income. One worry is that if benefits are paid monthly to a couple rather than individuals within the couple, less money will reach women and children, or be spent on essential expenses. In any case, when the money for essentials is already tight and tough to manage, monthly payments would seem to just make things harder.

A compromise: simplicity without debt

In short, for many claimants, monthly payments will probably work fine. But for those who with little experience of work, vulnerable claimants, claimants with very low numeracy skills, or claimants who face severe financial pressures because of inequality within the household, weekly or fortnightly payments are essential for effective budgeting. The only alternative for many will be yet more crushing private debt. As Baroness Lister argued last week in the Independent, a strict imposition monthly payment threatens ‘pay-day loan peril’.

Ideally, claimants should simply be able to choose how often they receive Universal Credit. This would certainly contribute to the government’s admirable aim of making the system more tailored to the needs of individuals. However, if Ministers are set on fixing a universal frequency for payments, given that many of the most essential benefits are paid weekly, paying UC on a fortnightly basis would seem like a reasonable compromise.

UPDATE

The result is in, we lost this one I’m afraid. It was extremely close: 224 for to 227 against – less than a handful of votes short. It was heartening to see such a strong support for this amendment. Yet the fact it was so close is just mortifying – one wonders whether one could have swung it with just four more emails! On a positive note the 224 who voted ‘aye’ on amendment one deserve huge congratulations and thanks, and the speeches in favour were really strong. Click here to read the short debate, and check of who voted.

Clearly this is really disappointing, there’s no other way to put it. On a positive note though, the government does acknowledge that a system which precludes choice and presumes in favour of monthly payments will require special protections and tailored help for at least some individuals. Though such a system seems unlikley to reach the millions who are likely to struggle with monthly payments, there is clearly now a job to be done to help ensure proposals are as effective as possible. Additionlly, because a big part of our concerns around this issue stem from the attending context of current proposals mentioned in my post to retract crisis support offered through the Social Fund, securing a better solution on that could really help.

I thought it was really heartening to see considerable bi-partisan acceptance on the panel of the principle of reforming the system and investing through it strategically to enable people to escape the poverty traps that exist in our current system.

Obviously I also thought Kate’s performance was brilliant!

The full episode is available here

(RSS readers click through to watch the video)

If you just said ‘yes’ thrice, then make a 60-90 second film about why we shouldn’t return to business as usual.

Check out this website for more information, or alternatively, here’s Sienna Miller explaining the competition while paying homage to Subterranean Homesick Blues:

(RSS readers click through to watch the video)

A more progressive taxation system:

>>National Insurance has been rising rapidly but it is effectively capped meaning higher earners don’t pay any more than anyone else. Where possible necessary rises in NI, should be replaced by increases in income tax.

>>Reduce indirect taxes such as consumption taxes that disproportionately impact the poor, and reduce demand – much needed during this fragile recovery.

>>Resort to regressive indirect taxes only when they achieve worthwhile social goals, and offset regressive impacts elsewhere in the tax, and benefits system.

>>Reduce the tapers on tax, and benefits

Make welfare a genuine springboard for all:  Pay for strong, and comprehensive social protection (compared to consumer citizens, and narrow workfare policies).

>>Investing in a less myopic welfare system will be cost neutral over the long-term anyway as it will lead to greater employment in more highly skilled, and better paid roles that in turn will increase the net tax-take. The system should also be designed to prevent people being forced into the informal economy. The informal economy proves there is untapped productivity, which if utilised could increase tax receipts.

>>Invest a net £2.7 billion per year to increase earnings disregards and introduce a standard 55% withdrawal rate for both out-of-work and in-work benefits, to end the benefit trap.

>>The administration of the welfare system is far too complex and makes benefits less predictable, which in turn increases financial insecurity and people’s ability to make rational financial decisions – the system has to be radically simplified.

>>There also should be a full analysis of the differentiated effect these measures will have on women and men.

>>As a first step in welfare reform, roll out the Create Consortium’s proposals for a Community Allowance beyond the pilot areas, especially if further evidence supports the view that the model would prove cost-neutral.

Expanded community ownership: With measures to enable poor communities to organise, and access benefits. This would cost £5m to start up the infrastructure, and the facilitation, and would yield savings in the long-term.

Tackle debt at the bottom: Continue and increase investment into DWP’s growth fund that provides small loans with wider access, and longer repayments. £100m would directly enable 225,000 people access affordable credit (rather than having to use high cost lenders), and 80,000 people would be enabled to open a basic bank account or savings account.

Increase family-friendly jobs:

>>Create a pool of employees to provide extended maternity cover so small businesses have no excuse not to hire women.

>>Realise long-term ambitions to extend paternity cover; enabling couples to break away from traditional gender roles at the beginning of parenthood by ensuring the law doesn’t actively encourage one gender to take on the role of primary child-carer.

Economically empower women: £3bn to make childcare affordable, flexible, and accessible. The lack of affordable childcare in Britain (childcare in the UK is the most expensive in Europe) is a key stumbling block for women that want to work. This is the single best way to . Spending here would also enable good nurseries to meet their obligations to provide a minimum amount of free childcare without having to close because of financial pressures. The Government could also remain committed to its recent action on the gender pay gap.

Tackle domestic violence: Ensure secure and stable funding of specialist services for women and girls who have experienced violence (such as rape crisis centres), which are at constant risk of closure. Almost half of women in England and Wales experience domestic violence, sexual assault or stalking in their lifetime, but face a postcode lottery when seeking support

Increase the tax take through better Labour rights:

>>Increase enforcement of labour rights – eg. through more on-the-ground inspectors. The two key agencies the GLA and the EAS only have 64 inspectors between them to inspect the largest and most fragmented agency sector in Europe. We currently only spend about £3 million on these government bodies that have a remit to protect the most vulnerable in society.

>>It is proven that better enforcement is likely to lead to people being brought into the formal economy – increasing tax revenues, and enhancing observance of basic standards like the minimum wage.

Reduce fuel poverty: Invest £5 billion to fully insulate every home in Britain – saving around 10 million households over £200 a year on their energy bills, and helping to eradicate fuel poverty. Fully insulating every house in the UK would reduce household emissions (that amount to a quarter of national carbon emissions) by more than 20%.

Re-skill the unemployed: Provide training for roles in green growth, manufacturing and digital technology. A £5bn investment in the training and mentoring could help drive new growth. This properly funded overarching approach will be accompanied by robust policies to encourage sustainability, and strong policies to support manufacturing, such as targeted Government export insurance guarantees.

Improve social housing: Smash the social scourge of bad housing by investing £2.6 billion per year to meet the government’s annual target of 45,000 new social houses annually. This will also help the construction industry that remains in dire economic straits, and which is an enormous employer, is economically strategically important, and accounts for between 6% and 9% of UK GDP.

Alistair Darling should use the budget tomorrow to introduce a Currency Transaction Levy across Sterling – a safe and lucrative first step towards an international Robin Hood Tax.

Spend 2 minutes to urge the Chancellor to act.

This article also appeared on the Robin Hood tax website

Structural impoverishment in Britain is rife.  13.5 million people live in poverty, that’s one in five. The historical trend and outcomes of recent attempts to make things better indicate that without radical reform this situation won’t change much in our lifetimes. If this was widely understood, decision-makers would be far more likely to implement radical but rational measures like the Robin Hood Tax.

The state of the Nation

Here are some hard facts:

Rich richer, poor poorer:
Since 2002 the poorest tenth have become £9 a week poorer (a lot if you can barely get by). Meanwhile, the richest tenth have £94 more a week (DWP). The assets owned by the richest tenth in Britain utterly dwarf the poorest tenth’s possessions; they are at least 100 times more valuable (The Government’s ‘Hills’ Report’, Jan 2010).

Tax just isn’t fair:
The poorest fifth pay more tax as a proportion of their income than the richest fifth (39 per cent as opposed to 35 per cent). (ONS, 2009). In that context the 0.05% Robin Hood Tax doesn’t really seem all that radical. Did you know that the differences within the top 0.5% of the country (where many high-flying bankers live) is many times greater than difference between the top 1% and the bottom 1%? It ranges from just over 2.5 million up to Roman Abramovic’s £11 billion so the richest man is actually at least 4,273 times richer than anyone in the top 2%.

It was like this even before recession:
The Government’s figures show little change in the real value of earnings across the distribution for men or women between 2002 and 2008, even before the recession started. According to the Joseph Rowntree Foundation’s (JRF) latest data analysis, 2004-05 marked a “key turning point”, with poverty, unemployment and repossessions on the increase (Joseph Rowntree Foundation, December 2009). Poverty in Britain cannot be solved through economic recovery alone.

Things aren’t getting better:
The long view is far starker. Professor Richard Wilkinson and Kate Pickett document in their influential book, ‘The Sprit Level’ how Britain is far more unequal than it was in the 1970s. Inequality rose increasingly rapidly during the 80s and was almost 50% higher by 1991 than it was at the end of the 70s. We’re still in more or less the same place we were at the end of the 20^th Century.
Politicians of all stripes recognise this picture and worry about the wider implications for the whole of Britain. Alan Milburn, who works on social mobility for the UK Government, said as long ago as 2003 “Children born — as I was — in 1958 were far less dependent on the economic status of their parents than those born in later years. Birth not worth has become more key to life chances. If these trends continue, Britain will be in danger of grinding to a social halt. Responsibility and enterprise will be thwarted.”

Poverty in Britain is a trap:
For years political actors have agreed that equality of opportunity is right. Yet the harsh reality is that gross inequality of outcome (itself often unjust) often leads to inequality of opportunity. Many people just don’t get the chance to develop the merit they require to flourish in a meritocracy. Just look at exam results (often slated as too high). Last year only 27 per cent of children eligible for free school meals got five GCSEs at grade C or above including maths and English, compared to 54 per cent of other students. In 2009, 175 boys at Eton got three As at A-level. For the entire population of state schoolboys on free school meals, the total was 75. Government figures show that the paths of children from low and high socioeconomic status who have the same high IQ start rapidly diverging when children are as young as 22 months old (Marmot Review, 2010). The fact that it’s hard to escape poverty means that the problem isn’t just big, its endemic.

Many are trapped in debt:
At the bottom of society, even if you total up the value of everything someone in the bottom owns, you still find them deep in debt. They don’t just have next to nothing; they have less than nothing. These are people who play by the rules but still need to borrow to stay afloat however hard they work. It’s impossible to live like this endlessly.

Your identity can make you poor:
The Government’s National Equality Panel has concluded, “the inequality growth during the last 40 years is mostly attributable to growing gaps within groups rather than between them”. But as the panel also points out, there are still systemic differences between groups that are totally unrelated to experience, education and access to services. For example, 67% of Pakistani and Bangladeshi children are living in poverty, compared to 27% of white children (DWP).

Women are worse off than men:
Data in the Labour Force Survey shows that even when allowing for shorter working hours, women in full time employment earn 22 per cent less per week than those of men. Women’s earnings are highest for women in their early

thirties, and they actually decrease for subsequent years. Only women with high qualifications who work in the public sector tend to see their earnings rising throughout their lifetime (Hills Report).

Being poor means more than having no money:
‘The Spirit Level’ points out that the inequality in developed countries directly correlates with worse levels of wellbeing (social problems like crime and bad health). The Government’s recent ‘Marmot Review’ of health inequalities showed that poor people in Britain live much shorter lives, and on average die seven years earlier than the affluent. They also spend more time disabled: 17 years earlier on average. This is surprising given that Britain has a National Health Service which is free at the point of use and which must meet basic standards. The stats point ultimately to enormous disparities between the lives people lead as a result of the amount of money they have.

Poverty in Britain is similar in nature to poverty anywhere:
In developing countries people are often locked in poverty because their monolithic undeveloped economy is intertwined with a rigidly stratified society that structurally militates against individual or small collective attempts to break free from poverty. There, new forms of economic activity can ultimately help to break these external constraints. One might assume that a developed economy that offered economic freedom, public education and health care, would contain the kind of society that enabled people to improve their lives by their own agency. The reality described briefly above completely contradicts that assumption.

Poverty harms us all:
The Joseph Rowntree Foundation estimate that poverty in Britain costs the economy £25 billion a year. This economic cost is just the beginning. The decreased wellbeing described above that results from inequality doesn’t just affect people in poverty; it creates social problems like crime, poorer mental health outcomes and decreased community cohesion that affect everyone.

Inequality in context

If any of this wasn’t clear to you before, don’t worry, you aren’t alone. The IFS have pointed out “Most people have little understanding of the income distribution, and many are much further up the scale than they imagine.” The number of people identifying themselves as ‘middle class’ has increased markedly in recent years. As Alastair Muriel who has led the IFS’s work recently observed in the Financial times, whilst you might think a young single graduate in a first job in the civil service fast stream or a top accountancy firm on around £25,000 would be about in the middle of the income distribution, only about a fifth of the population stands between that person and the Queen. Consider almost any classic scenario of ‘middle England’ and you are probably in for a shock. Only 13 per cent of the population are richer than a couple without children earning £50,000 between them. If they have two children under 13, they are still better off than 70 per cent of the population.

The fact that most people (rich and poor) are unaware of where they sit in the income distribution is part of the problem. Widespread unawareness helps to deter politicians from enacting policies that would reduce inequality – policies like the Robin Hood Tax.

Robin’s role

We can draw two lessons from the reality of UK poverty – one sobering, one cheering.

Firstly, even experts have underestimated how complex and comprehensive the problem is. The fact that poverty has only remained roughly stable over the past 20 years despite political consensus that poverty in a rich country is wrong shows poverty is a tough nut to crack.

Our lack of progress requires some deep soul searching. As outlined above, gross inequalities destroy any pretence of meritocracy by preventing many from acquiring the means to compete for opportunities that are only nominally available to all. This reality is already eliciting a variety of responses. For example, Philip Blond and John Milbank recently asked whether, if we want to make society fairer but we accept that some inequality is the product of real variations in merit and graft, won’t we need to find ways to differentiate between merited and unmerited inequalities before we start ending them? There are big discussions ahead, but one thing is certain: poverty will be endemic in Britain until there is massive social and economic renewal.

But more positively, if innovative measures like the Robin Hood Tax are passed the outlook will be much brighter. We might not know everything, we do know a lot. We know that basic faults in the system make things worse. The state’s actions sometimes inadvertently worsen poverty. That means the Government can achieve real change through reform. For example, aside from the blatant unfairness of much of the tax system, why is it that Marginal Tax Rates (the proportion of the additional income gained through working that is then rescinded to the Government through tax or the withdrawal of benefits) are far higher for people earning less than £13,000 than anyone earning more than that? In fact it is 50% higher than for people earning more than £150,000! This situation gets far worse if we go further down the income scale. For example, for those who can earn just enough to pay tax but can’t find more than 30 hours of work a week, working brings no material reward. When you play by the rules, do your best to contribute by working and still lose out, that’s not fair.

That’s just one of the reasons we need a Robin Hood tax. We estimate it will cost £2.7 billion per year to increase earnings disregards and introduce a standard 55% withdrawal rate for both out-of-work and in-work benefits, to end the benefit trap (based on calculations by the Centre for Social Justice and the IFS). A Robin Hood tax would give us billions each year so the landmark achievement of pro-poor welfare reform would be just the beginning of what a Robin Hood tax could do. Actually we could also end fuel poverty, create affordable housing, help break the manacles of personal debt, and meet the Government’s targets to halve child poverty.

If there’s one final lesson to be drawn from the small example of welfare reform it’s this: the Robin Hood tax isn’t about stealing from the rich and just giving to the poor. In a time of severe fiscal constraint, a Robin Hood tax would be a lifeline that if deployed effectively would allow people in poverty to make a better life for themselves and their children, a chance denied to many for decades, not just since the downturn.

A Robin Hood tax could help us create the society we all wish to live in. We may be in the shadow of recession, but we shouldn’t wait until recovery dawns to fight poverty. After all, Robin Hood didn’t wait for the Lionheart’s return.

Ben Morgan works on policy and public affairs for Oxfam’s UK Poverty Programme. His post here first appeared on the Robin Hood Tax website.

Referring to the scheduled 0.5% increase in the rate of National Insurance (on top of an identical increase last year) during a measured performance on Radio Five Live yesterday afternoon, David Cameron said that his party is “looking as hard as we can at public spending programmes and trying to see if we can avoid at least a part of this great big tax rise on Middle Britain and on jobs,” adding in a separate interview later that he hoped to find a “way of avoiding the most damaging parts of the national insurance increase”.

The comments have caused some confusion, notably in the Financial Times and the Guardian this morning, over the extent to which the Conservatives will seek to avoid the measure. Last month Conservative shadow chancellor George Osborn said his “number one priority is to try to avoid bringing [the national insurance increase] in”.

The temptation to vacillate on such aims must be considerable. After all, according to the Financial Times the measure is expected to raise about £7bn a year. Yet it is a shame that episodes like these, where public awareness of tax policy is inadvertently increased, are normally used by most commentators to score partisan points. Moments like this are a chance to re-evaluate the ways in which we raise and spend public money in order to help achieve universally accepted aims like ending poverty in the UK.

National Insurance (or NI) is fundamentally a regressive tax. The Government has tended towards increasing NI rather than income tax. Perhaps this is because they believe that psychologically it is easier to ignore and therefore more difficult for opposition politicians to attack. Yet it is a tax that is capped to 1% above incomes of £43,875 in 2010-11, so even though the rise will not affect incomes under £20,000, it is odd that the main general tax rise contained in the Pre-Budget Report is not equitable. A relative increase in income tax on all incomes above £20,000 to start with would have realised greater revenues and would have been fairer – but perhaps a little more difficult to stomach politically.

In a time when every bit of revenue is precious because new revenue streams are going to be essential and spending heavily restricted, we have to be bold and implement any tax increases in the way that does the minimum damage to the fight against poverty in the UK – even if that means a tougher sell at the dispatch box. We’d like to see political parties promise to raise the threshold on this tax (and others) and reform NI to make it more redistributive. In the meantime, National Insurance hikes should be avoided where possible.

On NI Mr Cameron appears to be travelling in the right direction, we just don’t yet know how far he’ll go. If the Conservatives explained their policy in terms of fairness, they might find it easier to justify finding the money elsewhere.

The existing tax system takes a substantially larger proportion of the income of the poorest tenth than it does from the richest tenth. Here are just a few of our ideas for how to make the tax system fairer. Oxfam recommends that the UK Government:

• Shift indirect taxes to income taxes at higher earnings levels
• Where the tax system is reframed in favour of environmental taxation, regressive effects should be tempered by increasing the progressiveness of other aspects of the tax system – this will help prevent the economy from overheating when it returns to growth.
• Tax cuts should be aimed at low-paid people, who are more likely to release capital into circulation.
• Tax and benefit tapers – marginal tax rates – should be lowered to strengthen work as route out of poverty and prevent people from being trapped in low-paid work.
• Increase tax thresholds (including the National Insurance threshold).
• Reduce the taper at which housing and council tax benefits are withdrawn, making tax credits more flexible and responsive to changes in income so they are not abruptly withdrawn as income rises.
• Implement effective financial reform at the G20 and in Europe in order to ensure tax is collected without harming the competitiveness of the UK’s the financial services industry.

Oxfam’s briefing ‘Close to Home: UK poverty and the economic downturn’ is available HERE.
UPDATE: Cameron has confirmed that he is still looking for the money to pay to avoid the increase in National Insurance in 2011.

On Tuesday the Guardian carried an article highlighting the unintended danger posed to state nurseries by the new early years single funding formula that will come into force from September 2010. Parents reading this will be delighted to know if they didn’t already that free nursery provision will increase from 12 and half hours to 15 hours a week from next September. Yet we have underestimated the cost of delivering this policy without badly harming the services that help many of the poorest families.

The new formula requisitions large chunks of income from Britain’s 430 state-funded nurseries so that these public funds can be spread thinly across all nurseries, without assessment of the destination of the redistribution of funds (Mick Brookes from the National Association of Head Teachers points out that nurseries qualifying could technically be run out of a garage). The formula was introduced to secure the private nursery sector’s acquiescence in delivering the Government’s pledge to extend free nursery provision from 12 and half hours to 15 hours a week, which would be an immensely valuable achievement. The formula – fair in principle given this increased burden on private providers – is likely to have a catastrophic impact on state nurseries from around April 2010 when nurseries must confirm how they will deliver extended services from September.

Those nurseries affected may well need to drastically increase class sizes to win funds (probably by letting staff go) or hire cheaper and lower quality staff, both measures that could dramatically reduce the quality of care. Fees beyond the statutory 15 hours could be hiked, and in the worse instances nurseries could just shut up shop if all attempts at raising funds fail. A key ingredient in this recipe for disaster is that Britain’s 430 state-funded nurseries disproportionately provide for the poorest. Price hikes could create a spiral of decline because nurseries in poor areas that try to raise revenue by increasing charges are likely to lose parents who often balance the cost of care against the small returns to be gleaned from low-paid work.

This cuts to the heart of what we know about mothers experiencing poverty who will more than ever have to ask ‘Can I break even?’ ‘Will I be able to arrange getting my children to care?’ ‘What favours will I have to call in from neighbours and family?’ Deteriorating services, increased charging or closures mean that mothers in poverty are less likely to stay in jobs or get new ones because they simply can’t afford to pay for the childcare they need to buy to work. In short, this development could directly prejudice the life chances of some of Britain’s most vulnerable children. What is perhaps most tragic about the plight of state facilities is that they are amongst the best. 87% are rated good or better by Ofsted.

We need to take immediate action to control the situation. A limit to funding reallocation could help but we shouldn’t forget that the formula is the basis of the extension of free care across all nurseries. Decision-makers must recognise that these approaching storm clouds show that the cost of the admirable extension of free care was underestimated. Ultimately greater investment will be required to ensure that care for the poorest doesn’t deteriorate – directly damaging their wellbeing and their ability to contribute to society. Perhaps the proximity of the next General Election (likely to fall on 6th May) to the April deadline will help to concentrate decision makers’ minds on averting catastrophe for some of Britain’s best and most valuable nurseries.

Yesterday the Commons Children, Schools and Families Select Committee announced a new inquiry into the Early Years Single Funding Formula. If you are well placed to offer insight on this issue then please respond to the inquiry. Written submissions are due by noon on Tuesday 1 December 2009.