Average earnings are rising at less than the rate of inflation, and this is being presented as an argument for a smaller rise. Yet the Conservative government broke the earnings-benefits link in 1980 precisely to run down benefit levels compared to the incomes of working people, and it has never been put back. In 1980, unemployment benefits were a fifth of average earnings; today they are a tenth. Together with eroding the connection between National Insurance and benefits (most benefits that were once contributory are now means-tested for all), this has helped make social security the residual system it is now, rather than the social insurance system it was originally designed to be.

Governments can’t have it both ways. Either benefit levels keep up with the rest of society, making them a social safety net, or they keep up with prices, leaving them frozen in time. You can’t exclude the poorest from rising prosperity in the good times, and then expect them to pay the price when times are hard. Raising benefits with average earnings for the long-term would be a positive step, stopping the gap between benefits and earnings growing further. But doing it as a one-off to save money will have the opposite effect.

In the short term, calling the September inflation rate a ‘blip’ – as one Conservative MP did – is misplaced. Inflation is high because food and energy prices are rising fastest – and people on benefits spend more of their incomes on both of these than most. Indeed, no lesser authority than the Institute for Fiscal Studies has proved that inflation has been hitting the poorest hardest. There is a far stronger case for increasing benefits by more than the average inflation figure – not less – just to keep people living in poverty standing still.

In fact, the whole argument is disingenuous at best, penny-pinching at worst. Each month’s  inflation figures are annualised: they compare the world now with the picture a year ago, regardless of when in the year price hikes were highest. Benefit increases are retrospective, so when levels finally go up in April, they will be taking account of price increases that have already happened. So long as there is consistency, whenever in the year you set the benchmark, you’ll ultimately end up with the same results. Critics should be honest: moving the goalposts at this stage would mean a real-terms cut in benefits.

What has been mooted would be taking money from the pockets of the poorest, in order to pay for a crisis that was caused by the excesses of the richest. This government has past form on that. Indeed, it has already saved billions by switching which measure of inflation it uses to raise benefits. People living in poverty are already being hardest hit by job losses, price rises, tax increases, and spending cuts.

That is ‘unfair’.

Raising benefits with the cost of living is just basic decency.

We’re used to hearing – depressingly often these days – about people living in poverty as being variously feckless, undeserving, or suffering from dependency: in short, as passive, unthinking victims. What if, instead, we started from the premise that people living in poverty are, like everyone else, rational actors in their own lives – doing the best they can, in the circumstances in which they find themselves?

That is the logic of the Sustainable Livelihoods Approach to poverty analysis and community development (SLA), used in Oxfam’s international work, and which Oxfam and Church Action on Poverty (CAP) have been pioneering in the UK.

Rather than starting from a negative view of what people in poverty lack (such as work, money, or skills), the SLA starts by considering people’s assets. While they may often lack financial assets, people in poverty have strengths and capabilities, which they draw upon to construct strategies to get by. These may include social capital, physical assets (eg a car, or the tools of a trade), human capital, and the resources that people can draw on because of where they live, such as public services. Recognising these assets, how they are distributed within the household, and thinking about how to unlock their potential, adds depth to our understanding of poverty.

In considering what impacts on people’s decisions to pursue new livelihoods strategies – to take up training, to start a new job, or to move in pursuit of one – it is important to take account of risk and vulnerability. Livelihood decisions can put existing assets at risk. For example, someone on benefits who takes up insecure or temporary employment may be risking their financial stability for a job that could end up leaving them worse off. For families on low incomes, vulnerability to shocks may be a key factor in decisions. So, for example, in the absence of robust social insurance, it may not make sense for someone to move away from extended family to take a job, when they can provide emergency child care, offer a spare room, or make a loan in a time of crisis.

Men (and women) make their own histories, but they do not make them in circumstances of their own choosing. While the SLA recognises that people in poverty are active and rational drivers of their own lives, it does not deny the importance of the context in which they make their decisions and build their livelihoods. How institutions, regulations, the economy – and the political and policy context more broadly – shape the conditions in which people live, at the neighbourhood, local, or national level, is of crucial importance to how successful their livelihoods will be. But what the SLA in its totality tells us is that it is important that those policies and that context are redesigned in a way that goes with the grain of people’s livelihoods – which requires understanding the reality of the lives of people in poverty.

Together, these insights combine to tell us that people experiencing poverty are active in their careful assessment of risk and make rational decisions and choices about their lives, in light of the external and internal constraints they face. Any approach to poverty reduction which rests upon a demonisation or ‘othering’ of people living in poverty, which treats their decisions as somehow irrational, has failed to understand their reality, and will thus fail in its aims.

Oxfam and CAP have used the SLA at community level across the UK since 2005. This work has helped us to identify and act upon individual, household and local issues, and to help improve the lives of people and communities. But it has also demonstrated to us that there are limitations to what can be achieved locally, and pinpointed areas of national policy that need to change. Informed by these findings, we have sought to explore the potential of the SLA at a national level to help poverty-proof policy work.

One area of public policy illuminates what this means in practice. In some aspects, the Coalition government’s approach to welfare reform has embodied SLA principles. At present, the benefits system leaves people who leave unemployment at risk of debt and ultimately being worse off if their job doesn’t work out, or even when awaiting their first paycheque. The Centre for Social Justice’s work, on which the universal credit is largely based, began by studying the landscape of financial incentives faced by benefit claimants, and sought to reconstruct the system to improve that. By smoothing the transition between unemployment and work – and, crucially, by providing support based on income changes in real time – universal credit will reduce much of the risk attendant in moving between unemployment and work, or between different jobs or number of hours in a job.

Other aspects of welfare reform could be improved by using an SLA analysis. This government continues to extend conditionality and sanctions on the one hand and to run down benefit levels on the other. This modern version of the ‘principle of less eligibility’, practised by successive governments, has conspicuously failed to end mass unemployment (often described as ‘welfare dependency’). Far more positive would be to focus on supporting people at an individual level to address these barriers by building on their strengths. The Work Programme, which is the government’s vehicle to achieve this, is compromised by taking an outcome-focused approach in which the only outcome assigned any value is employment. In reality, there may be many interim steps – such as therapeutic activities, or training – on the road to a sustainable livelihood which will enrich people’s lives in themselves, and act as a stepping stone to employment.

Finally, the government must pay far more attention to what happens beneath the household level. At present, Universal Credit is based upon a single, household-level analysis, leading to a single, household-level payment. This is fraught with danger, since resources are not distributed equally within households, and how money goes into a household – for example, whether payments to children are labelled and paid to the main carer – enormously impacts upon the well-being of members of that household.

Taking a Sustainable Livelihoods Approach to welfare reform and many other aspects of public policy can enrich the analysis undertaken and the solutions offered. A recent joint report of Oxfam, IPPR North, CAP and Urban Forum, Community Assets First, explores the potential application of SLA to the policy areas of welfare reform, homes and neighbourhoods, financial inclusion, and community and society. Following on this work, we would urge policymakers, researchers, and community practitioners to use the SLA to help them develop a more holistic approach to anti-poverty work, an approach which works with the grain of people’s livelihoods, and takes them as active participants in their own lives – and in changing them for the better.

That average incomes are set to continue to fall until ‘at least 2013-14’ is bad enough. But scratch beneath the surface, as the IFS do, and it’s clear that the poorest face the heaviest burden. Essentially, the poorer you are, the higher the proportion of your income that you will lose over the coming years. (With the exception of the super-rich, largely due to the under-threat 50p rate of tax for earnings over £150,000 a year.) Inequality and poverty will rise as a result – reversing the trend of the recession years.

The reason is relatively straightforward. Where the previous government cut regressive, indirect taxes and introduced a new, progressive top rate of income tax, the current government has raised VAT and introduced swathes of benefit cuts. Overall, the poorest fifth of people will, on average, lose 6% of their incomes as a result of changes to the tax and benefits system. Those are the outcomes of the political decision to make the poor pay for the hangover of an economic boom from whose benefits they were systematically excluded.

Alas, it gets worse. The government’s deficit reduction plans do around a quarter of the work through tax increases, and three-quarters through spending cuts. The IFS focus in their analysis on private incomes (which include tax increases, but also £18 billion a year of benefit cuts), but decline to factor in the impact of cuts to public services. Even excluding benefit spending, the planned cuts to public services are estimated to equal 20.3% of the household income of the poorest tenth of households, compared with just 1.5% for the richest tenth. Public services may be an irrelevance to the rich few who can afford to opt out, but they’re utterly essential to millions of people.

After becoming accustomed to incomes largely going up and up, we face a prolonged period of getting poorer as a society. But those golden years were a lot more golden for some than for others. For three decades, inequality has been rising, as the rich have done better than ever, and the poorest have been left behind. There are myriad reasons, moral and economic, to tax progressively and protect the incomes of the poorest. Yet the opposite is happening.

It seems that, when we were getting richer, no-one cared that we weren’t all in it together. But as we struggle with the aftermath of the biggest recession since World War II, is it really fair that those with the least should be paying the most?

So far, so typical. A new government scores cheap and easy points with sections of the media and the public by talking tough on benefit claimants, selectively quoting statistics to further that aim. Public attitudes having been softened up over time by successive governments so that this kind of talk ceases to shock. The Need Not Greed campaign, of which Oxfam is a member, is clear that it is the outmoded benefits system, which has failed to develop with the modern labour market, that forces people into working informally (“cash in hand” and “off the books”), just to get by. We’re not talking about massive defrauding of the system, but people who want to work, but are held back by the system.

But perhaps it’s better to let the government – in the form of the recent consultation paper on welfare reform, championed by Iain Duncan Smith – speak for itself: ‘fraud is always wrong, but we must recognise that the benefits system is making matters worse by pushing valuable work, and the aspiration that this can engender, underground’. If Cameron is serious about tackling fraud – and not just chasing headlines – then it is this systemic failure that he needs to devote his energies to.

Oxfam argues that, by raising the amount of money people can earn before their benefits are affected, and lowering the rate at which they are withdrawn thereafter, work that is now informal will be brought into the light. People who can only do small amounts of work – because that’s all that’s available, because that’s all that they can manage right now, or because that’s what fits with their caring or other responsibilities – will be empowered to do so.

Policymakers also need to engage seriously with the vulnerability of people living on benefits and seeking to get back into work – putting security back into social security. Forced to subsist on tiny incomes, and with few assets to draw upon, such people are understandably risk averse. Benefits should help them manage that risk, stepping into the breach whenever work dries up, or if a new job doesn’t work out. At the moment, it can take weeks to process claims for various benefits, and taking those difficult first steps into work can become a debt crisis from which it can take years to recover.

Happily, the government’s consultation paper on welfare reform engages with this, and some of the solutions it proposes would genuinely make a difference. I’d suggest the Prime Minister joins his Work and Pensions Secretary in engaging with the substantive, structural problems in the welfare system – of which benefit fraud is but a symptom – and leave the sensationalism to the tabloids.

Strikingly, yet again, the cost of living for the poorest has risen faster than for the rest of society. At around 5%, the Minimum Income Standard rose half a percentage point higher than average inflation. Over the past decade, this has added up: the minimum cost of living has risen by 43% compared with 27% and 35% for CPI and RPI inflation respectively. That difference has been largely driven by the soaring cost of essentials like food and energy. Earlier this year, food price inflation peaked at 5.7%, compared with 4.4% for overall inflation. In August 2008, those figures were 14.5% and 4.7%, and there’s every chance there are further food price spikes around the corner.

All this means that the poorest need above-average increases in incomes just to stand still. Indeed, the JRF calculates that a family of four needs to earn 24% more than a year ago, while a lone parent with one child needs 20% more. This is partly about the rising cost of living, and partly because of the freezing or cutting of in-work benefits. There’s more detail in Chris’s blog.

In reality, however, government action is driving incomes in the opposite direction. A swathe of benefit cuts are reducing the incomes of millions of people, while a change to uprating to the lower, CPI measure of inflation will see decreases locked in year-on-year. Meanwhile, the National Minimum Wage continues to fall in real terms, with decreases in October 2008 and 2010 and a freeze in 2009. That’s before accounting for the fact that average inflation underestimates the real cost of living for people in poverty.

The Minimum Income Standard was a groundbreaking piece of work, as it tells us what ordinary people see as the minimum required to take part in society. This latest annual update is no less important, as it shows that much more is needed to meet the basic imperative of making sure poor people don’t continue to fall further behind.

In legislating to pay benefits in a single, household-level payment, the government risks harming children’s well-being, reducing gender equality, and increasing vulnerability to financial abuse.

Universal Credit aims to consolidate a range of benefits and tax credits into a single payment in order to create a simpler system. As Welfare Reform minister Lord Freud recently confirmed to Oxfam, the whole amount would be claimed by one individual, or go into a joint account.

Of particular importance are the child and childcare elements of tax credits. These are currently paid to the main carer – usually the mother – and will be rolled into the single Universal Credit payment. This is problematic for a number of reasons.

Mothers usually take the main responsibility for meeting children’s day-to-day needs in low/moderate-income families. Labelling matters too: government research shows that child tax credit is commonly identified as money for children[pdf], and spent accordingly. And a study of Winter Fuel Allowance earlier this week from the IFS found “robust evidence of a behavioural effect of the labelling”.

The choice of benefit recipient within couples takes place in a context of gender inequalities. Where there is evidence, it points to men tending to make benefit claims on behalf of couples; 81 per cent of guarantee pension credit (the other type of pension credit being savings credit) claims in couples are made by men, as are the majority of joint JSA claims. Overall, however, there is a lack of evidence to support the assumption of free choice within households.

Moreover, once money reaches a household, it is often unequally distributed, as ministers acknowledge, and Oxfam research demonstrates. Nor does the government’s preferred outcome – a joint bank account – guarantee equal access to money or equality in financial matters. Women are more likely to have individual accounts, and value them for reasons of independence – a trend that is increasing.

The combination of these factors means that women often lack access to money within the household. Indeed, one in four mothers have absolutely nothing to spend on themselves [pdf], rising to a rate of one in two mothers in households below the poverty line. Benefits labelled for children are sometimes the sole source of independent income for women, helping to reduce their vulnerability to financial abuse.

By ensuring that the child and childcare elements of Universal Credit are paid to the main carer – as proposed in an amendment to the Welfare Reform Bill supported by Oxfam that went down today – parliament can help to ensure that money intended for children is paid to the person most likely to spend it on them. It would also help to give carers (usually women) in low-income households access to income in their own right.

In planning the most rapid fiscal retrenchment in peacetime, and in aiming to do 80% of the work through spending cuts and only a fifth with tax rises (much of it from the deeply regressive rise in VAT to its highest ever level), this government has made its own judgement pretty clear. The question for those of us who care about the suffering these cuts will cause – especially to the poorest and most vulnerable – and about the lasting damage they will cause society is what’s the alternative?

The aforementioned economists – with, no doubt, two opinions for every expert – will continue to argue about how to close the gap between government spending and government revenue that began to yawn when the financial crisis hit. How and when that can be done fairly remains an enormous issue, however much the language of fairness itself has been debased.

But this article from last week raises the intriguing proposition of changing the frame of reference of the entire debate. At the moment, public spending is problematised, and the question of the day is seen to be how to get these burdensome outgoings off the balance sheet – with nods of varying sincerity to doing it in as fair a way as possible. Yet the public spending and public services that have built up over the years form the vital fabric of social protection – which matters to us precisely because we’re ‘all in it together’. From spreading the risks of getting ill across society through the NHS, to the social security provided by out-of-work benefits that recognise we can’t control whether the economic tides will sweep away our local car plant (or Woolworths), or when sickness or disability will force us out of work, these institutions are what make us civilised.

Alice Donald argues that this expresses a social solidarity that is itself an expression of our human rights – the social and economic rights which are indivisible from the civil and political rights that are enshrined in our law through the Human Rights Act. We’re all in this together because we have a right to be free of fear and want; because we have the right to live lives of security and dignity; and, more prosaically, because we as a society recognised this when we ratified the international covenant protecting economic and social rights.

If we can start to see public services as a means of realising our fundamental rights as human beings, and not as a wasteful luxury we can no longer afford, then hopefully we can at last start to have a meaningful and human debate on how we deal with the budget deficit.

Much depends on how these principles are taken forward in future years. So, while allowing people on benefits to keep 35p of every £1 they earn is a big step forward, it’s still less than the 50p of each extra £1 that the very richest get to keep. Are we happy to finish reforming with the very poorest still facing higher marginal rates of tax than the very richest?

And for now, the government promises that Universal Credit won’t mean further benefit cuts, but future levelling down of benefit levels in the name of simplicity has been made much easier. Given that the amount they’ve cut from benefits already is 36 times greater than the amount being invested in reforming welfare, it’s difficult to trust this government on that.

The other main set of proposals is around the conditions attached to benefits. The saddest thing about this is that yet another government feels the need to engage in destructive posturing around ‘getting tough’ on benefit claimants. People living on benefits want to work. The problem has long been a lack of support and structural problems in the benefits system, not a shortage of sticks to beat people with.

But this is more than just playing to the gallery. Personal advisers, who are supposed to be there to help people, will be given the discretion to cut their benefits for up to three years. Shamefully, destitution is being used as a tool of public policy. Also proposed is to force job seekers to work for up to a month, with no payment beyond their meagre benefits (far less than the minimum wage). Work should not be used as a punishment, and people on benefits should not be treated like criminals. Hidden in the detail are a lot of vindictive policies, which undermine the basic dignity of people claiming their right to benefits.

A final aspect to the reforms is the attitude to the nature of family that seeps through. Benefits will be calculated and paid at the household level. When this happens, men tend to claim the entitlement to benefits. Yet women in poor households usually manage the family budget. Things are far from perfect now, but this represents a sizeable stride backwards for gender equality and women’s financial independence.

A further curio, unmentioned in the main text (and which you have to go to Annex 3 to dig out) is around what sounds like a technicality: changes to earnings disregards. In fact, earnings disregards – the amount that someone (or a household) can earn before their benefits are affected – can have a huge impact on someone’s ability to enter work. At present, these are tiny, amounting to £5 a week for most individuals. A substantial increase is proposed in most cases, which will greatly help people to take their first steps into (or back into) work. That is very welcome. Yet for single, childless adults, there will be no disregard whatsoever: as soon as they earn anything at all, their benefits will start being withdrawn. If that same person is in a couple, they can earn up to £3000 a year before their benefits are even touched.

In his Centre for Social Justice days, Iain Duncan Smith praised couple formation as a ‘positive behaviour’. They and other think tanks from the right have long railed against a perceived ‘couple penalty’ in the benefit system. Rather than paying people to get together or stay together (which is what the ‘couple penalty’ argument is all about), these proposals make it easier for people in couples to get work, and to make sure they’re richer than single people if they do. Underpinning the pro-couple stance is a belief that people in couples do better; this stands to make that a self-fulfilling prophecy. Single, workless people stand to lose out, after falling furthest behind the rest of society under the last government.

So, these reforms are indeed a step-change towards addressing much that’s wrong with the benefit system. But in many ways, the direction of travel continues: benefit levels are being cut; poor people are demonised and bullied, criminalised and threatened with destitution. And in some things, we’re going backwards: women’s economic independence is under threat, and the benefits system is to be used to promote a particular vision of family life. There are reasons to be hopeful, reasons to be cheerful, and reasons to be downright confused. But the government is right about one thing: there are big changes afoot in our welfare system.

Unemployment benefit is only a tenth of average income, compared with a fifth thirty years ago. Benefits paid to working age adults are on average about half of the Minimum Income Standard – what is needed for a decent standard of living. Trying to live on an income that’s so far below the norm has implications. Financial worries can escalate into more serious mental (or even physical) health problems, and also contribute to family breakdown. Then there’s the stigma of living in poverty, particularly in a rich country like the UK, where both government and media are guilty have pushing negative stereotypes. As it knocks people’s self esteem, so it further undermines the steps they try to make towards retraining or getting a job. Living in poverty means its much harder to bounce back from even a minor crisis. Many families have no option but to turn to doorstep lenders as they struggle to pay household bills or deal with what for most of us would be everyday problems like paying to fix a cooker, or for a child’s school trip.

Oxfam are among the organisations calling for the government to subject all decisions on deficit reduction to a ‘Fairness Test’. Further cutting benefit levels would impact disproportionately on the poorest and most vulnerable. And, as the report demonstrates, income-replacement benefits only account for 4% of public spending anyway. In these times more than ever, it is crucial that our basic safety net is maintained.

This post also appears on the JRF ‘Cuts, spending and society’ microsite – see http://www.jrf.org.uk/focus-issue/cuts-spending-and-society for the full article history 

Oxfam has been contributing to that process, and yesterday lunchtime we hosted an event, with our partners at the CREATE consortium, to talk about how welfare reform can be made to work with the grain of the lives of people living in poverty. We heard from Mickey regarding his torturously complex experiences of the welfare system. From Jess Steele, the long-standing Chair of CREATE, on how a Community Allowance that frees people up to do small amounts of work in their local communities can be the modest change that frees up the potential of people currently trapped by the constrictive regulations on doing any work at all while on benefits. Oxfam ourselves have come up against these regulations, as Julie Jarman, our England Country Programme Manager, pointed out: when we wanted to recruit community researchers for our work investigating the effect of the recession in poor communities in Bradford, the pool of people on whom we could draw was limited to students or those already in work.

In the end, the discussion reinforced what we already knew: that freeing people up to take small steps into work is a benefit for the individuals, for local communities which have an unmet need for lots of microjobs to make them better places to live (we’ve seen already that every £1 invested in the Community Allowance creates over £10 of social value, and for society as a whole, since potentially hundreds of thousands of people would be able to make the first steps towards sustainable employment. And I left optimistic, knowing that the reforms under consideration by the government tackle many of the barriers to employment that came up yet again in our event.

Later on, it was standing room only at an event on welfare reform hosted by the Shaw Trust. Both Steve Webb MP, the Liberal Democrat Minister in the Department for Work and Pensions (DWP), and Stephen Lloyd MP, the Liberal Democrat Chair of the Work and Pensions Select Committee, were on the panel; and both were confident that Iain Duncan Smith was genuine in his desire to use his reforms to fight the benefits trap we’d heard about earlier in the day. From the floor, there were calls for him to be given the money he needs to invest in the future of the millions currently trapped out of the jobs market. Mr Lloyd put it like this: ‘we will find out in four weeks’ time whether he gets the money he needs’. It sounds like he needs all the support he can get in his battles with the Treasury.

But yet again, my mood of optimism held. Led by Sally Burton from the Shaw Trust, all panellists agreed that people on benefits want to work, which is in itself a major step forward from much of the pernicious rhetoric that has surrounded debates on welfare reform. That said, there are some serious concerns. James, who has been volunteering with Oxfam, but who has just gained a job through the Future Jobs Fund, also spoke of how the benefits system had been his enemy in his efforts to find work, and reminded us that the ladder that saved him from it – the Future Jobs Fund – is about to be withdrawn. The Independent today showed that his isn’t an isolated experience. And Professor Roy Sainsbury, also on the panel in the evening, talked about the risks that the new Work Programme will end up locking out the small, third sector providers that it needs to be successful. He has recently undertaken research looking at the Provider Led Pathways pilots, which saw only 12% of work been sub-contracted below the huge, private sector providers that won most of the contracts. This, as Polly Toynbee highlighted from the floor, is particularly worrying given the Public Accounts Committee research out last week that showed that private sector providers have performed worse than the public sector competition.

So, all in all, many reasons to be cheerful amid the gloom of a rainy day in Liverpool. But there are many pitfalls ahead, and the devil will be in the detail of both Iain Duncan Smith’s structural welfare reforms and the Work Programme. Oxfam will be working with partners and fellow anti-poverty organisations to try and ensure that this once-in-a-generation opportunity for transformative welfare reform is not lost.