Creating anti-poverty growth

Britain is growing again but will the shoots of growth lead to a reduction in poverty? Not likely, says Clare Cummings, unless poverty moves up the economic agenda.

Just as the national election looms closer, the British economy has begun to grow again and chancellor George Osborne can be seen claiming victory over his critics. It’s not yet clear whether the recent growth spurt is due to fiscal consolidation but it is undeniable that businesses are in a better mood. According to the Office of National Statistics, the economy grew by 1.7% in 2013 and the IMF has forecast the British economy to grow at 2.9% this year, predicting it to be the fastest growing economy in the G7.

Economic growth for all?
However, will economic growth deliver for the people? Call me a pessimist but a rise in GDP alone does not allay all of my concerns. Governments need economic growth to stay in power but people need a strong economy for the long term, not just an election term.

The Trussell Trust recently reported that the number of people receiving emergency food rose by 163% in 2013-14 compared to the previous year. In 2013 the Institute for Fiscal Studies (IFS) said average income levels had fallen for two consecutive years and that both absolute and relative poverty levels were likely to increase, largely due to reductions in benefits and tax credits.

Unemployment is falling but does work pay? Clearly not. The annual Monitoring Poverty and Social Exclusion report found that the number of people being paid less than the living wage has risen and more than half of the people living in poverty belonged to a working family.

Poverty in the UK remains a serious problem, as does inequality. Average earnings may finally be predicted to rise faster than the cost of living but whose wages are rising? As the IFS points out, the £21bn of cuts to welfare payments will reduce the incomes of the poorest, while a return to growth in real earnings is expected to lead to stronger income growth towards the top of the distribution.

The current government presents welfare reform as a way to ‘lift people out of worklessness’ and ‘make work pay’. Yet, the majority of children who are in poverty in the UK belong to a household where at least one adult is in work;  three times the number of workers were on zero-hour contracts in 2013 than in 2010; and in 2012, around 27% of female employees and 15% of male employees were paid less than the UK living wage.

Moving beyond trickle down
All of these depressing statistics lead to a very clear question; how can economic growth tackle poverty? Traditional economic thinking assumes that economic growth will ‘trickle down’ to those living in poverty, but this is not necessarily the case.

Rather, policies for growth must be aligned with strategies to tackle poverty; creating inclusive growth, not just an increase in productivity.

Whether we can achieve this is largely due to how ‘growth’ and ‘poverty’ relate. Looking back at government policy over the last few decades, there are clear changes in the way economic growth and poverty reduction have been discussed and addressed.

From place-based policies to ‘social exclusion’
During the 1970s and 1980s, economic growth policy aimed to address the urban decay of industrial British cities. The Conservative government of the time developed a raft of redevelopment initiatives which aimed to solve social as well as economic problems in inner cities. However, while economic growth in the late 1990s to early 2000s brought some benefits, pockets of deprivation remained unchanged.

Place-focused economic regeneration initiatives continued during the 1990s but in 1997, the new Labour government introduced the term ‘social exclusion’. This marked a change in the way poverty was discussed. Social exclusion is described as a combination of limited ‘resources, rights, goods and services, and the inability to participate in the normal relationships and activities, available to the majority of people in a society’.

The government introduced numerous programmes aimed at reducing economic and social inequality between affluent and deprived neighbourhoods. As a result, poverty reduction strategies became more holistic and economic regeneration and poverty reduction were more closely aligned.

A schism: places or people?
But since the coalition government came to power, the discourse around poverty has changed again. Where new Labour set out to reduce deprivation at the neighbourhood level, the coalition is focusing on job creation, rebuilding the economy, and reforming the welfare system instead. With 74% of the UK population and 78% of UK jobs based in cities, the government has identified cities as a focus for economic growth. New initiatives such as city deals, the city growth commission and the creation of local enterprise partnerships (Leps) form the current city-led growth agenda.

However, with economic growth policies focused on cities and anti-poverty strategy in the hands of the DWP, the two agendas are working on different geographic scales, controlled by different bodies. This makes interventions difficult to align. City growth policies and anti-poverty activities do share a wide-range of policy areas, such as housing, employment, and education but policies are not explicit about how they should support each other.

While economic growth policy tends to be place-based, with cities and city regions as drivers, anti-poverty strategies are increasingly focused on individuals and families with complex needs, rather than the places and context in which they live. This ‘places or people’ focus means that the impact of growth on poverty is often not specifically measured nor is it an explicit target for growth policy.

In pursuit of poverty-busting growth
Economic growth and job creation are clearly important for reducing worklessness but for poverty to be reduced too, new jobs must be accessible to people on a low-income, and they must be high quality. Offering career progression and a living wage is essential.

The Centre for Local Economic Strategies (Cles) is working with the Joseph Rowntree Foundation (JRF) to support their new Cities, Growth and Poverty programme, exploring how the city-led growth agenda can reduce poverty as well as boost growth.

Our work for JRF has examined how economic growth is measured to see whether growth indicators also capture the impact of growth on poverty. Perhaps unsurprisingly, most indicators do not. Commonly used indicators, such as gross value added (GVA), measure overall output, in the form of consumption and productivity but they do not measure distribution. This means that economic policy is driven by targets for general economic growth, not how it is shared.

Now the economy is growing again, the UK risks missing this valuable opportunity to use new growth to create wealth for all. For growth to result in poverty reduction, making economic policy more poverty-conscious would be an important first step.

At Cles, we are suggesting a few key ways in which this could be achieved:

1. Call attention to the link between growth and poverty
   We lack an established policy practice for using growth to tackle poverty. Calling economic policy stakeholders’ attention to how their work can directly contribute to reducing poverty is important. Just as highlighting poverty reduction as an input for growth is important too. It is crucial that the connection between growth and poverty is promoted to those involved in economic growth strategy, especially the 39 local enterprise partnerships (Leps).

2. Develop new indicators for measuring poverty and growth together
   Core economic growth measures are mainly monetary and do not measure the impact of wealth on different socio-economic groups. Using less common indicators, such as the expenditure on rent by gross income decile group would be more useful because they show how the market affects the lowest income groups. Other measures need to be developed to connect economic growth to poverty. For example, indicators measuring the affordability of a healthy diet at different wage levels would measure whether people who are in work can afford to live a healthy life.

3. Develop city specific indicator sets
   Data collected on economic growth and poverty varies from city to city. Cross-sector working groups could be established in individual cities to draw together datasets and develop local indicators to measure the impact of growth on poverty in each area. This could help local partners to create a clear, quantifiable way of measuring the impact of growth on local poverty priorities.

4. Tie growth to public sector reform
   There needs to be a clearer understanding of how public sector reform fits with economic growth. Both of these are being tackled at the city level and so local policy stakeholders are responsible for ensuring that savings made through local spending cuts are not lost to an increased demand for welfare support and high-cost services. This means a dual approach to growth and poverty is required; making sure job creation results in higher median household incomes and people being able to move off welfare support.

Building better days
The government is heralding the return of growth and Osborne has even declared that ‘our nation’s best days lie ahead’. Figures showing rising growth and falling unemployment must of course be welcomed, especially if you’re seeking re-election, but making sure the whole population feels the benefits of growth should be the government’s real goal. Aligning growth, poverty and public sector reform policy so that they collectively create shared prosperity is the way to really build better days for the British nation.