Reconstructing SpeenhamlandPosted: July 6, 2015 Filed under: Budget, Economics, Housing benefit, Labour market, Poverty, Tax credits | Tags: Speenhamland 1 Comment
Where do the Conservatives really stand when it comes to supporting workers on low wages?
Are the Tories the One Nation ‘workers party’, cutting tax, increasing the minimum wage and reforming welfare to make sure that work always pays? Or are they the one that’s set to cut spending on tax credits by £5 billion and cost those same workers up to £1,690 per year?
Ahead of Wednesday’s Budget, the rhetoric and the reality simply do not match. In David Cameron’s ‘speech on opportunity’ in Runcorn last month, he contrasted the ‘right track’ of economic opportunity with the ‘wrong track’ of ‘people capable of work, written off to a lifetime on benefits’ and policies that ‘ignore the causes and simply treat the symptoms of the social and economic problems we face’. Rather than redistributing money through the benefits system we have to tackle the ‘real causes’ of child poverty. And our approach to low pay is complacent:
‘There is what I would call a merry-go-round. People working on the minimum wage having that money taxed by the government and then the government giving them that money back – and more – in welfare. Again, it’s dealing with the symptoms of the problem: topping up low pay rather than extending the drivers of opportunity – helping to create well paid jobs in the first place. So this is the change we need. We need to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society.’
Needless to say he did not explain how. The key Conservative policy of increasing the income tax threshold to the level of the minimum wage sounds like it benefits low-paid workers most. In fact, anyone paid below the current threshold of £10,600 a year will receive no benefit at all while most of the gains will go to people on higher earnings. It’s the same story with tax credits and housing benefit, both of which are essential to people who are in work but on low pay. All the tax cuts in the world do little to make up for the cuts in the last parliament and the cuts to come in this. As Gavin Kelly argues, the notion that higher wages will somehow fill the gap is fanciful.
But there is a deeper underlying reason too, one that reaches back more than 200 years but still goes to the heart of current debates about welfare and poverty. In 1795 magistrates in Speenhamland in Berkshire (now part of Newbury) met to consider what to do about rural poverty caused by high grain prices. They decided to top up the low wages of agricultural workers from the rates, with payments set according to a sliding scale based on the price of bread and the number of children in a family. This ‘Speenhamland System’ of outdoor relief spread to other areas, especially in the south of England, only to be decisively rejected as a ‘universal system of pauperism’ and abolished under the Poor Law Amendment Act of 1834.
At issue was the nature of poverty. Was it caused by structural factors such as unemployment and the state of the economy or was poverty actually the result of behavioural factors, the fecklessness and immorality of poor people themselves? For defenders of Speenhamland, it made sense to subsidise agricultural wages at a time when the effects of the Napoleonic Wars and the industrial revolution had reduced them to below subsistence levels. The alternative was to see workers from rural areas with outdated industries migrate north to earn the higher wages on offer in the new industrial areas, leaving nobody to work the land.
For opponents like Townsend and Malthus, however, it was Speenhamland itself that was the problem because it interfered with free self-regulating labour markets and created perverse incentives for idleness and immorality. The system led to declining wages and productivity and increasing childbirth and illegitimacy and created a culture of indolence. Poor relief, in other words, created poverty. The new Poor Law of 1834 would rectify this through the mechanism of the workhouse and the principle of ‘less eligibility’ (that conditions inside the workhouse should be worse than the worst conditions outside the workhouse). Although never completely implemented, this was the regime familiar from Dickens.
But what might otherwise have been an obscure episode in 19th century British social history has had an enduring legacy for the 20th and 21st. As Block and Somers argue, the interpretation of Speenhamland became a key part of debates about political economy in both Britain and the United States. For neo-classical economists it showed the disastrous consequences of state intervention in free markets. For Marxists, it merely allowed farmers to push depress wage levels by shifting costs on to the parish. In The Great Transformation, Polanyi identified Speenhamland as a key episode in the transition to a market society in an era before the ‘double movement’ of society protecting itself against the consequences of free markets could operate.
The claim that Speenhamland reduced productivity and led to lower wages was common to all three interpretations even if they disagreed about the causes and mechanisms involved. However, Block and Somers use more recent historical research to argue that this is simply wrong. Parishes helped the poor in many different ways and there was no single Speenhamland System. Data on agricultural output and wages do not support the idea of a collapse in rural productivity in the period. What was really happening was that parishes were finding a way to support rural income at a time when life had become increasingly difficult for the rural poor as a result of war and inflation, the decline of rural craft industries and enclosures of land holdings. According to their revisionist narrative, the debate about Speenhamland and the Poor Law helped to distract attention from the social consequences of the decision to restore Britain to the Gold Standard.
Bringing these debates into the 20th century, Block and Somers show how neoconservative critics framed their attacks on American welfare policy in terms of its perverse consequences. Just as in the 19th century, the argument was that welfare undermined the work ethic and sexual restraint and created a culture of dependency. And just as in the 19th century this helped to create the climate for welfare reform/cuts.
These themes are all too apparent in 21st century British debates about social security as well. It’s not hard to detect the same arguments about ‘welfare’, the ‘dependency culture’ and the moral causes of poverty in the rhetoric of Iain Duncan Smith and other Conservatives. Moves to shift the definition of child poverty away from measures related to income to behavioural factors are a direct expression of this.
However, welfare reform began under Labour drawing on the US experience under Bill Clinton. It balanced reforms of benefits with increased support to make work pay. Family and housing benefits were already available to people in work but Labour introduced progressively more generous tax credits as well. The results could be seen in dramatic reductions in child poverty even though (echoing Speenhamland) critics on the Left characterised them as subsidies for low-paying employers and unions remained neutered.
Under the coalition, and now the Conservatives, deeper cuts in benefits have been accompanied by policies with echoes of what came after Speenhamland. Increasingly rigorous conditionality ensures self-discipline and reinforce the work ethic. The workhouse may no longer exist as a physical institution but it’s become a psychological one of sanctions and food banks. The benefit cap can be seen as a form of less eligibility: the original bogus principle that nobody should earn more in benefits than someone on average pay now replaced by arbitrary reductions in the cap.
Yet at the same time the biggest welfare reform of all, universal credit, can be seen as an apotheosis of Speenhamland (assuming the IT system ever works). The central idea is to combine in-work and out-of-work benefits so that it is clear that work always pays. That is reinforced by a design that reduces the rate at which benefits are withdrawn as income rises. However, shallower taper rates mean that support is extended much further up the income scale. In this 21st century Speenhamland even families earning £40-£45,000 a year will be entitled to housing support on rents of more than £140 a week.
And the gap between rhetoric and reality is even clearer when it comes to housing. In an article in the Times on Saturday that echo, David Cameron and George Osborne echoed the prime minister’s speech on opportunity by claiming that social housing investment financed by higher rents and housing benefit is ‘another of the Labour-inspired merry-go-rounds we need to get off’. In fact, this merry-go-round was created by the Conservatives in the 1990s (via a deliberate policy of letting housing benefit ‘take the strain’ of higher rents) and turbocharged by the coalition’s creation of ‘affordable’ rents and reliance on the private rented sector for homeless families.
The new Conservative enthusiasm for the Living Wage lacks credibility without at least a commitment to start with services provided or purchased by government. Ironically, a big pay rise would be one way to save billions in tax credits and housing benefit but that runs counter to austerity and pay restraint. It also ignores the fact that the Living Wage is calculated on the assumption that families live in social rented housing. The mooted extension of ‘pay to stay’ to force social housing tenants on more than £30,000 a year to pay market rents is another case in point: under current arrangements it will trigger a new merry-go-round of the higher housing support payments under universal credit outlined above.
The Conservatives therefore end up facing both ways, fighting against benefit dependency at the same time as they extend it up the income scale, moralising about hardworking families at the same time as they prepare to cut their tax credits. Free from restrictions imposed by coalition partners, the Budget will begin to show where they really stand. The current system is no more perfect than Speenhamland was but it does protect millions of low paid workers from powerful economic forces exacerbated by political decisions on austerity.
The 19th century alternative to Speenhamland proved to be far worse. In the 21st century, for all the rhetoric about taking people out of tax and increasing the minimum wage and all the warm words about the Living Wage, it looks inevitable that the £12 billion cuts in welfare will include both tax credits and housing benefit and affect people in work as well as out of work. And all of it in the guise of ‘One Nation’.
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