Misérables Britanniques?

Led by the Childrens' Society, bishops and church leaders criticise proposals to limit universal credit way below the rate of inflation for the next few years.

The fact is, Food and fuel prices have rocketed, and look set to continue to do so. There is no way that what is proposed can do anything but produce more pauper children.

Softball Soggy Liberals feel that penalising the poor is unfair, and Hardball Neocons that the poor should get on their bikes. I’m with the softball soggies on this one.

Some suggest there is a huge number of feckless poor on the fiddle who need to be busted to make the system pay. It's essential to prosecute welfare fraud, but the amount of money involved, in proportion to the whole system, is utterly miniscule. Rattling sabres may make hardball neocons feel better, but the sober fact is there’s almost no money to be got from this source.

Nobody can doubt the wisdom of simplifying the tax and welfare system, nor the need to spend wisely in lean times, but anything that increases child poverty feels all wrong. Does it make any economic sense?

I have a general notion of some of the bigger picture that could undermine attempts at welfare reform. Please put me right on any material facts I am misapprehending here, as well as anything I've missed, but...

• Inequality costs money
  Since the 1980’s most Western countries have seen major increases in inequality, largely driven by Neocon economics. In countries that have followed this path, surprisingly perhaps, growth rates have now fallen dramatically, leading to stagnation. Why will more of the same produce different results?
  
  
• Grass Roots matter
  The economy is series of interconnected local, regional and national systems. Concentrating wealth in a few hands at the top drains it from local economies where the poor spend more on basic goods and services. Inequality increases all kinds of social ills that load the welfare budget. The rich spend more, but mostly in more boutique ways. Regional decay costs the welfare system massive amounts of money.
   
• Trickle Down is Tosh
  Our fastest industrial growth last century actually coincided with the most redistributive phase of UK fiscal policy. The growing economies of the postwar years invested heavily the kind of proportions we spend on financial services in infrastructure, social services and R and D.
• There have to be Limits to Debt
  One thing the poor spend a lot of money on is debt, sometimes at outrageous thousand percent rates of interest. The government should be congratulated for at last making serious noises about payday loans, but this issue is only the tip of an iceberg.
• Everybody can't be an estate agent.
  Somebody has to design and make stuff. Not all education spending produces wealth. We have not, in fact, regressed to pre-industrial levels of demand for manufactured goods. It's just that other people make everything. The pathetic decay of British manufacturing, along with genuine polytechnic education and apprenticeships, has weakened the whole economy.
   
• Houses are only worth what people can pay.
  The UK has for many years sucked much popular personal wealth into a house price bubble. This makes people feel wealthier than they are, and parks money that could usefully be invested otherwise in bricks and mortar. House building is a good infrastructure in which to invest, but only up to a point. Soaring housing costs mean soaring housing benefit costs. High house prices also gum up labour markets.
• Penalising saving impoverishes everyone.
  Like the Victorian economy, postwar booming economies encouraged savings, sometimes as a hangover from wartime loan schemes. The UK has long been a terrible place for savers, and this impoverishes our local economies. For years we have reported high interest rates as bad news. Even in housing this wasn't the whole story, as most building societies had more savers than borrowers. Of course people haven’t got savings. For years savers have been penalised. This also loads cost the welfare system in the end.
   
• When is a job a real job?
  Low wage economies create a large number of jobs, but if these “jobs” do not pay enough for people to become substantial taxpayers in their own right the welfare system simply becomes a subsidy to inefficient employers. High debt low wage inhibits organic economic growth. High skill, large added value, leads to higher wages. Well it does for bankers — why not for everyone else?
   
• Broad based investment in real activity produces wealth.
  Investment decisions are made by a limited number of financial institutions, not a host of small investors as in the UK’s boom days. What need for sensible investment decisions when you can screw 28%APR out of the public with minimum lending rate at half a percent with credit cards? What sensible activity could generate such money for old rope? Meanwhile, grass roots businesses are short of money, and many fail in the UK because they just don't get off the ground. Additionally, as we have seen, running the consumer economy on debt not savings enriches financial institutions in ways that end up costing the welfare system serious money.
   
• Class costs money
  Another effect of increasing inequality in the past twenty years in Britain has been a decrease in social mobility. Whatever one makes of this politically, it undoubtedly wastes the talents of people whom in earlier ages would have had more opportunity to better themselves. Squeezing the bottom locks people even more deeply into a static social order. That dampens aspiration and increases welfare dependency.

What is needed is a far clearer view of the difference between productive investment and subsidising failure.

Chickens are coming home to roost on forty years of supply-side economic liberalism. We need to understand where we are and why in the broadest terms before developing policy.

Failing an understanding of the bigger picture it makes little sense to lock large numbers, especially children and the vulnerable fixed-income elderly, even further into poverty. Simply lashing out at the poorest and most vulnerable is a shoddy way to save money, and unlikely to prove effective.