Since Wednesday’s CSR announcement much has been said and written about whether the proposed changes in public spending are “fair” or otherwise. Nick Clegg in particular has gone on the offensive and attacked the IFS for drawing the conclusion that the CSR measures are regressive, below the top 2% of households. I don’t think he has come off best in that particular battle. Quite the contrary. But, to me, there is something lacking about some of the public debate on this issue.
Much of the discussion, perhaps inevitably, is conducted in the realms of income deciles and percentage changes in income (in fact what the analysis is trying to get to is something like changes in the social wage, but that is another issue).
So we have statistics about what percentage of income the top decile will lose compared to the bottom. Or the bottom half of the income distribution compared to the top half. This is all well and good. But it keeps the discussion at a rather abstract and sanitized level. It can all feel a little academic – and not in a good way. It does little to communicate the genuine and, in some cases, unbearable hardships these changes are going to inflict on poorer households.
If, for the sake of argument, the lowest income decile is going to lose 5% of its income as a result of these changes, whereas the equivalent figure for the highest income decile is 3%, then that sounds quite regressive. It looks like the poor are getting hit almost twice as hard as the rich.
But just as pressing is the question of what resources the poor will be left to live on once they’ve lost 5% of their income. Will it be sufficient to secure an acceptable standard of living? Or even to subsist on? Given the meagreness of the UK welfare benefits system prior to the cuts, the answer may well be no.
Some IFS analyses suggested that households across much of the income distribution are going to lose quite similar amounts of money in cash terms – but losing around £500 a year from an income of £4,000 is a much more serious proposition than losing around £700 from an income of £50,000. At one level we know that. It is sort of obvious. But, at another level, do those of us lucky enough not to have to manage on such low incomes actually stop to think hard about what it would be like to live on a total of £67 a week rather than £77? A sizeable chunk of the population can only really guess what sort of compromises and sacrifices would have to be made.
In the field of housing finance we are rather sceptical about the use of ratio measures of affordability. To say that spending 30% of your income on housing is a problem depends, among other things, on how much your income is in the first place. Ratios are usually combined with some understanding of residual income – what you’ve got left after you’ve paid for your housing – to determine who is living in unaffordable housing. It may be that you’re paying a small percentage of your income, but a small percentage of a small income can result in serious poverty.
The current debate over the CSR needs an equivalent concern for residual income. Perceptions of the generosity of welfare benefits are often inaccurate: those who do not receive benefits are under the misapprehension that they are considerably more generous than they actually are. People are often shocked to find out how low benefit levels are set. Many more people are likely to have first hand experience some time very soon.
If public debate on the CSR could be reoriented at least partially towards considering residual income instead of percentage cuts then the full enormity of the impact of some of the proposed changes would be more apparent. And the indignation of the critics would rightly be fuelled.