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Making the poor poorer is a false economy

When former US Treasury secretary Larry Summers likened the UK to a “submerging market” last week, I thought he was laying it on a bit thick. But in a busy food bank in south London on Friday, “submerging” felt like the right word.

A queue of people stretched across the car park of a church to collect a parcel of free food and a hot meal. Once, the visitors here would have been mostly single men. But last week, there were toddlers running around and mums jiggling babies on their hips. “We’ve had people recently saying ‘can I have food that I don’t have to put in the fridge because I’ve turned the fridge off?’” says Kate Lott, project manager at the Living Well Bromley food bank. Others ask for food they don’t have to cook because they have turned the gas off, she says.

The number of visits to this food bank has climbed from 530 adults with 183 dependants in August last year to 843 adults with 372 dependants this August. About 1,000 people came for hot meals in September, nearly double the number from a year ago. Many of these new visitors have never used a food bank before. According to Tamara Cooper, a volunteer, many are working people who can’t pay the rising cost of food and energy. She understands: she sometimes sits with the lights off to save money on her prepayment meter.

Kwasi Kwarteng, the UK’s new chancellor, U-turned on Monday on his decision to cut the 45p rate of tax for the rich. But he still has a fiscal hole to fill. One option under discussion is to cut welfare spending by not lifting benefits in line with inflation. According to the Resolution Foundation think-tank, uprating working-age benefits by earnings rather than inflation next year would cost a typical low-income working family with two children more than £500 a year and save the Treasury £5bn.

The UK does spend a lot on benefits for non-pensioners: the bill came to about 4.6 per cent of GDP in 2019/20, up from about 3 per cent in the 1970s. But spending has already been cut from about 5.7 per cent during the decade of austerity that followed the financial crisis. There comes a point where making the poor poorer becomes a false economy — and I think we have reached it.

Families who become homeless have to be put up in expensive bed and breakfasts. People who become mentally or physically unwell add to the healthcare bill and drop out of the workforce. More than 640,000 or so working-age people have already left the labour market since the start of the pandemic. In a survey of the leaders of NHS trusts last week, 72 per cent said they had seen an increase in people presenting with mental health problems due to stress, debt and poverty. More than a quarter of trust leaders said they had set up food banks for their own staff.

The better way to get tough on welfare spending would be to get tough on the causes of welfare spending. Roughly three-quarters of working-age benefits are spent in one of three ways: income top-ups for workers with low earnings; housing benefit to help people pay the rent; and disability, sickness and incapacity benefits for people who are unwell.

In other words, the size of the welfare bill is the consequence of Britain’s deep-rooted problems with low pay, high housing costs and poor health. The dysfunctional housing market, in particular, stands out. The UK spends less on unemployment benefits than most other OECD countries, but more than any other OECD country on housing benefits-in-kind.

These problems are not insurmountable. They require better community-based and preventive health services, more building of social housing, and higher business investment in workforce skills and productivity.

The alternative is to cut benefit spending again and leave it to people to try to help each other through. But this is an economic shock that is reverberating far up the income ladder. People who are usually comfortably enough off to donate to others are now worried about their own energy bills and mortgage payments.

The Living Well Bromley food bank has a shipping container in the car park which is usually full of donations. Now it is half empty. Two other local food banks in the area have warned they might have to close. Still, people give what they can. And Lott says it’s the people who have the least who give the most. “People will come in and say, ‘can I give you three pounds? I used to be a guest and I want to help.”

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