House of Commons - Scottish Affairs

Select Committee on Scottish Affairs Second Report

2 What is poverty?

8. Poverty in the UK is generally measured on a relative, rather than an absolute scale. Poverty, then, is not just a question of bringing all people up to a minimum standard of living, but also of addressing social and economic inequalities: "What thoughtful people call the problem of poverty, thinking poor people call, with equal justice, the problem of riches".[5] This inequality can have severe consequences.[6] Those living in poverty have relatively lower lifespans, poorer health, reduced opportunities and a higher risk of social exclusion. In the words of Reverend Graham K Blount, from the Scottish Churches Parliamentary Office, "Poverty kills people, and that is why this inquiry really matters".[7]

9. The effects of poverty are not confined to economic factors such as the inability to buy luxury items or to take a summer holiday. Poverty also affects an individual's ability to participate fully in society. Once factors such as travel costs and clothing are taken into account, even the cheapest of activities, such as visiting the local swimming baths, may be out of reach for many living below the poverty line.[8]

10. Our evidence has shown that poverty is caused by low pay and low levels of benefits.[9] Events such as family breakdown, low educational achievement or unemployment, are often cited as causes of poverty, but these factors are also to be found amongst those who are relatively well off. At root, poverty is caused by a lack of money. In 2000, our predecessor Committee found that poverty could only be tackled with quality work and generous wholehearted benefits for those unable to work.[10] This remains the case.

11. Society should not accept that poverty is an unavoidable, if unfortunate fact of life. Many other countries have reduced their rates of poverty to an extremely low level.[11] As Mr Richard Cairns, Head of Economic & Social Initiatives at Glasgow City Council, told us, "Poverty is not inevitable and we should never accept that it ought to be."[12]

Measuring poverty

12. The poverty measure favoured by the Government, and used by many other bodies worldwide, classifies those with a household income under 60% of median earnings as living in poverty.[13] This measure is disputed by some, who argue that those living on such an income do not in reality receive anything like a 'living wage'.

MINIMUM INCOME STANDARDS

13. Accurately identifying an adequate minimum level of income is an important step in the fight against poverty. We need to be sure that those targeted by anti-poverty measures are those in greatest need. As Professor Adrian Sinfield of the University of Edinburgh suggested in his evidence, if the poverty line is set too low, then those helped by Government measures will not really be lifted out of poverty, and, "the raising of incomes to a level which is not in fact high enough to take people out of poverty may not lead to the improvement in health, quality of life or behaviour which is expected."[14]

14. The measurement of poverty and minimum income standards is a complex area and our evidence strongly suggests that further research is needed.[15] In addition, the level of income required to meet an individual or family's needs is likely to vary from region to region. Governments may resist re-evaluating the poverty line because they do not wish to admit that more people are living in poverty than was previously thought to be the case. Despite this fear, it is necessary to obtain an accurate picture of poverty levels if anti-poverty measures are to be effective.

15. We recommend that the Government should review its preferred measure of poverty (currently set at those with household incomes below 60% of the median). The poverty line should represent a minimum adequate income. If necessary, further independent research should be commissioned to determine a realistic minimum income standard.

HOUSING COSTS

16. Measurements of income may be taken before housing costs (BHC) or after housing costs (AHC). Housing costs vary significantly between regions (for example, between London and Scotland or within Scotland itself). The Government publishes both measures, but prefers BHC targets.

17. We asked Ministers why BHC measures were preferred. Rt Hon Jane Kennedy MP, Financial Secretary to the Treasury, said:

We use after housing costs for measurements of pensioner poverty for very sensible reasons. About 80 per cent of pensioners own their homes outright and therefore measuring it after that makes more sense. We do publish, for child poverty figures, both forms of figures. We use the before housing costs, alongside the material deprivation indicator, precisely as Caroline [Flint] says, partly because that is what the whole range of academic, the voluntary sector and others advised us, but also because it allows us to compare ourselves particularly with other European Member States so that we can make judgments about where we are in comparison to our closest economic neighbours. The reason we publish both before and after housing cost figures is that we are seeking not to stifle the debate but to promote the debate. […] Having two different sets of indicators that you can draw on and compare and contrast adds to that and adds to the general knowledge in this field.[16]

18. Our evidence suggests, and we agree, that in many cases, measures of poverty taken after housing costs present a much more accurate picture of disposable income and hence of a household's living conditions.[17] We therefore recommend that the Government should continue to publish both BHC and AHC measures of poverty, but that it should prioritise AHC measures in most cases.

THE SCOTTISH INDEX OF MULTIPLE DEPRIVATION

19. An issue particular to Scotland, which was raised by a number of witnesses, was the way in which areas of deprivation are measured. The Scottish Index of Multiple Deprivation (SIMD) is designed to compare relative deprivation at small area level across Scotland and to identify pockets of severe or multiple deprivation. Although this measure works well to prioritise the urban areas in most need, witnesses argued that it is unsuited to large rural areas such as the Highlands, where poverty is much more geographically dispersed.[18] Ms Carron McDiarmid, Head of Policy and Performance at the Highland Council, said:

There is absolutely no denying the need to tackle concentrations of multiple deprivation, however our point is that there is more than one geography of poverty. In rural communities poverty is placed differently because of the settlement pattern. Forty per cent of our population in Highland live within communities of less than 1,000 people. That is a massive proportion of our population living in dispersed and diffuse communities. You cannot identify concentrations of poverty if your population is not concentrated.[19]

20. Some witnesses have told us that reliance on the SIMD as a measure of poverty have given the misleading view that poverty is a predominantly urban issue and have suggested that, as a result, policies have been focused upon tackling the causes of urban deprivation.[20] We asked Stewart Maxwell MSP, Minister for Communities and Sport at the Scottish Executive, whether SIMD was unfairly channelling funding away from rural areas. He said:

The purpose of the Index of Multiple Deprivation, of course, was to do what it says on the tin, to tackle areas of multiple deprivation. In rural areas, clearly, at the local area level, it does not identify that because it is individual spots of deprivation as opposed to multiple deprivation in concentrated areas. The other thing I would say about the Index of Multiple Deprivation, of course, is that it accounts for less than 1% of GAE [Grant Aided Expenditure], for example. There is a lot of money going in in terms of local authority spend and local health spending, et cetera, which is not in any way affected by the Index.[21]

21. As with all measures of poverty, data emerging from the SIMD needs to be interpreted with caution. Although the SIMD only influences a small amount of funding, there is a perception within some rural areas of Scotland that reliance on the SIMD does not properly capture the extent of poverty in rural areas. There is a clear need for improved measures of poverty in rural areas of Scotland in order accurately to assess the extent of poverty in these areas. We consider specific issues pertaining to rural poverty in detail in Section 3 below.

Who is poor?

22. Poverty in Scotland has fallen significantly from 23% in 2001-02 to 18% at the end of last year.[22] We welcome the reduction in poverty since our predecessors reported on the subject in July 2000.

23. The evidence we have taken suggests that the poverty profile in Scotland reflects that of the UK as a whole. On some measures, such as child poverty, Scotland is doing slightly better; on others, such as fuel poverty, it is somewhat behind, but the variation in poverty rates is small and on average, the picture matches that of the UK as a whole.[23]

24. Although the rates of poverty in Scotland and in the UK as a whole are now broadly similar, progress on reducing poverty over the past ten years has been faster in Scotland than in other parts of the UK. Our evidence suggests that this is due to the fact that more people were living in poverty in Scotland in the baseline year of 1997. These people have benefited from Government measures aimed at reducing poverty and Scotland has therefore done better overall. Caroline Flint MP explained that:

Scotland, like parts of England, for example, had had a much higher level of people proportionately on benefits and in poverty than other parts of the UK before we introduced a number of our different strategies […] Scotland started at a high base. What we have seen is that some of the policies we have introduced, both in terms of support for people who are on benefits but also the in-work support, and attached to that a number of different initiatives that look at deprivation in communities and targeting support to tackle some of the inequalities in those communities, looking at education, housing and what have you, looking at regeneration in terms of employment, a combination of that has partly contributed to a much quicker fall in those areas of higher disadvantage compared to when we look across the piece, which is good.[24]

25. Poverty rates may have fallen overall, but progress has been uneven across different groups. Child poverty and pensioner poverty have seen the largest reductions, whereas poverty amongst working age adults (many of whom are in some form of work) has remained broadly unchanged.[25]

26. Although there is a strong generational effect on severe poverty (which we will discuss in our forthcoming Report on child poverty), the population living just below the poverty line is not static. Instead, our evidence points to a constant 'churn' in this area: many people move in and out of poverty as they move in and out of work.[26]

27. We recognise that progress has been made in reducing poverty, particularly amongst groups such as children and pensioners, which have been the subject of high profile Government targets. This is to be welcomed. We are concerned, however, that the benefits of Government measures should be felt by all those living below the poverty line, including adults of working age. The evidence we have received suggesting that many working age adults alternate between poverty and low incomes is particularly worrying in this regard, and suggests that sustainable routes out of poverty have not been made available to all.

Scotland and the UK

28. In Scotland, the Government's approach to poverty reduction must work alongside the structures of devolution. In the view of our witnesses, the most powerful levers for the reduction of poverty are reserved matters. Social security benefits, the tax system and programmes such as the 'New Deal' are controlled by the Treasury and the Department for Work and Pensions. Co-ordination with the Scottish Executive is needed to ensure that national policies are delivered effectively and 'join up' with devolved programmes. The Scotland Office has a key role in this process. Conversely, the Scottish Executive needs to ensure that its own programmes dovetail with national provision.

THE SCOTTISH EXECUTIVE

29. The Scottish Executive's action on poverty has been focused around the programme Closing the Opportunity Gap (CtOG) which aimed at preventing families from falling into poverty, providing routes out of poverty and sustaining people in a lifestyle free from poverty.[27] The programme had a particular focus on reducing inequalities and "providing greater access to jobs and nursery provision, enhancement of skills and better health and public services."[28] The Scottish Executive also supports targeted measures such as the Warm Deal for home insulation and Central Heating Programme.

30. In the course of this inquiry, there was a change of administration in the Scottish Executive. We asked Mr Stewart Maxwell MSP, Minister for Communities and Sport in the new administration, how this would affect programmes such as CtOG. He told us that the new administration was currently reviewing all aspects of poverty policy:

Clearly, it is still the current position that the Government has the Closing The Opportunity Gap targets in place. They are ongoing at the moment. The new Government is reviewing those particular targets and that programme for a number of reasons. First, some of the targets, we think, will be met, some might be met and there are a few that clearly will not be met. It is timeous that we should review them at this time in terms of whether or not that is the way we want to go. I think over and above that, obviously with the new overarching strategic objectives that the Government has and national outcome indicators, this takes us on to new ground and new territory. Again, in those circumstances it is appropriate that we review the Closing The Opportunity Gap programme and any decisions about the future of that programme or any changes or replacements to it will be announced in the near future.[29]

We look forward to seeing the results of this review in due course.

31. In written evidence submitted to the inquiry before the change of administration, the Government told us that they "work closely" with the Scottish Executive to reduce poverty.[30] Witnesses from the Joseph Rowntree Foundation have suggested to us that the balance of power on this matter remains in Whitehall. Due to the fact that the most powerful anti-poverty powers are reserved, "the UK agenda is set and Scotland accepts it".[31] It may be that the new administration will be more likely to lobby for Scotland-specific measures, or a change of balance between reserved and devolved powers.

32. We asked Ministers from the Scottish Executive and from the UK Government, whether the change in administration had affected their working practices. Both expressed the view that there had been little change. They said that relationships were effective and it was "business as usual".[32]

33. Other witnesses pointed to problems in the division of responsibilities and funding streams between Edinburgh and London that pre-dated the change of administration. They argued that these inconsistencies hamper some efforts to reduce poverty. The Finance Committee of the Scottish Parliament told us that the Scottish Executive needed "to simplify and better co-ordinate the funding streams it has initiated with the aim of tackling deprivation and Closing the Opportunity Gap."[33] The Prince's Trust pointed to a lack of co-ordination between different sources of funds, including different Government departments, the Scottish Executive and Europe, that adversely affected the voluntary sector. They told us that pilot programmes are sometimes preferred to programmes with successful track records and that the reliance on short term funding creates uncertainty for those involved.[34]

SCOTTISH LOCAL GOVERNMENT

34. COSLA (the Convention of Scottish Local Authorities) stressed the importance not only of an effective bipartite relationship between the Scottish Executive and the UK Government, but also of co-ordination with local government, which is ultimately responsible for providing many of the services on which the fight against poverty depends. Councillor Harry McGuigan, COSLA's Spokesperson on Community Safety and Well Being, said:

We are anxious to stress that we see the role of ourselves as being part of a tripartite initiative between Westminster, the UK Government, the Scottish Government and local government […]

I think for a long time some people have said that there needs to be closer working together between the political agencies, the centres of government, Westminster, the Scottish Parliament and local government. I think that is important, that a dialogue is established and an agenda is understood and we work towards that common agenda.[35]

35. Representatives of COSLA were concerned that the relationship between Scottish local government and the UK Government had weakened since devolution. Mr Jon Harris, COSLA's Strategic Director, said:

it has been rather hit and miss. Whilst there are some very good local relationships, we would like to still see some link in with the DWP nationally. There is still a group that exists which liaises with local government, but the local government representation on that tends to be the local government association in London and it is a bit inaccessible if you have to go to London. It is expensive for us, but it is even more expensive if you are a voluntary sector body.[36]

36. COSLA also suggested that the national boundary between Scotland and the rest of the UK might not represent the most appropriate division for policy on poverty. Mr Matthew Crighton, Job Strategy Manager at the Capital City Partnership, Edinburgh, argued for a much more localised approach:

the way they [the DWP] contract for services is run very nationally, the contracts are held and managed somewhere far, far away from the locality. It is something which I think in terms of what they call "devolution" they need to think through how they empower their local staff to be part of this joint collective activity which we have all been talking about.[37]

Mr Crighton went on to suggest that local flexibility could even extend to the provision of benefits and tax credits:

The aspiration with which we set off within Edinburgh when we set up our strategy, Joined Up for Jobs, was that in looking at the resources needed to help the harder to help people into work, if we could demonstrate a reduction in the benefits claim in our city, we would be able to draw on some of the resources saved by reducing the benefits bill in order to re-invest back into the systems which train people and upskill them. That was an aspiration we put to the DWP quite a few years ago […] It has not actually come to fruition yet, but essentially, as part of that request, which is that the locality sorts out its plans and draws to it the resources available to help people into work, we were saying, "Include the savings we can make on the benefits bill so that we can invest at least a share of that into helping more people into work". That was the aspiration and the Department for Work and Pensions, shall we say, are still considering part of that request because I think it is one of the ones they find hardest to deal with, primarily because it is not entirely within their gift. It would have to be within the gift of the Treasury as well as the DWP to say that you can mix those funding streams.[38]

37. We asked Rt Hon Jane Kennedy MP what she thought of this suggestion for more local flexibility. She said:

It is not exactly hypothecation you are talking about, it is more complicated than that, but even hypothecation is not attractive because of its complexity. We prefer to think in broad terms in terms of the benefits of getting people back into work where not only do you see a reduction in the costs but you see a greater intake from tax because people are working and paying taxes. It is an interesting point.[39]

Caroline Flint MP added:

we obviously have to have across the UK—and it is not devolved for this very good reason—a system of benefits that is equal to whoever you are, wherever you are in the UK, whatever that may be in terms of income support, jobseeker's allowance; and also why we do have a sense that if some people are on jobseeker's allowance within the guidance there is a lot of flexibility, more than people might think, but there is a sort of process so that we do not end up with a situation whereby someone might say, "Why is it because I live here I am being treated totally differently?"[40]

38. We recommend that the Government should consider whether greater flexibility could be given to local government in the provision of services aimed at reducing poverty. Whilst there are serious issues in providing different services to UK citizens living in adjacent areas, local authorities that have achieved good results in this area should be rewarded. We are particularly concerned by perceptions that the relationship between Scottish local government, the UK Government and Members of the UK Parliament has weakened since devolution. We urge all sides to work together to renew links.

NATIONAL POLICY

39. The Committee has also heard that some aspects of Government policy may inadvertently increase or exacerbate poverty, even at national level. For instance, the closure of Jobcentre Plus offices in rural areas or the loss of eligibility for Council Tax benefit for low paid workers, may create a poverty trap for some of those entering work.[41] These examples give cause for concern that Ministers may not be doing enough to ensure that policies are 'poverty-proofed' across the board. Co-ordination between different government departments is as important as co-ordination with outside bodies such as local government and the Scottish Executive.

40. It is vital that anti-poverty policy is nationally coherent, with a clear division of responsibilities, not only between the devolved administration in Scotland and the UK Government, but also between Government departments and with local government. As our evidence noted, "Government strategy to tackle poverty is a cross-cutting issue that is dispersed across several policy areas, such as education, health, social security, employment, social work and housing, and spans both devolved and reserved policy areas of the Scottish and UK Governments".[42] In this context, it is essential that the UK Government should produce a national poverty strategy to co-ordinate the cross-cutting issues inherent in issues of multiple deprivation.

41. Many of those who gave evidence to our inquiry noted a tendency for Government to make policy on poverty in isolation from those who are actually living on low incomes. We were told of a recent project, Get Heard, which aimed to redress the balance by allowing those in poverty to describe their experience, put forward their views and say what measures are needed.[43] We commend the Get Heard project and urge the Government to ensure that all policy on poverty is informed by the views of those living on low incomes.

Government policy on poverty

42. The Scottish Affairs Committee is appointed to scrutinise the work of the Scotland Office. In the case of poverty, the Scotland Office must work closely with the Department for Work and Pensions, HM Revenue & Customs and the Treasury to deliver UK Government policy in Scotland. Government policy is focused on work as the principal route out of poverty. A system of means tested benefits, centred on the New Deal and Jobcentre Plus is intended to support this focus.

WELFARE TO WORK

43. The Government's anti-poverty strategy has focused on getting people into work: "Since 1997, one of the Government's key objectives has been to achieve high and stable levels of employment so everyone can share in growing living standards."[44] The rise in employment levels over the past ten years has played an important part in reducing poverty. The New Deal, the minimum wage and an increase in in-work support through working tax credits and child tax credit were key measures in delivering this reduction.[45]

Barriers to entering employment

44. The Government continues to focus on work as the main route out of poverty, but there are increasing signs that those who remain unemployed will need significantly more help, or different measures, to lift them out of poverty than those who have gone into work since 1997. Certain groups face particular barriers to entering work. These include those with disabilities, carers and parents who cannot secure suitable childcare,[46] as well as asylum seekers who are not permitted to work.[47]

45. Our evidence shows that, at present, disability is a significant barrier to entering work.[48] The incomes of disabled people are on average less than half of those earned by non-disabled people.[49] Low incomes are compounded by higher than average living costs. Poverty linked to disability affects the whole family, not just the individual: 80% of parents with a disabled child are unemployed and disabled children are twice as likely to be in poverty as non-disabled children.[50]

46. Childcare issues were also highlighted during our inquiry as a barrier to work. Parents of disabled children in particular may find it extremely difficult to secure suitable childcare in their area, and even if it is provided it is often prohibitively expensive. More generally, a number of witnesses cited childcare deficiencies as a significant problem. They complained of a lack of local provision, affordability and insufficient places in nurseries. Adverse employer attitudes to family commitments were also seen as a major hurdle. Mr John Dickie, Head of the Child Poverty Action Group Scotland, said:

The current system, despite investment in childcare tax credit, in Sure Start, in working for families in Scotland, is still far too patchy a system for the supply of childcare and that is going to be a critical thing that needs to be got right if parents are going to overcome that barrier to employment. Also, in terms of parents with carers and families with parents with disability or long-term health problems who are facing very real discrimination, lack of flexibility, lack of support of employers in terms of accessing work providing a genuine route out of poverty. We need to see action to tackle this. We are concerned at the moment because there is a lot of emphasis on what individuals and parents need to be doing and some of the rhetoric and language from Ministers suggested that the barriers to employment are somehow to do with the benefit system, whereas, in fact, there is limited evidence that the barriers are to do with the availability of benefits or benefit rates, the real barriers are to do with, as I say, childcare, to do with employer attitudes, to do with the levels of support and encouragement and the framework from supporting employers to take on people who have been out of work for long periods of time.[51]

47. The Government is currently extending the Pathways to Work programme nationwide, focusing on lone parents and those on Incapacity Benefit in an attempt to improve levels of employment. Rt Hon Jane Kennedy MP told us, "All the research tells us that work is the significant factor that makes that difference, so a huge amount of the work that we have been doing has been focused upon enabling people to work."[52] Caroline Flint MP said that work would still be a focus for these harder to reach groups:

I have to say we have had a focus definitely on work in the last ten years which has proved successful but now within the Department for Work and Pensions we are looking at how for those people on benefits, whether it is Incapacity Benefit, Income Support or Jobseeker's Allowance, we can have a much more personalised service that really tries to get to grips with individuals, their families and what they need.[53]

48. We welcome the increase in employment levels over the past ten years, which has greatly contributed to a reduction in poverty. However, unless barriers such as disability, employer attitudes to disability and unaffordable childcare are tackled, employment levels cannot continue to rise at the same rate. Even then, work will never be a realistic prospect for some people, for example, those with full-time carer responsibilities. These people must be lifted out of poverty through the benefits system.

LOW PAY AND THE MINIMUM WAGE

49. For those who are able to work, we are concerned that people should enter quality jobs with realistic prospects of advancement and a sustainable income above the poverty line. During this inquiry, we were told that Britain is leading Europe in the creation of 'poor jobs'.[54] Almost a quarter of the Scottish full time workforce is in low paying jobs (defined as employees earning less than the Low Pay Threshold of two-thirds of male median earnings).[55] This evidence clearly shows that the quality of jobs is an issue.

50. Many of those on low incomes earn the minimum wage. Those who gave evidence to our inquiry were unanimous in welcoming the introduction of a minimum wage as a vital step in reducing poverty and making work pay. Nevertheless, some witnesses did not believe that a full-time worker, earning the minimum wage, would have a high enough income to ensure that their household was above the poverty line, particularly in areas of the country where living costs are higher.[56] On some occasions, this could be due to the worker failing to claim the full range of benefits and tax credits available (an issue described in more detail below). Some witnesses argued, however, that even when a worker on the minimum wage claimed all the benefits and credits to which they were entitled, the resulting income could still not be described as a 'living wage'.[57]

51. In the course of our inquiry, some witnesses argued for poverty to be tackled by raising the level of the minimum wage significantly. In some cases to a rate above seven pounds per hour was recommended.[58] We put this suggestion to Ministers. Caroline Flint MP said:

these are difficult questions because it is about also if you decide one thing in one part, if you like the package—say, the minimum wage—if you get that wrong, what does that mean? […] It is always difficult because, on one level, it would be easy for me to say, "Yes, let's just put it up", but it is the consequences of all of that and other knock-on effects that I think are really important here.[59]

Rt Hon Jane Kennedy MP told the Committee that some people chose minimum wage jobs to fit in with other responsibilities:

What you find with a lot of part time jobs, particularly at the lower paid end—the point Caroline makes—is that people make choices about what work they do at certain times of their lives. What we want to do is have a structure that enables people to make those choices and to make appropriate choices.[60]

52. Low pay is sometimes justified on the grounds of career development: workers may start on the lowest rung but are expected to advance up the pay scale. As Caroline Flint MP said, "you have got to start somewhere. Part of it is about progression and how do we achieve that. Again, there are opportunities to skill yourself in work. There are opportunities to move up in an organisation."[61] However, the evidence we have taken indicates that structures for progression are not always in place.

53. The New Deal has rightly been recognised for its success in getting people into jobs, but our evidence suggests that a significant number of those entering work through the programme may be working for low pay with poor prospects for advancement. This has an understandable effect on retention.[62] Once again, our evidence suggests that a significant number of people hover around the poverty line, enduring a "low pay no pay cycle".[63] This is sometimes due to the periodic availability of work (led in some areas by seasonal industries such as tourism, which also have a history of low pay).[64]

54. Our evidence has suggested that, in some cases, the situation of those who 'cycle' between welfare and work may even be worse than those who are permanently out of work and living on benefits, due to the transitional costs of moving in and out of employment. Mr Brian Gordon, Chair of Dundee Anti Poverty Forum, said that this acted as a deterrent to entering work:

if they go into that job and are only there a few weeks and realise it is not working, then the rigmarole of having to go back and apply for benefits or wait the 13 weeks or whatever it is to get back on Incapacity Benefit is just not worth it. There is a large amount of people out there in that frame of mind because of the system. If we changed the system to giving them a trial period of, say, 12 weeks in work and if it did not work out for whatever reason or if they felt pressurised they could go back into the system they had before without a loss of benefits, that would be a big factor in people's thinking.[65]

55. Low paying jobs do not always offer decent prospects of advancement. In addition, some employees may not wish or be able to seek advancement. Neither of these cases can be an excuse for consigning people earning the minimum wage to poverty. Professor John Veit Wilson told the Committee that "setting income adequacy standards and using them to guide minimum wage and benefits levels is an essential precondition if poverty is to be eliminated in Scotland and the rest of the UK."[66] We agree. The tax and benefits system must, at a minimum, ensure that no-one in full time work is living in poverty.

56. Within this picture, the fact that some workers are illegally being paid less than the minimum wage clearly gives cause for concern.[67] The Government needs to make enforcement of the minimum wage a priority and institute stronger penalties for non-compliance.

57. In some sectors, low pay is the result of a non-unionised workforce.[68] Elsewhere, it is a question of labour market demands or a low pay culture that has prevailed for many years. We were particularly troubled by evidence given to the inquiry that the largest low-paying employer in many areas is the public sector (e.g. hospitals and councils). A number of witnesses made the point that public sector workers earning the minimum wage would have their incomes supplemented by another arm of the State through benefits and tax credits, yet the local employer saw no incentive to raise wages, because no benefit would be received from the Treasury for doing so.[69]

58. Mr Mike Palmer from the Social Inclusion Division of the Scottish Executive pointed out that public sector employers could also provide examples of good practice:

we have NHS boards that are running programmes for people who have been particularly hard to reach in terms of getting them into the labour market and then looking upon the NHS as one of the biggest employers in Scotland and saying, "We can actually do something as a major employer to help employability here by bringing people into entry level jobs". As the Minister said, once you have got them into the NHS, they are into a good career structure, so they are getting into a job that is going to give them quality help.[70]

59. The problem of low wages in the public sector is another example of inconsistency in national policy on poverty. At present, there is no incentive for local authority employers to raise wages, as their low paid employees are effectively being subsidised by the central State benefits system. We urge the Government to investigate the problem of low wages amongst public sector employers and to consider a means by which an incentive could be created for these employers to raise wages.

60. We are led to conclude that despite the introduction of the minimum wage and tax credits, work is not an automatic route out of poverty. Where work is of poor quality, low paid, short-term or seasonal, in-work poverty is a real prospect.[71]This is reflected in the statistics, which show that poverty amongst adults of working age remains stubbornly unaffected by the Government's welfare to work policies.[72]

61. Low paying, poor quality jobs are part of a bigger problem which will require effort not only on the part of the Government, but also of the public sector more generally as well as private employers. In order to ensure that sustainable routes out of poverty are provided, the focus on employability needs to include support for retention and advancement.

YOUNG WORKERS

62. At present, there is an inherent discrimination in the way in which the minimum wage is structured. Workers aged 21 and under are paid at lower rates. We gave Ministers an example of the low wages that could be earned by young people, particularly trainees or apprentices. Caroline Flint MP, Minister of State for Employment and Welfare Reform at the Department for Work and Pensions said:

whilst I would argue that there are some justified arguments for a different rate for people on apprenticeships and trainees, there are some issues you are raising there which ask questions about the guidelines about how many hours a young person or, for that matter, an adult apprenticeship, should be doing in any given week. […] Apprenticeships are not meant to be just a source of cheap labour for people. It is meant to be an experience that allows people to get a trade, to hopefully get a qualification and allow them to move on.[73]

63. A lower wage for young adults may seem justifiable on the grounds of experience and skills, but the tiered nature of the minimum wage can have an extremely negative impact on vulnerable young people entering work for the first time, pushing them into poverty. This is a particular problem for young people who may not have the support of a family home at this crucial time, for example, those leaving care.[74] We recommend that the discrimination against young workers inherent in the current structure of the minimum wage should end. We are particularly concerned that young adults on work-based training courses should be able to support themselves at a decent level. We agree with the Minister that "Apprenticeships are not meant to be just a source of cheap labour for people" and we urge the Government to ensure that the guidelines surrounding pay and conditions for trainees are properly enforced.

BENEFITS AND TAX CREDITS

64. Responsibility for supporting those living on low incomes is again spread across departments, with HM Revenue & Customs taking charge of child benefits and tax credits, whereas the Department for Work and Pensions leads on Welfare to Work, improving child support and pensioner poverty. The number of people claiming out-of-work benefits or Incapacity Benefit is falling as a result of the recent rise in employment levels.[75]

65. Professor Adrian Sinfield of the University of Edinburgh told the Committee that "basic benefits are currently insufficient to bring people up to the Government's own poverty level".[76] Many of our witnesses argued that fundamental benefits, such as Income Support and Jobseekers Allowance are inadequate and should be increased.[77] The Joseph Rowntree Foundation noted:

worklessness is so strongly associated with poverty largely because the level of out-of-work benefits is so low. Although benefits for children in families receiving Income Support or Job Seekers Allowance have increased significantly in recent years, and the government is committed to further increases at least in line with earnings, the adult components of these benefits have been increased by much lower amounts. The result is that the total incomes of families with children and of working age households without children receiving these benefits are falling further and further behind year-on-year. Given that, whatever the success of the economy in creating new jobs and of government policies to assist people into work, there will always be those who cannot work it seems wrong and, indeed, a contradiction of government policy, to condemn such individuals and their families to a life of poverty.[78]

And Mr Peter Kelly of the Poverty Alliance said that an increase in benefits was "fundamental to making progress" in poverty reduction.[79] We will explore further the evidence given by the Joseph Rowntree Foundation in relation to families in our forthcoming Report on child poverty.

66. Government policy has increasingly favoured targeted benefits over universal provision, aiming to reach those in most need, to reward employment and modify patterns of behaviour. Perhaps the best known universal benefit is child benefit, which we will discuss in detail in our forthcoming Report on child poverty.

67. The choice between universal and targeted benefits is difficult, and there are disadvantages on both sides. Universal benefits provided irrespective of income are simple to administer but may reward those who have no need of them. Conversely, targeted benefits are more complex to administer and more difficult to access for those in need. As Mr John Dickie, Head of the Child Poverty Action Group Scotland, told us:

It is about getting the balance right. The problem with the purely targeted approach is that too often the target is missed so that whilst in terms of tax credit uptake it is relatively good compared to the previous tax credit arrangements, it is still only 82% of families that are receiving the tax credits that they are entitled to.[80]

68. Tax credits clearly have a role in rewarding work, but universal benefits may be preferable when dealing with the most vulnerable in our society, for example, pensioners and children. This is an issue we will return to in more detail in our forthcoming Report on child poverty.

Take-up

69. The issue of unclaimed benefits and tax credits was raised several times during the inquiry. The former Department of Trade and Industry estimated that the average benefit entitlement check identifies £1200 of unclaimed annual benefits per household.[81] The West of Scotland Seniors Forum cited Government figures showing that between 22% and 36% of pensioners entitled to pension credit did not claim it and that one in ten did not take up their entitlement to council tax benefit.[82]

70. As the basis of its anti-poverty strategy, the Government has chosen a highly targeted system of benefits and tax credits. The result of this is a complex system of entitlements and a correspondingly significant gap in take-up. This is an issue on which the Work and Pensions Committee has previously reported, describing the current UK system as "stunningly complicated."[83]

71. The administration of tax credits and benefits is also in need of improvement. For example, we have heard that when an application for housing benefit is made, the claimant is sometimes asked for more information. If this is not received, the case can be closed without notification.[84] If the claimant is unaware of this closure, they can continue accruing arrears for some time until the case is resolved.

72. Some of our witnesses suggested that benefits checks could be integrated into other services in order to increase the levels of take-up.[85] Families who may not have the opportunity to consult a welfare rights adviser may have contact with health visitors, Sure Start workers or those carrying out energy efficiency checks in the home.

73. When we asked Ministers what was being done to increase take-up, Caroline Flint MP described the efforts that were being made to streamline the system:

For instance, one phone call to the Pension Service can now give access to five benefits: state pension, pension credit, housing and council tax benefit and underlying entitlement to carers' allowance too. In the Department they use the phrase 'no wrong door' to try and create the situation where people might ring the Pension Service, but there might be another part of either our organisation or another organisation that has something to offer in this regard. What people do not like is being told, "Sorry, mate. I deal with that. You are off somewhere else." It is not easy, all of this, I have to say, working across government, working with agencies outside of government, but we have an ambition that we can do better than we currently are. By 2011, what we are looking at is that people who are in receipt of benefits of whatever form will have a personal, online account with the Department for Work and Pensions.[86]

74. We welcome efforts to integrate different benefits streams into a 'one-stop-shop'. However, the Government must provide enough resources to ensure that any new system is properly administered. Past problems in this area have added to the difficulties caused by the inherent complexity of the system. For example, the recent recovery of tax credits overpayments has caused particular difficulty for some and has shaken general confidence in the system. Professor Sinfield said:

the argument must be to operate tax credits with the greatest degree of efficiency, which means that you have to invest more in staff. This is really crucial. It is not simply that people do not receive what they are intended to, which in itself is a problem leaving people in poverty, but because of this uncertainty the whole system is becoming stigmatised. A lot of people, when they hear these figures about 33% being underpaid or overpaid, think it means the system was wrong rather than the fact that circumstances changed in the course of the year, so there was need for an adjustment.[87]

75. The simplification of the benefits system is a vital area of work if take-up of entitlements is to be increased. We refer the Government to the recent excellent contribution of the Work and Pensions Committee in this area. Given the current complexity of the benefits system, the Government has a responsibility to invest in welfare rights advisers and campaigns to promote the take-up of benefits generally.

76. In addition to plans for an online system, frontline employees in a range of services should be equipped with a basic knowledge of the tax credits and benefits system so that they can assess whether a household is claiming its full entitlement and give advice on where to go for further information. Where convenient, greater use could be made of co-location so that benefits checks are part of a local 'one stop shop'.

77. In the areas of welfare advice and co-location of services there is clear benefit to be gained by working with local authorities.

Poverty traps

78. Even if an individual claims all the benefits and tax credits to which they are entitled, certain poverty traps still remain. Our inquiry has highlighted particular problems in the field of part time work. Part time work can be an important bridge to full time employment and may be better suited to those with caring commitments. Witnesses argued for greater support for part-time work through an increase in the amount of money that people are allowed to earn whilst receiving Income Support and Job Seekers Allowance.[88]

79. Evidence from the Prince's Trust suggested that the rules surrounding Job Seekers Allowance also interfered with training:

Rigid application of eligibility criteria for JSA and other benefits can work to the disadvantage of our clients and prevents them participating on Prince's Trust courses as they can be faced with the withdrawal of benefits (the 16 hour rule). Sometimes we reluctantly have to advise young people that their interest would not be best served by participating on one of our courses as their principal means of support would be withdrawn. Some providers get round this rule by making their courses less than 16 hours per week. It is our view that this does not fit young people for work. An essential key to successful employment is good timekeeping and a commitment to full participation in the course. Part-time working does not enable the individual to experience the personal responsibility involved in achieving this. It would be helpful if there was local discretion for JCP advisers/managers to relax these rules where there is clear evidence that the training proposed is part of a managed pathway to work and will assist the client into sustainable employment.[89]

80. We have also heard that Department for Work and Pensions benefits calculations showing that an individual would be better off in work do not always take account of the loss of benefits like housing benefit or council tax benefit. Ms Loretta Gaffney of Glasgow Easterhouse Citizens' Advice Bureau said:

the difficulty is the poorest people are in social housing and they are paying their rent and their council tax and the Working Tax Credit comes in as a form of income, so it is means-tested. They go and they get the job at the minimum wage, they get it topped up with the Working Tax Credit and then they find that they get no housing benefit and no council tax, therefore they have got to pay for their house, their council tax, their travel to work, their lunches and they are either worse off or the same.[90]

81. An individual entering the workplace is likely to experience a number of associated costs, including those of transport, clothing, childcare, etc. Witnesses suggested that the provision of a transitional benefit at this time would remove some of the barriers to entering employment.[91] We urge the Government to consider establishing a transitional benefit aimed at alleviating the costs of entering employment.

82. The Government has succeeded in making work pay for many people. The benefits of this strategy have been felt in higher levels of employment and reduced numbers of those claiming benefits. For some, however, the poverty trap still exists. The Government now needs to ensure that everyone living in poverty really would be financially better off in work. Without this approach, the reduction in poverty over the last ten years will not be sustained in the next decade.

5 Tawney, 1913 quoted in Ev 45. Back

6 Ev 341 Back

7 Q 619 Back

8 Qq 64-65 Back

9 Ev 51 and Q128 Back

10 Scottish Affairs Committee, HC (1999-2000), 59-I Back

11 Ev 44-45 and 326 Back

12 Q 772 Back

13 Ev 291 Back

14 Ev 42 Back

15 Ev 42 and 50 Back

16 Q 884 Back