Poverty and Opportunity: The Liberal Way

Ming Campbell addressed the IPPR on 19th December as follows:

For much of my life in politics I have been closely associated with the issues of Foreign Affairs and Defence.

But there is another great passion which brought me into politics.

It is the passion for a fairer society – in Britain and abroad.

But today Britain is still a society in which your future is determined not by your skills and commitment, but by where you were born and who your parents were.

I want Britain not only to be a society of opportunity, but to be a country where those who cannot work, or whose earnings are limited, are also given proper financial support and assistance to do better.

I want a society with ladders to climb up and a strong safety net to catch those who would otherwise fall.

And the safety net needs to move upwards as national income increases.

Where are we now?

After the Second World War, as our armies were demobilised, conditions in Britain improved under the new government.

There was a national health service.

More schooling.

More resources to bolster the welfare state.

Relative poverty was in decline.

And the distribution of income and wealth became less unequal.

There were still enormous gaps in opportunities and outcomes, but the evidence seemed to be that these were narrowing.

But by the 1960s and 1970s there were already warning signs for the future –
increasing family break up, which undermined the stability that young people need.

And Britain’s relative economic decline, which threatened to choke off the resources needed to fight poverty.

And then came the long period of Conservative government after 1979.

Wealth and income inequality rose; relative child poverty tripled with over one child in three in Britain affected; and soaring unemployment created a lost generation of people who found themselves, by middle age, on the economic scrapheap.

The 1980s was the decade which turned back the clock of progress in reducing inequality.

Not only did the rich become much richer, but the poor became poorer in absolute terms – a development not seen since before the Second World War.

In place of opportunity for all, there was advocated a new freedom from social responsibilities, and a new opportunity for the affluent few to opt-out of their obligations to society.

“Opportunity Britain” became “Opt-Out Britain.”

In 1997 the hopes were so high. It really did seem as if Britain could only get better.

And in some respects, it has.

Pensioner poverty and child poverty have both been reduced, largely through the use of means-tested benefits.

Unemployment is lower.

A lot of money has been spent on improving schools and on early years education.

There has been some investment in renewing the existing social housing stock.

Targets have been set to reduce child poverty.

But in many other respects, welfare reform and action to improve opportunity have been the disappointments of Labour’s 10 years.

Overall income inequality is no better than under the Tories.

Wealth inequality is worse.

And relative poverty levels are still well above those in many developed countries.

One factor widening inequality is Britain’s openness to the world economy.

Britain’s success in attracting international investment and particularly the success of the City has led to those at the top end of the scale being paid phenomenal amounts by the standard of the average worker or pensioner.

The extraordinary property boom has helped to widen wealth inequality.

The Liberal Democrat response to the challenge of globalisation is not to turn our back on it.

The tax system still hits the poorest hardest, not least through the unfair and burdensome council tax system.

Levels of social mobility seem to be falling, rather than rising.

There is too little affordable housing.

The welfare safety net is set at a very low level in Britain – with one of the meanest state pensions in the developed world, and other benefits shrinking fast in relation to average earnings.

The reliance on means-tested benefits is trapping more and more people in dependency.

The price which is being paid for keeping down public expenditure commitments by shunning universal benefits is that the effective tax rates being faced by those on low incomes are often as high as 60, 70, 80 or even 90%.

And for savers the effect of means-testing is that some people who save in the new personal pension accounts could lose up to 85 pence in every pound invested.

The strategy of means-testing is delivering;

Entrenched poverty, through failure to take-up benefit entitlement.

Low private saving, through undermining incentives.

Waste, through endemic fraud.

Financial instability, through the problems with tax credits overpayments.

And family problems, through penalising those who live together.

Gordon Brown’s strategy of mass means-testing is undermining work, saving, and families.

It is not sustainable – it risks trapping millions of people in a dependency culture.

We should be giving people an education and a chance.

Instead we are giving them a benefit book and a 30 page claim form.

Unless we create a society where the state assists people to improve themselves we will never be able to eliminate poverty.

But what are the alternatives?

David Cameron, keen to change the image of the Conservative Party is now accepting the need to think of poverty in relative terms.

And he has a new idea.

He calls it “rolling forward the frontiers of society”.

Now no genuine Liberal is going to disagree with the proposition that the voluntary and private sectors should have an important part to play in tackling poverty and deprivation.

And no Liberal is going to recoil for one moment from localized solutions.

Nor do I disagree with the proposition that we need to pay more attention to tackling the causes of poverty.

But “rolling forward the frontiers of society” is less a big idea for the future than a small idea from the past.

Conservatives have always believed in charitable and voluntary action, rather than government action.

But it was the inadequacy of those voluntary solutions that caused the state to assume a greater role and responsibility.

And in countries like the United States we see today the consequences for those in the bottom quarter of society of relying on charitable handouts rather than a modern and reformed state welfare system.

Mr Cameron’s “big idea” is nothing new.

It is an echo of the Victorian values and charity-driven conservatism of the 1880s.

That is the past, Mr Cameron, not the future.

It is disingenuous to pretend that you can cut relative poverty levels, as the Conservatives say they will, without tackling the hard policy issues on taxation, on affordable housing, on benefit levels and on education and skills

How then is our Liberal Democrat approach different from Mr Brown’s “Dependency State” and Mr Cameron’s “Do Little” society?

The Liberal Democrats should be the voice for those disadvantaged by the Tories, and let-down by Labour.

I intend to take the fight against poverty and inequality to Labour.

I am determined that our next General Election Manifesto will be the boldest ever in its commitments to challenge the causes and effects of inequality of opportunity in our society.

The Liberal Democrats must be a party not only of the affluent and compassionate middle class, but also of those whose lives are less financially secure.

Our message must resonate with those in work who struggle to make ends meet, and those out of work who are seeking to lift themselves out of poverty.

With Labour wedded to dependency, and the Tories to compassionate inactivity, the Liberal Democrats are the only party that can effectively stand up for the poor and the disadvantaged.

Labour has had the right aspirations.

But the wrong policies.

We need policies that marry the compassion of social liberalism with the dynamism of economic liberalism.

We need a Britain that gives more security and opportunity to every citizen, without trapping them in state dependency.

A Britain in which the power of the state is used for liberation, not limitation.

I want to give every person a decent education, not a thirty page form to fill out.

I want the Liberal Democrats to stand up for families let down by the nightmarish complexity and unfairness of the tax credits system.

I want the Liberal Democrats to stand up for children for whom the quality of schooling has stood still, or even declined, under Labour.

And I want the Liberal Democrats to stand up for those who have been failed by Labour’s neglect of affordable housing.

Liberal Democrats should champion the needs of children, so that we can end child poverty.

We should dismantle the barriers that make it difficult for those who seek to go back to work.

All of this will require extra financial resources.

We will meet new commitments through our current review of expenditure priorities, which will switch £15 billion each year from areas of current government expenditure to our priorities.

Underlying all of these welfare reforms must be the principles set out by Beveridge, over 60 years ago.

In his famous 1942 Report, Beveridge argued that:

The state, in organizing security, should not stifle incentive, opportunity, responsibility in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than the minimum for himself and his family.

Beveridge was concerned that welfare policies should not “infantilise” citizens by encouraging dependency.

But the combined effect of Conservative meanness, compounded by Brownite means-testing, has created a system that truly undermines those objectives.

Today, the challenge for Liberals is to put incentive, responsibility and opportunity centre stage.

I want to ensure that every young person has the chance to succeed.

Under the Tories, Britain became the Child Poverty capital of Europe – a national disgrace and an international embarrassment.

Under Labour there has been a reduction in Child Poverty.

But not enough.

Under my leadership, the Liberal Democrats will place the eradication of child poverty at the centre of our priorities.

That is why I can announce today that the Liberal Democrats are committed to the UK goal of ending child poverty by 2020.

But we must do more than that.

Because our ambition is not simply to deliver dependency, but opportunity.

So ending child poverty by 2020 must go alongside tackling the educational failures that, in too many cases, lead to a lack of aspiration and a failure to achieve.

That is why I have two additional ambitions, alongside the commitment to eliminate child poverty by 2020.

Just as we want to get to the lowest levels of child poverty in Europe, I believe that we should aim to improve our children’s basic literacy and numeracy skills, so that they are amongst the highest levels in Europe by 2020.

And we need to help more people who want independence and dignity through employment and not welfare dependency.

So we will set an additional 2020 goal.

We will aim to halve the number of people claiming benefit on grounds of incapacity by 2020 – giving 1.3 million people a better chance.

Currently, we are amongst Europe’s worst performers in this area.

By 2020, I want us to be amongst the best.

Of course, it is not aspirations but policies that are crucial – substance, not symbolism.

Next year, a Liberal Democrat Policy Group led by Liz Barker and by David Laws will report on policies to tackle poverty, social exclusion and inequalities of opportunity.

Today I want to set out some signposts about the types of reforms which we are considering.

Security and Incentives: A Stronger Safety Net.

Let me start with the issue of security and incentives, of strengthening the welfare safety net and giving people opportunities to work and save.

The existing benefits system is a mess.

The original contributory principle has been continually undermined.

If you work all your life, you now get a basic state pension which is over 25% lower than if you had not worked at all.

In many cases 30% or 40% of benefits go unclaimed.

It is no wonder that take-up rates are so low. You need a PhD in economics to understand how tax credits work.

Government incompetence in administrating tax credits means that every year almost 2 million low income earners have been driven further into poverty and debt by being overpaid tax credits.

Today there are over 50 separate benefits.

Each has its own tapers, tests and qualifying criteria.

This has almost doubled since the 1970s.

And it is up from just 7 benefits when the welfare state was founded in the post-war era.

And it is not only that there are so many different benefits – there are around 250 different benefit rates too.

The benefits system itself is complex.

The safety net is not only riddled with holes, but is also set too close to the ground.

For the last quarter of a century, most benefits have been up-rated only by the level of price increases

So people relying on these benefits are getting poorer and poorer in relation to the rest of society.

Jobseekers Allowance has shrunk from almost 25% of average earnings to little more than 10% in 30 years.

Child benefit for second and subsequent children is lower now in real terms than it was in 1988.

And the benefits system includes perverse and undesirable incentives.

Today’s tax credits system penalises people who are married or live together, and gives less help per person to two parent families than to lone parent families.

As a consequence we now have more people claiming tax credits as lone parents than there are lone parents!

It is madness to design a tax and benefits system which penalizes those who wish to live together.

And it undermines the effort to cut child poverty.

So, I am asking our working group to look at three changes in this area.

First, just as we have proposed simplifying taxation, why can’t we make benefits and tax credits simpler, while dramatically reducing the number of benefits?

We will set an objective to cut 50 benefits to 25, again as there were 30 years ago.

On pensions, we will, of course, make no commitment to higher public spending which cannot be clearly met by cuts elsewhere.

But, within these constraints, we should promote the concept of a good, non means tested citizens’ pension.

As a first step we want an immediate link between pensions and earnings.

This will be financed in the long term by the recognition of the need for a later pension age and less extravagant public sector pension commitments.

Pensioners cannot be allowed to fall further and further behind.

We should get rid of pension credit, the state second pension, the ludicrous 25p extra at age 80 – and just pay people a decent state pension, with less means testing and with real incentives to save.

And we should also look at a single Working Age Benefit – merging Jobseekers Allowance and Incapacity Benefit.

Extra help for disabled people should be delivered through a revised DLA, not a benefit linked to employment status.

Without council tax, we can get rid of the bureaucratic nightmare of council tax benefit.

And surely we must simplify tax credits – returning to fixed awards that recognize that what those on low incomes need most is stability and certainty, not the rollercoaster of overpayment and debt.

The second challenge is to provide a stronger safety net for all, without more means-testing.

The strategy of mass means-testing has reached its limits.

And even Gordon Brown has now recognized this on pensions.

Child benefit has fallen significantly behind earnings growth since 1979.

For second and subsequent children it has shrunk by a sixth compared with average earnings in the last 15 years alone

Emphasising what I said earlier about our approach to spending commitments, I believe that the best way forward is through strengthening non-means tested child benefit.

So we should consider raising the amount given to all eligible children to the same amount granted for the first child.

This would move 300,000 children out of poverty, at a cost of £1.7 billion.

And if we are to remove the disincentives for couples to stay together from the tax credits system, we could introduce a couple’s premium into child tax credit – ending the bias against two parent families, whilst cutting child poverty at the same time.

This is not about the state telling people how to live their lives.

But it is about removing the financial penalty that low income parents incur if they choose to stay together.

Third, instead of allowing benefits to wither away in relation to average earnings, we need at least once in every Parliament to hold a review of benefit levels, set against published objectives for poverty reduction.

This must be in the context of public spending discipline and people of working age accepting their responsibilities to seek employment.

My second priority is to make work pay.

Families with no one in work are much more likely to be families with children growing up in poverty.

Work is the best route out of poverty.

This Government often boasts about the numbers of people in work, but the truth is that the employment rate is basically unchanged over the past 30 years.

Indeed, it is now [….] lower for men than it was 30 years ago.

And one of the biggest failures of this Government and its predecessors is that there are still 2.7 million people on incapacity related benefits.

Under Gordon Brown, and his strategy of mass means-testing, over 1.7million people face higher effective tax rates than the rich will ever now pay – 60, 70, 80 or even 90%.

This is absurd.

Tax credits have made it worthwhile for many to work.

But the system now traps people in low income jobs.

Because small to medium increases in their salaries result in a tax credit cut, rather than a real rise in their take home pay.

This acts as ball-and-chain on people’s ambitions.

It deepens the dependency culture and it stifles aspiration.

I believe that we should set an initial target of halving the number of people facing effective tax rates of more than 60% – cutting the present totals by more than eight hundred thousand.

But work incentives are not the only problem.

There are millions of people who want to work but who cannot.

Some have illnesses, and need help to get employment.

Under Mrs. Thatcher’s Government, these people were simply written off.

Under Labour, they have been left in limbo.

Some want to work, but the benefit rules make it impossible.

Some want to work, but they need help with childcare.

Many of these people need specialist help to get back to work, but no such help is on offer.

And with arbitrary cuts in the Department of Work and Pensions staff budgets, that lack of help will remain a serious problem.

What does it say about Brown’s Britain that it is easier to get money from this Government to stay out of work than to get the help needed to get back into it?

Low employment rates among the disabled are a disgrace.

We will set a 2020 goal of reducing those out of work through incapacity by 50% – from the highest levels in Europe to the lowest.

Similarly, we ought to ask whether we should make changes to a benefit system that provides very little incentive or support for lone parents to return to work until their youngest child is 16 years old.

In most other European countries, the age at which parents are expected to look for work is considerably lower.

We should ask whether that might be more appropriate for Britain too.

By asking lone parents to seek employment when their youngest child is 12 years old, we might discourage dependency and reduce child poverty too.

This work could be part-time, and topped up by working tax credit.

Where a lone parent has a disabled child, the caring responsibilities should be taken into account.

And proper childcare must be made available.

Savings made from a reduction in benefit payments could be used to achieve that ambition.

So, there is much to be done to simplify benefits, reduce effective tax rates, and get real help to people such as those on incapacity benefits.

But we must not think of poverty just in terms of the benefits system, or even just in terms of employment income.

Housing costs make up one third of the income of the poorest households.

And these costs have rocketed over the last few years.

The supply of affordable housing has not kept up with the demand for it.

No wonder housing waiting lists have increased by 50% since 1997.

Children cannot thrive in homes which are overcrowded or in temporary accommodation.

The failure to deliver on affordable housing has been a major failure of Labour’s 10 years in power.

Greater priority must be given to investment in affordable housing.

Indeed, all new private development should be conditional on satisfactory social housing provision.

Many low income households experience fuel poverty.

Children and families need their homes to be warm and comfortable – we will make this a priority.

And when it comes to tax, we cannot be satisfied that those on the lowest incomes pay the highest share of their incomes in tax.

Regressive taxes such as council tax need replacing.

The Liberal Democrats have long argued for a fairer system based on ability to pay.

Education has always been a key priority of the Liberal Democrats.

And today we have added to the case for that.

Because good education is essential for ending child poverty.

It is the greatest gift that we can give our children; allowing them to maximise their talents and to make the best of their own chances – whatever the circumstances of their family.

There have been some improvements in our education system under Labour, and our schools benefit from the hard work and professionalism of a dedicated teaching profession.

But some stark realities remain.

Too many children are not getting the right start in their early years.

Too many pupils are leaving primary school without basic skills.

And the worst examples are often to be found in the centre of Labour’s political heartlands.

These schools need to be given dynamic new leadership.

And the best schools need to be given real incentives to take in the poorest and most under-achieving children.

In Brown’s Britain, financial support for the poorest pupils is a fragmented, bureaucratic mess.

We need to create a simple system where cash bonuses follow the most disadvantaged and lowest performing pupils.

A substantial Pupil Premium would make needy children the focus of a school’s attention, rather than the undesirable obligation that they are often seen as today.

The £2bn currently spent on the Child Trust Fund is unproductive and undesirable.

It should be scrapped, and the money used to invest in the early years.

These policies will help us to deliver our 2020 goals.

These are some of the ideas that I want our Party to consider over the year ahead.

I am determined to take the fight for a fairer Britain into the mainstream of British politics, and into the heartlands of the Labour Party.

I am determined to show that defeating poverty and increasing opportunity does not mean creating a state of dependency.

I am determined that Britain should not simply swap the days of calculated neglect under Mrs. Thatcher for years of benign neglect under Mr. Cameron.

I am determined to show that there is an alternative to the Dependency State of Gordon Brown.

I am determined to show that there is a sustainable way to remove the scourge of child poverty that does so much to undermine our social cohesion.

I am determined to show that way is the Liberal way.