Posted Under: Economy,Poverty,Public Sector,Society,Tories
Stephanie Flanders at the BBC has posted a nice accessible explanation of the dispute between the IFS and the Government over whether or not the CSR is fair, for the benefit of those dunces lacking a formal training in economics (like me, for example). In making their calculations, both sides estimate the value of public services to people in monetary terms – as in-kind benefits worth a certain amount of money. For a given household, the value of the public services they receive is added to their actual monetary income to give a net income (NB: whenever it appears in the rest of this post, the phrase ‘net income’ refers to monetary income plus the financial value of in-kind public services.) Rich households stand to lose slightly more per week than poor households, but poor families stand to lose out on far more as a proportion of their net income, so the IFS says the cuts are regressive. (In Flanders’ simplified example, the rich household has a net income – including the in-kind value of public services – of £1100, and stands to lose £10 per week, while the poor family are going to lose £7 out of their weekly net income of £400.) The government disagrees, because public services add far more in-kind value to poor families than rich ones in the first place (returning to the simplified example rich households only get £100-worth of public services each week, as opposed to £200), so the rich are losing out on proportionately far more of their slice of the public sector pie, (e.g. university tuition and child benefit) because their slice was so much smaller to begin with.
Now, put like this the government are clearly talking crap; if you accept that public services provide in-kind benefits which have a monetary value, then it doesn’t make sense to draw a distinction between this and actual financial income when determining if the cuts are affecting society fairly. In any case, if you have a net income of £1000 per week anyway, even losing out on the entirety of your £100-worth of public services probably isn’t going to hurt you as much as losing out on just £7 per week worth of services when your weekly net income’s only £400. As Flanders mentions in her post, if you’re richer you can probably pay to get the same things public services would otherwise provide – the law of diminishing marginal utility may not apply universally, but it holds pretty well here.
But that isn’t what’s interesting about this. That the CSR is regressive isn’t anything remotely close to a surprise. No, the government’s argument is interesting because of the way it contrasts with the typical classical-liberal position in the absolute-versus-relative poverty debate. One of the fundamental political dividing lines between left and right has historically been that those on the right argue that what matters in alleviating poverty is ensuring that the worst-off have an adequate standard of living, regardless of any disparity between those at the bottom and the top of the income scale, while the left maintain that an excessively large rich-poor divide is also undesirable. But with the CSR, the government is arguing that what really matters is the proportion of the value of public services you use which you stand to lose. They could have argued that the cuts were justified because the rich will lose out on public services which are worth more in absolute terms (though Sunder Katwala at Next Left disputes this too), but, as Flanders points out, they didn’t – they tried to claim that it was progressive, that the rich would lose out more proportionately. They didn’t do so very convincingly, but the fact that they tried at all is extremely instructive. There’s a lot of talk on the left about the importance of ‘framing the debate’, of not letting political questions get phrased in ways that favour the right’s narrative. On the issue of income distribution, it seems to be widely accepted – including by the government – that relative poverty matters. They may not actually give a crap about relative poverty, but the government is at least purporting to give a shit about it, and – since they obviously aren’t going to do much to alleviate it – there’s real scope for the left to attack them on this.