Poverty is a trap

Human beings are not simple. The behaviour of individuals is subtle and relies on many factors. In the broadest strokes of public policy, this can be forgotten.

One example is the revolution in UK social security that began in 2010. The stated intention of Welfare Reform – and Universal Credit, the result of that reform – was to make work pay.

According to the Department for Work and Pensions (DWP), Universal Credit “is designed to remove barriers to temporary, flexible and part-time work, while also ensuring claimants are not worse off in work. UC encourages a wider range of employment seeking behaviours to diversify the types of roles considered by claimants.”

It also provides people with less money. This is positioned as another incentive to work (it was also simple purse tightening by an austerity government).

There are many counterarguments to a reduction in social security. Central to these is that benefits payments are already low, many people and families live in poverty, and even small increases in their incomes can make a huge difference - including to people’s health. This is all true, and all truly important.

Another counterargument is that Universal Credit fails in its stated intentions. According to some research, its efforts to incentivise work are flawed. Similar findings elsewhere show how the system can drive people further into poverty, creating more barriers to employment and driving them into a survivalist, day-to-day existence.

DWP generally rejects any suggestion that Universal Credit does not help people into work and has produced further reports (themselves called into question) that supports its own position.

The argument about Welfare Reform remains live. Perhaps it will never really stop. There are always some people suggesting social security should be lower, and others saying it should be higher.

It is important for anyone interested in this area of policy to be able to spot the overreaches, the oversimplifications, and the flatly bad arguments that routinely appear in this debate.

To do this, it helps to have an understanding about what makes people tick – and also realise that this understanding might always be more shallow than we would wish.

New Leaf Project

The New Leaf Project was an Canadian initiative by Foundations for Social Change that aimed to help people “move beyond homelessness”.

It was also a piece of research that touched on incentivisation – and empowerment.

Researchers gave a one-time lump sum of 7,500 Canadian dollars (around £4,400) to 50 people who recently became homeless in the Vancouver area.

They then followed their lives over the subsequent 18 months, and compared what happened with a  control group of homeless people who received to lump sum.

According to a certain logic, sleeping on the streets must be a gigantic incentive to find a job and a home, while giving rough sleepers bags of cash will take the edge off their drive to improve their personal circumstances.

Here in the real world, the target group (who received the lump sum) moved into and maintained greater food security than the control group. Over the following year or so, they spent more money on clothing, food and rent – and saw a 39% reduction in the amount spent on drugs, alcohol and cigarettes.

The target group also spent their money over time, not immediately, and had an average of £600 of their starter money left over at the end of the research period.

Other findings include:

• For the cash group, days homeless dropped from 77% to 49% in the first month
• For the non-cash group, days homeless increased from 64% to 78%
• The cash group spent 4,396 fewer nights homeless over 12 months
• On average, cash recipients moved into stable housing in 3 months (96 days) while participants who did not receive the transfer, moved into stable housing after an average of 5 months (144 days)

Welfare Reform

It turns out that helping people can, in fact, help.

Does the New Leaf Project itself make the case for higher social security here in the UK? No, of course not. However, while the circumstances of homeless people are not a clean analogy for social security, this scheme provides insight into the way human beings are. The reasons why it (and similar projects) can succeed shine a light on some of the weaknesses in the arguments in favour of lower (and ever lower) benefits payments.

Incentivisation is important, but it does not dictate all human behaviour. We also respond to empowerment, and to hope, and to reaffirmation of the social contract.

Furthermore, one observation that can be drawn from both sets of circumstances – New Leaf, and Universal Credit – is that being poor is expensive.

It is unsurprising that getting off the streets is made easier with some start-up money. However, even less extreme forms of poverty can be like trying to climb out of a pit with sheer and slippery walls.

Private rent is more expensive than a mortgage. Paying for goods and services in installments is usually more expensive than a one-off. Cheapness and value are not the same thing.

Terry Pratchett, the renowned fantasy author, addressed this when he cam up with what he (via one of his characters, Captain Samuel Vimes) called the Boots Theory of Socioeconomic Unfairness: “The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

“Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

“But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.”

Poverty is hard

Poverty truly is a trap. Suffering is not some magic burden that leads people to financial success.

Which brings us back to Universal Credit.

In UK terms, the current specific UK battleground concerns the temporary £20 uplift in Universal Credit payments. Chancellor Rishi Sunak wants them to end as soon as possible. However, there is a fair chance this uplift will be extended beyond September because of the likely financial reality of the UK in a post-pandemic, post-Brexit new world.

In Northern Ireland, if there is any battleground it is between Stormont and Westminster. Universal Credit here is made a little softer due to unique local mitigations. Communities Minister Deidre Hargey supports the extension of these mitigations, with backing from across the local political spectrum.

Beyond that, Stormont’s hands are largely tied. The baseline for social security is set in the commons. Local advocacy groups such as Advice NI and Housing Rights (and, indeed, NICVA) have all been clamouring for a more sympathetic approach to benefits.

Based on the evidence from a decade of Universal Credit, these requests are also grounded in evidence and in realism. As we emerge from the pandemic, this issue will only grow in importance.

Making work pay is a fine aim. So is reducing poverty. If policy wants to do either, it needs to better understand what people are really like.