Business Irish

Monday 15 July 2019

Brendan Keenan: 'Throwing fivers around won't get us much further in battle against poverty'

As Minister for Finance Ernest Blythe cut the old age pension – recently the culture minister raised the idea of raising it by €5
As Minister for Finance Ernest Blythe cut the old age pension – recently the culture minister raised the idea of raising it by €5
Brendan Keenan

Brendan Keenan

A welcome present in my Christmas stocking was 'Ernest Blythe in Ulster', a new book which reveals that the Easter Rising plotter and finance minister in the new Free State government was also a member of the Orange Order.

If you want to know whether this should be seen as a Good Thing or a Bad Thing, the book is by Trinity College Emeritus Fellow David Fitzpatrick and published by Cork University Press. But at least it is something else to know about Mr Blythe, other than that he cut a shilling off the old age pension.

Centenaries are coming thick and fast and it will not be long until we get to that one in 1923. It may not be commemorated as such, but it will be remembered. Remarkably, it still is. There must be few if any countries where a 100-year-old event adds to retirees' political clout,

Of course a shilling (eight cent) is not what it was. Before search engines, I used to keep the CSO ready reckoner on the value of money in my desk. Every so often, some harassed feature writer would come along and ask what a euro was worth in 1959, or whenever.

I would look it up and tell them - somewhat reluctantly, because I knew it wasn't the best answer. It was only what happened to prices, whereas what matters most is what happened to wages. As for prices since 1923, a shilling would buy €5.20 worth of stuff today. But where the average industrial worker earned a shilling back then, he would earn €12 today. (We'd need a different sum for female earnings, given what has happened to them in the last 100 years).

Economies grow in terms of output, not just prices, and wages grow with it. If they did not, it would mean all the proceeds of growth were going somewhere else. One can argue forever as to whether their share has grown fast enough, but the tricky question of distinguishing between 'nominal' changes due to prices and 'real' is always with us.

It was raised in a somewhat unlikely way by the Culture Minister Josepha Madigan the other week, who mused as to whether it was a good idea to just slap a fiver (hence the significance of a 1923 shilling) on benefits and pensions in the annual budget. I am not sure how seriously we were meant to take this. Even ministers should be allowed to think aloud - although it is usually risky - but the question of relating benefits to earnings is a serious one, with risks of its own.

A flat fiver certainly seems to be the item of choice for recent budgets. Last October's budget added this amount to carers', maternity, occupational injuries and jobseeker's benefits, among others, as well as to pensions. This is either a strange coincidence emerging after careful calculations, or a sign of not much thought being given to such matters at all.

Benefit rates themselves are suspiciously similar, so the flat cash increase does not differ much in terms of percentages. It works out at 2pc on pensions and 2.5pc on illness/jobseeker's benefit. In the strange times we live in, that more than keeps pace with prices, but is a tad below the average increase in earnings.

The politics of having a system fixed either to prices or wages are not attractive. The fiver is routinely roundly dismissed in post-budget phone-ins, on the grounds that it doesn't buy much.

True, but 2.5pc is a perfectly respectable increase in an advanced economy. It is just that it doesn't sound like much, hardly anyone understands percentages, and we Irish in particular are dismissive of anything that is not in double figures.

Linking benefits and pensions to earnings would be a coherent policy and deliver a rational answer to the whingers - to wit that the Government was ensuring that the ill, the old and the unemployed maintained their relative standards of living - not just their actual standard of living while others were seeing theirs increase.

The evidence suggests that governments do, in fact, target earnings when increasing pensions and benefits, but without saying so. That allows them to take a different approach tack when circumstances seem to require it. Not Mr Blythe's approach though: rather the opposite. While wages may track output over the long run, they are highly volatile over the short run in which politicians operate. The periodic bubbles are good for government revenues and state payments tend to beat inflation - although they do not always keep fully up with rampant wage increases.

In bad times, including the very bad ones we have just come through, the government stance is always that the poorest must be protected. In practice this often means welfare payments outpacing wages, not least because there are not many obvious ways of compensating those working on low incomes and limited tax liability.

This problem was exacerbated by the application of USC to workers below the tax threshold. The most striking phenomenon though, was the 8pc decline in real wages from 2008-13 - a fall without parallel in the rest of the EU. No Irish Government would want to be tied to mandatory earnings-related benefit policy in those circumstances, which would outdo Mr Blythe. On the other side, it was the cost of earnings-related benefits when wages are rising rapidly that persuaded Mrs Thatcher to abandon them in the UK.

The British have been wrestling with these issues ever since, and never more so than right now. The introduction of 'universal credit' was meant to provide an adequate minimum income to the poor, without creating financial disincentives to taking a job, as well as not costing any more than the present system.

The result has been a political disaster, for the simple reason that any changes produce winners and losers, but in this area the losers are bound to include some of the poorest and most vulnerable. Start making exceptions, though, and the whole scheme falls apart.

The debacle will add to the belief of Irish politicians and civil servants that muddling through according to how things are going at the time is the best approach. Except that it does not seem to be working all that well either or, if it is, it does not seem to be understood.

Perhaps we should not be surprised by that. The staple diet of the analyst, the CSO's Survey on Income and Living Conditions (SILC) for 2017 has just been published. Only an analyst could be expected to make sense of it. The rest of us must take at face value the claims that poverty is rampant and child poverty a crisis.

This is not the statisticians' fault. So many well-intentioned definitions have been created in the fight against poverty that the subject is a minefield for misunderstandings and deliberate obfuscations.

They include poverty, consistent poverty, and the risk of poverty. All of them having been deemed unsatisfactory measures in one way or another. There is also deprivation; to measure how many people have to do without 11 things it might be thought normal to have.

The most common deprivations, reported by 60pc-80pc of respondents, are an inability to afford to replace worn-out furniture, have a morning, afternoon or evening out in the last fortnight, or have family or friends for a drink or a meal once a month. Oddly, they are top of the list for those in consistent poverty, at risk of poverty and not in poverty at all.

Make of that what you will. Myself, I prefer the simple figures that show the rate of poverty - they are highest among the unemployed, ill and disabled, where almost a quarter are in this condition and lowest, at 1.4pc, among those who were at work or, ahem, retired.

It's employment, stupid.

There is a marked reluctance to consider the implications of the data on type of household. Those with a single adult and children aged under 18 had the highest consistent poverty rate at 21pc.

The rate was lowest, just 2pc, for individuals living in households where there were two adults, at least one of whom was aged 65 or over and where there were no children. Child poverty and poverty generally are closely linked and related to the type of household involved.

Proposed solutions range from the belief that it is just a question of political ideology and all that is needed is a bit less Blytheism, to the seven-point programme of Social Justice Ireland, at least three of which would each represent an economic revolution.

Perhaps that is what it would take, although revolutions are hard to come by. Perhaps more emphasis on education, housing and the growing barriers to low-skill employment would provide a more credible route. Huffing, puffing and throwing fivers around is certainly unlikely to get us much further.

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