You can’t reduce poverty without an adequate welfare state

Labour is right to look to boost wages and housing, but international evidence shows that pre-distribution can never be the whole answer.

No one denies that Rachel Reeves, as Labour’s shadow work and pensions secretary, has one of the toughest gigs in town. Fiscally, it seems a Labour government would cap spending on social security. Politically, at a time when highly punitive policies such as the benefit cap attract broad public support, Labour is sensitive to proposing any reform that could be spun as "soft on scroungers". Getting the politics and the economics right will not be easy.

Reeves’s long-awaited speech on social security yesterday was clearly a product of this highly constrained context. Insisting claimants must improve their basic skills looks sensible if implemented fairly, while the focus on contribution is palatable from both the fiscal and political point of view. Given the boundaries within which she operates, Reeves’s decision not to hive off 18-to-24-year-olds from mainstream social security provision and subject them to especial opprobrium has to be commended.

But what did the speech have to offer those of us who see poverty reduction as one of the key functions of a social security system? It’s great to see the political establishment finally recognise that we expect social security to do too much of the heavy lifting in the UK. High housing costs, low levels of parental employment, low and often sporadic wages all require the state to step in and help more than it has to in other developed economies. Without a doubt, addressing these structural determinants would both decrease poverty and drive down the social security bill in one fell swoop.

But international evidence also shows us that pre-distribution can never be the whole answer. The countries we look to as beacons of success - the Nordics, the Netherlands, Germany – still run poverty rates of over 20 per cent before their governments weigh in with taxes and transfers. Unpalatable though it may be, the truth is you can’t reduce poverty without an adequate social security system. 

So where does this leave Reeves and team? In a difficult place for sure. But is it as simple a choice as talk tough or commit political suicide? A public call to remember why we have – and should prize – our social security system is essential and one politicians have long neglected.  It should also be possible to make a case for building a new consensus around the objective of fairness and, crucially, tell us what response Labour can offer to the poorest families, who have borne the brunt of austerity to date. Hard tasks perhaps, but not impossible and they carry the potential to transform the lives of millions. As the evidence shows, without a sustainable settlement on working-age – and especially family – benefits, child poverty looks set to remain an enduring and shameful feature of the British landscape. 

Children play a game of football in front of a residential development in the London borough of Tower Hamlets. Photograph: Getty Images.

Alison Garnham is chief executive of the Child Poverty Action Group

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How will Theresa May meet her commitment to low-earners?

The Prime Minister will soon need to translate generalities into specifics. 

The curtailed Conservative leadership contest (which would not have finished yet) meant that Theresa May had little chance to define her agenda. But of the statements she has made since becoming prime minister, the most notable remains her commitment to lead a government "driven not by the interests of the privileged few, but by yours." 

When parliament returns on 5 September, and the autumn political season begins, May will need to translate this generality into specifics. The defining opportunity to do so will be the Autumn Statement. Originally intended by George Osborne to be a banal update of economic forecasts, this set-piece more often resembled a second Budget. Following the momentous Brexit vote, it certainly will under Philip Hammond. 

The first priority will be to demonstrate how the government will counter the threat of recession. Osborne's target of a budget surplus by 2020 has wisely been abandoned, granting the new Chancellor the freedom to invest more in infrastructure (though insiders make it clear not to expect a Keynesian splurge).

As well as stimulating growth, Hammond will need to reflect May's commitment to those "just managing" rather than the "privileged few". In her speech upon becoming prime minister, she vowed that "when it comes to taxes, we’ll prioritise not the wealthy, but you". A natural means of doing so would be to reduce VAT, which was increased to a record high of 20 per cent in 2010 and hits low-earners hardest. Others will look for the freeze on benefit increases to be lifted (with inflation forecast to rise to 3 per cent next year). May's team are keenly aware of the regressive effect of loose monetary policy (low interest rates and quantitative easing), which benefits wealthy asset-owners, and vow that those who lose out will be "compensated" elsewhere. 

A notable intervention has come from Andrew Tyrie, the Conservative chair of the Treasury select committee. He has called for the government to revive the publication of distributional analyses following Budgets and Autumn Statements, which was ended by George Osborne last year (having been introduced by the coalition in 2010). 

In a letter to Hammond, Tyrie wrote: "I would be grateful for an assurance that you will reinstate the distributional analysis of the effects of the budget and autumn statement measures on household incomes, recently and mistakenly discontinued by your predecessor." He added: "The new prime minister is committing her government to making Britain a country that works 'not for a privileged few, but for every one of us'. A high level of transparency about the effects of tax and welfare policy on households across the income distribution would seem to be a logical, perhaps essential starting point." 

Whether the government meets this demand will be an early test of how explicit it intends to be in reducing disparities. 

George Eaton is political editor of the New Statesman.