Select Committee on Social Security Minutes of Evidence

Appendix 2


  1.  Two political decisions remain even after reviewing the collected evidence from primary and secondary source triangulation, (a) which tier or level of the income maintenance system (see table 2) should be taken as the benchmark for the MIS; and (b) at what qualitative standard should it be implemented (as the Family Budget Unit have phrased it, "modest but adequate"? Or "low cost but acceptable"?).

  2.  Historically, the UK habit of thought has been to assume that social assistance (Income Support now or its predecessors, Supplementary Benefit or National Assistance) in some way reflects the view of "official poverty". This is a mistake because it confuses a low level cash benefit with the criterion by which to judge it reasonable, adequate or decent. In fact the real direct comparison standard of minimally tolerable level of living (tolerable to Government even if not individuals) has always been the lowest levels of wages, from 1834 New Poor Law "less-eligibility", through the 1935 "normality" comparisons of Unemployment Assistance (see Veit-Wilson 1989), to the present day's concern with employment responsibility and "incentives". A case can therefore be made that the governmental minimum income standard of participatory adequacy should refer to the statutory minimum wage.

  3.  This argument can be supported by evidence from both the UK and USA. When Seebohm Rowntree was Director of Welfare for the UK government's munitions workers in the First World War, he reviewed the basis of official minimum wages thoroughly. In reports published in 1918 and revised and republished in 1937, he asserted forcibly that:

    a clear distinction must be drawn between the principles which should guide us in fixing minimum wages and those which should determine wages above the minimum. The former should be based on the human needs of the workers, the latter on the market value of the services rendered.[21]

  4.  Similarly, in USA the Living Wage Movement (LWM) argues that the discharge of social responsibility in the form of a full week's work must be rewarded by the public obligation of paying wages at or above the official US government "poverty threshold" which is used as a MIS there and which has considerable political credibility. The LWM campaigns for contract compliance with this principle. The principle would be equally applicable in the UK where the Government emphasises the social obligation to work, though so far without the reciprocal political obligation to ensure adequate wages.

  5.  In spite of these principles, the UK minimum wage was not set on the basis of any measure of income needs or adequacy for any kind of household but purely on the basis of negotiation in the Low Pay Commission over what the market would bear.[22] Its current foundations cannot offer a politically credible basis for a MIS in the UK at the present time.

  6.  However, both the Rowntree and the LWM proposals suffer from the disadvantage that pay for work is not intended to reflect the varied needs of the households dependent on it. In the Netherlands the minimum wage rates (the basis of MIS) originally assumed adequacy for "the family wage", that is, a stereotypical family composed of a breadwinner, a carer and a small number of dependent children. In the UK in 1945 the Beveridge scheme assumed the adequacy of minimum wages for one child with Family Allowances starting with the second dependent child. Even if we ignore the gendered assumption of a male breadwinner and a female carer, the fact remains that—unless government is to make special allowances to cover the total costs of caring and of children—it is generally assumed that minimum earnings for social participation plus child benefits ought at least to support a carer and some dependent children as well as the main earner, without the family having to apply for augmentation in the forms of means-tested benefits or tax credits which imply the inadequacy of the basic earnings and carry the risk of stigma and low uptake.

  7.  Indeed, to put the case more strongly, the UK governments' readiness to augment low earnings with, for example, FIS in the past or the Working Families' Tax Credit today, implies the inadequacy of those earnings on their own in terms of some implicit standard to which past and present governments must be referring. If this standard was evidence-based, that should be revealed. If not, what is the source of and justification for this standard?

  8.  Some of the current issues affecting possible choices of the tiers of the income maintenance system (see table 2) include the following:

    —  Minimum Wage rates? Even if this is aggregated for a full week—how many hours? What size of household is to be maintained by the minimum wage? Should it meet the minimal adequacy needs of a stereotypical household of two adults and two dependent children without having to be supplemented by means-tested benefits? Naturally variable household needs and dependencies may demand extra incomes, but these should then be designed for the whole population's needs and not just those of "the poor", since benefits for the poor do not dispel but reinforce the social exclusion the government aims to combat.

    —  Tax thresholds? The 1971 Steering Group for Family Poverty Review, chaired by HM Treasury, recommended that the tax threshold should not be set below Supplementary Benefit levels, thus implicity reiterating the 18th century British principle that direct taxes should not be levied on inadequate incomes. OECD reported in 1986 the Nordic principle that every citizen should have the obligation to pay direct income tax and the expectation that they will have enough left after doing so to meet these same decency needs.[23] This contradicts the current UK government assumption that low incomes should be topped up by income related tax credits or means-tested benefits, both of which reinforce the image of inadequacy and receipt (social exclusion) instead of adequacy and contribution which are marks of social inclusion. It is relevant that in Sweden and Germany the tax threshold is related to the MIS.

    —  Long-term social security such as NI pensions? Politically, how could the Government's Guaranteed Minimum Pension be allowed to fall below what the evidence shows is the minimum "decency" level? The minimum pension is used as the MIS in Norway and Finland.

    —  Income Support? In some countries short term social assistance rates are less than long term benefits because it is assumed that "occasional or lumpy" expenditures will not be needed or will be met by exceptional needs payments. However, UK experience suggests that even for short periods debt repayments and saving for future needs must be covered in an adequate social assistance scheme, since the current level of benefits is demonstrably so inadequate that the Social Fund may withhold loans for lumpy purchases because claimants do not have the disposable resources to repay them. The means-tested Income Support or Job-Seekers' Allowance schemes would not be adequate as the basis of a UK MIS.

  9.  Similar questions have been faced and answered by other countries, in America and Europe. Their experience is not the issue here so much as the fact that these are not unprecedented questions. Which level to take in the UK must therefore be a matter for further political debate.

Table 2: Tiers of income maintenance affected by MIS

The scientific side: poverty lines, etc. The political side: MIS and income maintenance provisions
"Modest but adequate" budget standards Minimum wages (plus variable dependency allowances such as child benefits) to ensure that a full week's work produces an adequate income for individuals and families
  Tax thresholds below minimum wages to ensure that everyone pays income taxes, but above the poverty boundary to ensure that everyone has an adequate income left after paying relevant taxes on their incomes.
The dotted line above reflects the income level (top level of the income band) needed to meet the minimally adequate level of living, other things being equal. The two "poverty lines" below are based on mixtures of empirical evidence of the minimally adequate level of living, with calculations in terms of budget methods. The governmental MIS used as a criterion of minimal adequacy ought not to fall below this level, though it could be above it.

The long-term (fully capital-replacing)
poverty line
Long-term social security benefits
The level of means-tested social assistance benefits will depend on national beliefs and assumptions about the significance of keeping contributory benefit levels above means-tested benefits in order to preserve the incentive to make contributions and gain higher benefits by doing so.
The short-term (running costs only: no
capital replacements) poverty line
Short-term and temporary social security benefits
The dotted line above reflects the lower level of the band of income correlating with deprivations. Below this, there is a high and increasing correlation. No form of income maintenance should fall below this line. If it does, a government is not paying benefits "enough to live on at all times", but only a contribution towards such a minimal level. In that case, it has an obligation (enjoined by the concept of social justice) to ensure that all citizens have their incomes made up to the minimal level from other guaranteed sources, including forms of the social wage.   

21   The Human Needs of Labour, 1918 p 15; p 121; 1937 p 15; p 111. Back

22   DTI (1998), First Report of the Low Pay Commission, Chapter 6. Back

23   For sources see Veit-Wilson 1999b pp 225-6 and 233. Back

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Prepared 27 February 2001