Sunday, 24 August 2008

Financial poverty, a definition

It makes me cringe to hear poverty defined by reference to a given percentage of average national income because there is no principle to it. The average and percentage used are just random choices and can be selected to suit political preconceptions. If we are to find a principle by which to define poverty we have to ask what poverty means in practice and extrapolate a principle from that. Logically there is a prior step, which is to decide whether we mean relative or absolute poverty and I have no doubt that we can only ever talk of relative poverty because it would be to abuse language to define someone with a weekly income of £50 in Britain as not being in poverty simply because such an income would provide very nicely for all their needs if they lived in a mud hut in deepest Africa.

So, what is involved in being in poverty? I suggest that it means being unable to pay for the essentials of life: housing, heating, water, food and clothes. Housing is the most complex of these needs because it is not enough to have four walls and a roof, you also need furniture, cooking and eating equipment and all the other bare essentials which make it possible to keep yourself alive. Generally speaking heating, water, food and clothes do not vary enormously in price throughout the country but housing costs do and being able to share some of the costs of living with others also affects the amount required for someone to be able to maintain a basic life.

One can find all sorts of measures for these costs and I want to take some general figures for the purposes of this essay. Rather than relying on massaged statistics produced by government or academics I thought I would find out for myself by asking people I know who do not have a lot of money; I asked two of the chaps who deliver pizzas for a local shop, one of them lives by himself and the other lives with his girlfriend, they are both in their early twenties and have no family or property in the UK.

Taking the single man first, he pays £55 a week to rent a small room in a local house, water and electricity are included but heating is by a metered gas fire costing him about £10 a week for about six months of the year. He has some meals provided free of charge by the pizza company and spends about £25 a week on food, Leaving aside special items, his clothing comes from low-priced chain stores and costs him about £200 a year. His annual expenditure just to keep himself housed and alive is around £4,600.

The man who lives with his girlfriend also rents a room and for this he pays £110 a week including heating, lighting and water. He and his girlfriend spend about £40 a week on food, his clothing costs are the same as the single man and his girlfriend's clothing costs about £450 a year. Their combined expenditure to stay alive is just under £8,500.

Renting basic accommodation like this in many other parts of the country would cost a lot less, they both live close to their work in Islington, North London, which is an expensive area. There is nothing scientific about these figures, they are just a snapshot, but they suggest that something like £6,000 for a single person and £10,000 for a couple is a subsistence level of income in modern Britain. This will allow a meagre social life to be financed together with a television and telephone. To my mind, these are appropriate figures to take as the poverty line. By coincidence income tax bites on earnings just above £6,000 for the current tax year. It goes without saying that children will increase the subsistence costs of a couple and that we have to add on something to get a figure that matches their circumstances.

Those earning a little more than these figures are not, on the hypothesis I am advancing, in poverty although they are certainly on low incomes. I believe "poverty" should be reserved for those whose income is not sufficient to allow them to pay for housing, heating, water, food and clothing. In other words it should be measured by subsistence costs not by the random application of a mathematical formula.

Once we see poverty in these terms we can distinguish clearly between those in poverty and those who are merely poor. As costs of subsistence rise so the poverty line figure rises and some who were previously poor and taken into poverty. Recent steep rises in electricity and gas prices will almost certainly require landlords to charge a higher rent to lodgers and the enormous rise in food prices over the last year have also increased the poverty threshold. The rough figures I have given might be £500 or £1,000 short of the mark in a few months time.

The importance of defining poverty by subsistence costs is that it gives a fixed point of reference which does not do damage to language (after all, defining poverty as not being able to afford a subscription to Sky and a flat screen television would be absurd). "Poverty" is a strong and highly emotive word, it describes an extreme situation and to use it for anything else is to undermine the seriousness of that situation. Someone who cannot afford to live the most basic existence is in a terrible position and deserves to have their plight recognised for what it is. By setting the bar too low you risk undermining the seriousness of the situation faced by those below subsistence income.

The measure used in this country by government and by so-called anti-poverty campaigners is 60% of median national income. I believe median income to be around £23,000 at the moment, so 60% is just under £14,000. For a couple with two children living in central London that is probably not far off subsistence but for those in areas of the country where housing rents can be £300 or £400 a month lower than for a similar modest property in London it is absurd to say they are in poverty because they have several thousand pounds more spending power than the Londoners. And why take 60%, why not 50%? After all £50% has been the conventional figure in many countries for decades. The truth is that £14,000 is no more an accurate poverty line than £13,000 or £15,000 or even £10,000. These are just random figures which might or might not represent the difference between the poor and those in poverty in each village, town and city.

I believe it to be important to define poverty accurately because different policy considerations come into play depending on whether the subjects of them are in poverty or merely poor. To raise people from below to above the subsistence line is far more important than to lift those already above the line a little bit further above the line. Over the next few days (or weeks if I get distracted or run out of ideas) I want to talk about some of the policy issues which affect the poor and those in poverty and I will do so against the definition I have sought to explain today.

1 comment:

Anonymous said...

Out in West Auckland, New Zealand, a group is about to form under a 'call to Action' and have named the theme 'Financial Poverty'. Being excluded as not able to fit within the time frame of a fortnightly meeting, between hours of 10.30. and 12.30, I decided that I would input my thoughts via local library email.This required me to have to articulate my thoughts. I DO live in 'financial poverty' with no means of independent income,renting, beneficiary with $44 over after rent, landline,cheap power,lawnmowing. Note this to cover groceries, doctors visits, bus fares. I learned to grow a vege garden. Your blog gives food for thought (sic). to define financial poverty one needs to look at the term 'wealth' and the ability to create it. 'Wealth' could be a sustainable vegetable garden that feeds a household, and an over abundance of the produce can be used for economic credit. Therefore, financial poverty is the inability to create a sustainable surplus which has the potential to evolve into financial credit.