Monday, 25 August 2008

Tackling poverty, part two

My first suggestion for tackling poverty was to increase the income tax threshold to such a level that no one has to pay until they are not just above the poverty level but substantially above the poverty level. The minimum wage means that all those in full-time employment are necessarily above that level and those who work part-time only need to work about 21 hours a week to be avoid poverty. Today I want to look at the position of the unemployed. What can government do to ensure they are not in poverty? Again I use the definition of financial poverty I gave a few days ago - being unable to pay for housing, heating, water, food and clothes.

There are, of course, some people who are unemployed but not in any financial difficulty because they have savings, but for most this is not the case. Government's role, in my opinion, is two-fold. First a subsistence level of benefits should be paid to ensure they do not starve. Benefit activists moan constantly about the amount paid being too low to allow people to live but I have seen no evidence of anyone starving to death because they have not been paid enough to buy food. They might not be able to buy flat screen televisions, computers, Axminster carpets, foreign holidays and cars but it is not the job of government to take tax from people who struggle to buy such luxuries from their wages in order to allow those not working to receive them.

Government's second role is to interfere in the world of business as little as possible. Whether business can employ everyone in the country is a moot point, what is plain fact is that increasing the administrative costs of the productive sector reduces the number of people that sector employs. Whether it be a requirement to undertake equality audits, an obligation to pay for lengthy maternity and paternity leave, the need to comply with petty health and safety regulations or any of the other hundreds of things business has to do to dance to government's political tune, it all costs money. Increases in the costs of any business must result in (i) reduced profits, (ii) other costs being reduced or (iii) increased prices. They cannot have any other effect because money does not grow on trees and businesses cannot magically create money to pay for overheads imposed by government. In all but the most exceptional circumstances, reduced profits result in a business being less attractive to investors thereby putting at risk expansion and, in many cases, making refinancing of existing debts more expensive. Similarly, increasing prices is something a business will seek to avoid because of the obvious risk to sales. That leaves cutting other costs as the first port of call and shedding non-essential staff is often the only sensible choice to make.

Those who suffer most when businesses have to cut staff to pay for bureaucratic overheads are those whose work can most easily be done by others or dispensed with altogether. That tends to be those of fewest skills, the very people who find it most difficult to find work and who, therefore, are most likely to have no cushion of savings to prevent them falling into poverty. It is no answer for government to say they will pay subsistence benefits, there is no benefit in benefits, those people want to work for a living and would be able to if it were not for government piling unnecessary costs onto business.

Regulation makes it more difficult for the unemployed to find work. My second suggestion for tackling poverty is, therefore, for government interference in business through regulation to be reduced to only that which is essential to protect against the greatest dangers. Most health and safety regulations are completely unnecessary because the risk they seek to eliminate is minimal and the cost of implementing them is vastly disproportionate. Equality and diversity targets serve no purpose at all - any employer who rejects the best candidates on the ground of race, sex, sexual proclivity or age ends up with an inferior workforce and should be left to stew in his own narrow-minded juice. In fact I am unable to think of any red tape which is of net benefit to business. It might result in some nice lists of statistics for government to manipulate as it chooses but it achieves nothing other than to increase costs and put at risk the jobs of the lowest paid.

It was not very long ago that vast numbers of wholly unskilled people were employed in small businesses even though they served little useful purpose, it happened because throughout the country there are small businesses based in villages and small towns and those businesses wanted to be seen to be part of the community. If there was a young person fresh out of school or an older person who had lost his job it was a common occurrence to find a broom and a brown overcoat being made available for them so they could be employed at a low wage to sweep the floors and empty the bins. All it took was a quiet word with a sensible owner who knew it was better to create a job and bear the modest additional cost rather than refuse, it kept the existing workforce happy because they wanted to see poor Johnny in work and it cemented relations with the village. Be in no doubt, that happens still, but not as much as it used to. Margins are trimmed by expensive red tape and the obligation to pay Johnny the statutory minimum wage makes him too expensive for many.

I have attempted to explain why I believe unnecessary regulation hits the unskilled in two ways, they are often the first to be laid-off to cut costs and many of those who would be hired voluntarily become too expensive. The real problem is that these effects do not stand alone, there are already plenty of unskilled people without jobs. Any step taken by government which increases their number makes it all the more difficult for a single one of them to find work and raise themselves above the poverty line by their own efforts.

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