How Poorer Citizens Pay the Price of Economic Change in the UK

By Stewart Lansley,Visiting Fellow, School of Policy Studies, University of Bristol., University of Bristol. Originally published at The Conversation

Despite the early claims of British prime minister Boris Johnson’s much vaunted plan to cap personal adult social care costs, his government’s new plan – designed to save the Treasury £900 million year – will see only those people with more expensive homes gain. The poorer pensioner still risks losing their home.

In response to this plan, Welsh economist Andrew Dilnot, who first came up with the idea of a cap on social care costs, has expressed dissapointment at the changes. Unlike those with higher asset levels, he explained, “the less well-off will not gain any benefit from the cap”. Critics have also pointed out that it clashes with the government’s aim of levelling up the north-south wealth divide in England.

There is nothing especially new about those on low incomes bearing the heaviest cost of social and economic change. As my research shows, Britain’s poor have long borne the brunt of most of the industrial and economic shocks the country has endured. From the speeding up of deindustrialisation and globalisation that began in the early 1980s to the 2008 financial crisis and the decade of austerity that followed, Britain’s economic system has operated with a built-in inequality bias.

Historical precedents

Britain’s great private wealth boom in the 19th century came largely at the expense of the livelihoods and opportunities of the poorest and most vulnerable sections of the labour force. A small group of landowners, merchants and financiers used their political and economic power to seize most of the gains from industrialisation.

On the death of Queen Victoria in 1901, as French economist Thomas Piketty shows in Capital in the Twenty-First Century, the top 1% of Britons owned about 70% of all land, property and financial assets. The vast majority owned nothing.

Help for the destitute, through the 1834 Poor Law Act, came with state coercion and the harshest of conditions.

The Victorian economy was a kind of extractive capitalism, in that a small elite of capital owners was able to use their collective monopoly power to secure a disproportionate slice of the economic cake. The business practices they implemented – from creating near-monopolies to obstructing competition and using their combined power to prevent state regulation – effectively lowered wages and hit the working conditions of the labour force, thereby weakening communities in the process. This pattern has been repeated throughout most of the 20th century.

The Great Crash of 1929 and the state deflation that followed – including a 10% cut in already low unemployment benefits – wrought years of havoc across industrial Britain. In 1936, Joseph Rowntree’s study of poverty showed that nearly a third of the population were unable to afford even the most minimal of subsistence standards.

Help for the unemployed involved the means test, which became one of the most hated institutions in Britain. People regularly protested the intrusive and harsh way it was administered. In 1932, about one million people signed a petition against it.

In the 1980s, state-imposed austerity and rapid industrialisation brought the return of mass joblessness and a doubling in the rate of poverty. Many older skilled workers were exiled into workless lives and a descent into permanent poverty. In 1986, the number of people unemployed for over a year stood at 1.3 million.

Likewise, the post-2010 austerity package cut almost £40 billion from the government’s working-age benefit budget. And in an apparent revival of poor-law thinking, sanctions against claimants were greatly tightened.

Partly as a result, between 2010 and 2020, the number of children in poverty rose by 700,000 to 4.3 million. In the mid-2010s, meanwhile, more than 5 million sanctions were imposed on benefit claimants – two-thirds of whom were left without an income.

Built-in inequality

Few governments have attempted to tackle Britain’s pro-inequality bias. Britain’s tax system is regressive: it takes a bigger slice of low than of high incomes.

The Bank of England’s programme of quantitative easing (“printing” money), which began after the 2008 crash, was aimed at raising liquidity. In the event, the previously untried policy, with its injection of close to £900 billion into the economy, has had a limited effect on the economy. It has, however, boosted property prices and share values, thus benefiting the already wealthy.

There has been only one short-lived exception to Britain’s long high-inequality, high-poverty history. When the Labour party came to power after the second world war, in July 1945, prime minister Clement Attlee’s government ushered in an era of social democracy. All sections of British society shared in the economic and social progress achieved by social reform and a softer model of capitalism.

It didn’t last. Even though the 1970s saw poverty rates fall to an all-time low and Britain achieve peak equality, a group of new right thinkers successfully challenged the egalitarian philosophy that had driven the post-war reforms, leading to the return to past levels of inequality.

Throughout modern British history, subsequent governments have justified this unequal impact of change, as new research shows, by doubtful doctrines. In the 19th century, the ruling plutocracy defended economic turmoil as the price of progress, while leading thinkers dismissed mass poverty as self-inflicted.

In the 1980s, the surge in inequality was similarly defended as necessary to build a more entrepreneurial society, or as Mrs Thatcher told the BBC in 1980, “let the children grow tall”. And from 2010, despite the reiterated claim that “we are all in this together”, it was the poorest who paid the highest price of rolling austerity.

The pandemic has created a golden opportunity to start building a better society. The prolonged debate about how to provide a fairer system of elderly care could also have produced a much more progressive outcome. Yet both are opportunities that, to date, seem to have been largely missed.

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  1. James E Keenan

    I am unfamiliar with current details of the British social welfare system. So I don’t know what personal adult social care costs are or what the proposals for a cap on them would mean. Can any of our U.K. readers clarify?

    1. Roop Dogg

      The social care costs are what you pay when you get too old/ill to be able to look after yourself e.g. care home/nursing monthly bills. They are pretty expensive here. My (French) colleague just moved her elderly mother to Lille rather than try to afford them.

      In the UK, the one compensation for the ludicrously inflated bubble of the heavily financialised housing market, is that, just before you die, you might be able to enjoy the equity which accrued as your house increased in value, or at least pass it on to your family. To watch that patiently incubated nest egg disappear into the hands of rapacious care home companies over 2-3 years of ill health is a common story… and should be a clue to Brits that the housing situation here is seriously messed up. But instead we hang on government promises that the outrageous costs will be ‘capped’ at, e.g. a mere £35,000 a year. So the government would then see that their care home cronies would be paid anything above that figure.

      (Many adults can’t look after their own ageing parents as they are enslaved by their own mortgage lenders and may not even be able to afford to live in the same area as their parents anymore, if it’s been gentrified.)

      1. Janie

        Annual cap is less than $50,000 US. I don’t think anything halfway safe or sanitary is available for less than 6 to 8,000 a month in the US, particularly if any kind of disability or dementia is involved. That’s where I live when I was investigating care for a family member

        1. Yves Smith

          Cheapest dementia care seems to be in Oklahoma, $4500 a month, for a semi private room. That’s an average but as of 2018! Arkansas, Kanas and Louisiana also below $6K. Everywhere else more expensive, including in Alabama at $6100.

          1. Roop Dogg

            Comparable prices in UK – one my gran was in for a bit was around £4000 for dementia level nursing care. Just to be clear the cap has not been introduced – just gets talked about and various numbers bandied about.

          2. w d w

            hm, my mother in law was paying about 3500-4000 in Texas a few years ago, around Austin.
            course she had LTC to pay for it (she had been in assisted/dementia care for over a decade
            one note: if any one you know needs that type of care, some one needs to be actively monitoring it. no worse than once a week

  2. Jesper

    A quote from the government analysis:

    Take the example of a person at the end of a 10-year residential care journey, who started
    with wealth of £220,000 – DHSC’s estimate of median wealth of over 65s in England

    The wealth might be coming from a couple of sources:
    -saving in a bank, then the ones who did so were not helped by QE. There is an argument that they might even have been worse off due to QE
    -investments in the stock-market, there is a strong argument that QE helped them
    -home-equity increase, due to increased property prices and low interest rates, there is a strong argument that QE helped with that

    This quote about QE from the original piece:

    It has, however, boosted property prices and share values, thus benefiting the already wealthy.

    is therefore an interesting quote. Possibly I took it out of context, I don’t think so but maybe.

    But anyway, the proposal is likely to help the worst off which is likely to be the ones who rented and did not (probably could not afford to) take advantage of the tax-treatment of private pension-schemes. And yes, the ones like to be helping the worst off are going to be the well off.
    I suppose it is a matter of opinion if someone has £220,000 and a pension is actually well off, my opinion is that such a person is well off.
    So for me this looks to be a post about how the well off believe the people who are even better off should pay for the poor and since there is always (except for one) someone better off the well off oppose any and all such proposals.

    1. R

      But they are not well off. A modest primary residence is shelter!

      A system which forces divestment of a primary residence from working class families denies them any chance of intergenerational advancement, given private ownership and market pricing of housing. If you provide social housing and/or price controls, you can more reasonably expect the working class to (i) have liquid savings and (ii) need them less because they have security of tenure. Without controls on housing, the need to provide security for your family (and help your children save, to accumulate enough money to make the middle class, by giving them headstart on housing so they can cover more than food and rent) will drive you to buy a house if you can.

      In a stroke of evil genius, this will be taken away when you need care. Only the indigent (nothing to lose) and the very rich (nothing they cannot afford) will receive care without being dispossessed by the UK system, now or reformed. There is no risk to the plutocrats of a secure middle class emerging if it can be trodden down each generation by care costs.

      Plus, social care is an actuarial lottery. On my advice, my grandmother bought an impaired life annuity for £50k that paid £18k p.a. and lived ten years with dementia! The provider subsequently quit the market. :-) others will gave gambled similarly and lost. The government should pool the risk and pick up the cost, with a modest first loss payable only by the wealthy if there has to be a token sacrifice to the gods of means testing. Anything else is profoundly regressive in terms of wealth and health distribution….

  3. LowellHighlander

    I remember seeing, back in the mid 1990s when I was in graduate school, a chart showing the Gini Index for perhaps the 20 countries in the world with the largest GDPs. So, I just checked the data on the WorldBank’s website for the Gini Index. Unless I incorrectly sorted the data in the spreadsheet (I had the spreadsheet sort in Descending order, by the Gini Index), I found the 5 of the top 15 countries with the highest Gini Index (i.e. the worst inequality) were either the mother country, the UK, or its former colonies.

    Although I am fond of the Celtic fringes for other reasons, I think independence is necessary for Wales and Scotland to have any possibility of breaking free from the kind of economics that the English ruling class has been imposing on all of Britain. Not to say that this strategy would be foolproof; I wouldn’t proffer Eire as a shining example of this strategy. I’m only saying that, in light of what I’ve seen over the years with regard to the political history and culture of Cymru and Scotia, those nations would be much more likely to build Scandinavian-like economies than England’s ruling “elite” would ever allow.

    1. LowellHighlander

      I forgot to state that I performed an analysis on the World Bank’s data (with regard to the Gini Index) only for largest, or what I perceive as the largest, 35 “high income” countries.

    2. w d w

      i am wondering if there is something in the UK that causes this to be worse than elsewhere? cause UK and related countries seem to be worse off.

  4. Sound of the Suburbs

    Mariner Eccles, FED chair 1934 – 48, observed what the capital accumulation of neoclassical economics did to the US economy in the 1920s.
    “a giant suction pump had by 1929 to 1930 drawn into a few hands an increasing proportion of currently produced wealth. This served then as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products which would justify reinvestment of the capital accumulation in new plants. In consequence as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When the credit ran out, the game stopped”
    A few people have all the money and everyone else gets by on debt.

    This is why Keynes added redistribution to the system, and this created a strong healthy middle class in the US.
    Maggie/Reagan removed the redistribution and inequality soared as things returned to the old normal of neoclassical economics.

    You do something to make the system better.
    Then you remove it again.
    What happens?
    The account of the UK before WW2 is what we are heading back to

    If you wrap the old economics in a new ideology, neoliberalism, no one will realise what has actually happened.
    Apart from me of course.

    1. Sound of the Suburbs

      People of my low social status were never told what neoliberalism was.
      This probably makes it easier.

      1. Susan the other

        Monetary oppression is a mythological incarnation. Because it actually exists even though it is pure nonsense. How do the rich live? Lavishly and politically. But there’s no way they can create a good society with adequate sustainable demand by extracting their own obscene wealth from it. It could take a century, but it all falls apart. The puzzling thing is that it starts all over again. Makes me wonder if we will evolve to be capable of governing that instinct for money and power. If I were designing a form of government to last the test of time I would address this very thing. It’s so much like a force of nature it’s hard to understand. But if we simply prevented the accumulation of wealth over a modest limit and at the same time assured that no one fell below a decent lifestyle and everyone had a job, etc. and then made government the responsible decision-making body it should be, we would at least get rid of the big wobble, which is extreme wealth and power.

        1. Sound of the Suburbs

          “Why Nations Fail” is a good book on how those at the top don’t like progress.

          Even in the poorest countries, those at the top are quite happy with the way thing are. You will find they still live in luxury and leisure and everything is working fine for them.
          Progress is always a struggle between those below and those at the top.
          The Magna Carta represented the triumph of those below, the Barons, over those at the top, the Absolute Monarch, who was quite happy with the way things were. Royalty spent centuries trying to get back the power they had lost with the Magna Carta.
          Progress involves wealth and power becoming less concentrated.
          Those at the top like progress in the reverse direction back to when wealth and power were more concentrated.

          The Keynesian era was progress in the forwards direction.
          As soon as it started, they began to plot to undo the changes; the Mont Pelerin Society has been busy since 1947.
          When Keynesian economics got into trouble in the 1970s, they were ready and waiting with something new.
          Well, the wrapper was new, neoliberalism, and that was good enough. No one noticed the 1920s neoclassical economics lurking underneath.
          They are now making very good progress in the reverse direction.
          This is the normal course of progress, its bidirectional.

  5. Kouros

    ” The persistence of extreme inequality will depend, primarily, on the effectiveness of the apparatus of justification” Thomas Picketty

  6. Hayek's Heelbiter

    I live in Brixton.
    England remains a feudal society albeit with electricity and skyscrapers.
    England remains a feudal society albeit with electricity and skyscrapers.
    Since the greatest land grab in history, even the genetic map of the UK has not changed in 800 years. And why should it? The essentially Norman nobility still own and rule the place and have little contact with commoners and little reason to do so.
    Ps. Anyone who believes that the benefits system here actually benefits the less well off should realize that most of the money people receive in benefits is siphoned upward to, guess who, landlords! Yes, it is indeed a welfare state. For rentiers.

  7. Sound of the Suburbs

    Levelling up.
    How did we create the problem in the first place?

    We need to specialise in something for globalisation.
    Let’s specialise in finance.

    That’s nearly all based in London, what about the rest of the country?
    We will worry about that later.

    Anyone that was anyone moved to London to enjoy the prosperity flowing out of the City.
    London’s liberals were not ideally placed to see what the problems were in the rest of the country.
    “What on earth are they complaining about, everything looks fine to us” London’s liberals.
    Brexit came as a bit of a shock.

    London’s liberals needed to go on fact finding missions to find out what the hell was going on out there.
    These were quite amusing if you are that way inclined, which I am.

    Anyway, they were talking to people in a Northern Town.
    Things had been bad after we let manufacturing shut down in the rest of the country to concentrate on finance in London, but things had improved under New Labour.
    They redistributed the money generated in the City, and used it to fund public sector jobs elsewhere.
    Things were looking up at last.

    The Conservatives engaged in austerity, and cut public spending, and things went downhill again in this Northern Town.
    They wanted change, and the only opportunity to be offered was Brexit.

  8. Sausage Factory

    This is a good piece. The statistics are scathingly frightening, the scale of duplicity abhorrent. It’s the kind of thing you used to read in the Guardian, illustrating to the plebs why they are still the plebs. Sadly The G is just another neoliberal establlishment rag these days, which is probably just as well, the plebs can’t afford to buy it anymore. I will generously post the link on there anyway, it may still wake a few people up.

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