Thursday, 20 August 2009

Social welfare debate: What it really boils down to

Michael Taft: Having previously shown that the claims that we have a comparatively ‘lavish’ social welfare system’ are clearly false and not backed up by the data in the hotly debated OECD report, let’s address another issue this debate has raised (or should raise). That is, how low social welfare payments are in the Irish context.

There is a crude and, at times, vicious populist attack on the living standards of social welfare recipients. The OECD report showed that the overwhelming number of unemployed and lone parents survive on net replacement ratios well below the EU-15 average. But let’s use some numbers close to home – and use the 2007 figures on which there is considerable data (later years would require extrapolating and estimating) – to give a full picture of poverty and low incomes in this country.

The CSO – in line with international practice – uses the relative poverty line (60 percent of median income) as a measurement of how many people are ‘at-risk’ of poverty. There is some controversy over how valid this measurement. But all it tells us (and all it seeks to tell us) is how many are ‘at-risk’. It provides a starting point, a set of parameters. For instance:

• In households where the head is unemployed, 58 percent are at-risk
• In lone parent households, 36 percent are at-risk
• In households headed by someone ill or disabled, 49 percent are at-risk

Indeed, it is disconcerting to realise that of all households in the state, nearly one-in-five are at-risk of poverty. There’s a lot of risk out there and when one examine the level of social welfare payments, one begins to understand why.

The figures below show how much weekly welfare rates in 2007 would have had to increase to bring, in cash terms, the different categories up to the at-risk poverty line (for those with children, it includes Child Benefit). These are the categories which the OECD report dealt with:

Single Unemployed: €42.06
Lone Parent – 1 Child: €59.08
Lone Parent – 2 Children: €76.11
Unemployed Couple: €70.67
Unemployed Couple – 1 Child: €87.70
Unemployed Couple – 2 Children: 104.72

No payment in these categories exceed the 50 percent threshold of median income (remember that the poverty line is 60 percent).

Of course, this is not all there is to social transfers – whether cash or in kind. There will be (or was) the Christmas bonus. Households with children may receive school and clothing allowance. Social welfare recipients are eligible for the medical card (but short-term unemployed, especially younger people with little demand on medical services, are not as likely to hold one). But, as can be seen, these transfers are necessary if people are to have any chance of reaching the poverty line.

One of the bigger additional payments is rent supplement (or Housing Benefit in the OECD). This is an example of a well-targeted payment. Some recipients will need it; others won’t (those living in local authority housing, owner-occupiers, young people living at home, etc.). In 2007, the average weekly rent supplement (and this is an annualised figure) was €126 per week, or €546 per month.

As pointed out previously, only a small minority of unemployed and lone parents receive this benefit – less than 14 percent. If that payment was abolished and the expenditure distributed through the basic social welfare payment, it would increase the social welfare rate by €17.37. This would still leave all categories well short of the poverty line (especially in households with children) and would be insufficient to assist those who face high rents in the private sector.

Rent Supplement is a curious thing. It puts money in the hands of the recipient in order to purchase shelter in the open market. Therefore, the level of Rent Supplement is inextricably tied to both market rates and the recipients’ need of it. For instance, as Nat O’Connor points out, Rent Supplement varies geographically. Recipients in Dublin will get a higher rate than those in Waterford. Does this mean that Dubliners have a resulting higher standard of living? No, just the opposite – since rent is much higher than in Waterford. They will get a higher social transfer but potentially live in worse conditions - all by accident of location.

There is considerable debate over the cost of Rent Supplement and, given the fall in rents, whether it should be cut pro-rata. Again, as Nat points out, this misses the point of both the continuing high need (getting higher in these recessionary times) and the continuing high market price vis-à-vis welfare recipients’ living standards. Of course, there are other solutions rarely canvassed by those demanding social welfare cuts (more public housing, direct state provision in the private rented sector based on the model proposed by Threshold, rent control, etc.).

All this goes to show that, whether one examines the OECD report or the current economic conditions in Ireland – we can only conclude that social welfare payments are too low, much too low.

But we tend to get lost in all these arguments and ratios and percentages. So let’s use two figures to put this debate into context as it inextricably moves its way towards the next budget and the strong possibility that social welfare rates will be cut. In the social welfare system there are:

Over 500,000 the age of 60 years
Nearly 450,000 are children

Elderly and children - nearly a million. Whether intentional or not, they are the true target of those who want to cut social welfare rates.

Is this how far we have come?


Proposition Joe said...

"If that payment was abolished and the expenditure distributed through the basic social welfare payment, it would increase the social welfare rate by €17.37."

Ah now, Michael, there's a bit of sleight-of-hand at work in that calculation.

What earthly reason would require redistribution of the rent allowance to those welfare recipients *already* receiving an in-kind equivalent in the form of subsidized local authority housing? Or indeed to those recently unemployed workers with mortgages who are receiving welfare payments to cover their mortgage interest?

At a stretch, maybe you could argue for redistribution to those living at home as well as those currently receiving rent allowance, but that's about it.

Anonymous said...

The limited comment-traffic on this site (relative to that on the site "on the other side of the street") tells its own tale. But that's by-the-by. This sustained defence of social welfare rates would cut more ice if it were accompanied by an equally sustained attack on the high (and increasing - as per latest CSO stats) costs of services provided directly or indirectly by the State. As the "Poor can't pay" campaign points out, these, to some extent, justify current SW rates.

Anon of Ibid said...

@Prop Joe

I took that as an example of its total cost only, not a policy recommendation. You or Michael can correct me if I misread it.

@Anonymous at 12:39 PM

I am looking at the CSO site now, but can't see where the government costs are listed, can you point me in the right direction? Is there an analysis for why these costs are so high? I hear a lot about "public sector pay" (although it doesn't seem appreciably more here than in the States or the UK) and more about "inefficiency" - which has, at least in my personal experience, some merit: in order to legally drive a car, I needed to go to 4 separate entities to get a license and all the particulars (DTT, RSA, Motor Tax, and NCT), whereas in the States you go to one, the DMV for your state.

But could it also be due to outsourcing (an outsource contract may or may not include restrictions on raising the fees charged to the State)? Cronyism and corruption (always believable but evidence is needed)?

Even so, the costs are not the fault of the poor -- they did not structure the government, the rich fellas did. And when a party in power doesn't really think highly of good governance and social programmes to begin with (I'm thinking of a PD in charge of health service here) then of course they will do everything to make it unpalatable to the electorate, so that people will fairly beg them to cut. Like now.

I would suggest that the State can afford higher costs better than the poor can afford any cut. I suspect that many commenters here haven't actually experienced poverty. If they had, they would know that the current SW rates couldn't possibly be cut.

Anonymous said...

@Anon of Ibid

Services provided directly or indirectly by government with high and increasing costs are identified For the price inflation data go to, select "database direct", select 1st item under databases,then select Prices, Consumer prices and pick the sixth item down for detailed inflation rates. Why costs are so high is another story.

Slí Eile said...

I think that data for high user charges for some public services may have come from the recent NCC report and not CSO. Over and above SW rates, the cost of living and the state of the 'social wage' is another topic.

Anonymous said...

Sli Eile,

Nice try to avoid consideration of excessively high "point-of use" charges. "Another topic"? Surely SW rates are an attempt to meet the cost of living for these in receipt. Reduce the high service costs and SW payments will go further.
But no. This might threaten the rent-gouging in the public sector and semi-states.

Michael Taft said...

First, Proposition Joe, my 'redistribution' exercise with the Housing Benefit was merely an attempt to show how its current operation is rather efficient, targeting the payment to those with high housing costs. That's all.

The issue of prices and social welfare rates is, of course, an important but rather complex area. The Combat Poverty Agency did some work on a CPI for low income groups - analysing the basket of goods and services in this income group and measuring inflation. This work was done some years ago and it would be helpful if they could do this again (oh, I forgot, the Government abolished the Combat Poverty Agency - how timely when poverty is set to increase). However, this wouldn't tell the full story - how far below the poverty line almost all social weflare rates are.

As to the cost of public services - there is no single figure presented by the CSO to measure this. You have to go through particular items. For instance, public transport (bus and rail) have increase by 9% to 11% in the last year. Much of this increase has to do with the historically low levels of public subsidy (compared to other countries) and low levels of investment in our public transport infrastructure. Water and refuse charges have fallen fractionally. Postal services have flat-lined over the last year.

I am interested in the rent-gouging argument. I would certainly like to see concrete examples of this with accompany explanations (apart from just a generalised 'rent-gouging' charge which doesn't get us very far in terms of analysis).

Anonymous said...


This comment box is too darned small to respond. If you post an e-mail address I'll send you an explanation.

Slí Eile said...

The main point you are making is that SW recipients (and everyone else) have to pay a lot (by international standards and/or historical trends in this country) for various goods and services provided by the public sector including semi-state bodies. This could take two forms: a given level of revenue take for a given level of spending on education, health and other social services, or various charges, prices, levies paid for the consumption of goods and services provided by semi-state companies, local government and other bodies. The first point that needs to be made is that Ireland has below average take on revenue as % of GDP (or GNP by EU standards. Spending was below EU average but increased in 2008 and 2009 due to the knock-on effect of recession and the SW bill. We hare a relatively poor social infrastructure but still manage (at least up to recently) to achieve some good outcomes in health (recent increases in life expectancy) and education (e.g. achievement at age 16). To suggest that the public sector is a major rent-gouging enterprise needs more data to substantiate your point.

The recent NCC Report focuses on costs to businesss. It shows that Ireland's industrial electricity prices are among the highest in the EU15. The Report points out, however, that 'High industrial electricity prices are being driven by a number of factors including our reliance on imported fossil fuels, and the relatively small scale of Irish generation plants.' The Commission on Energy Regulation
The Report also shows high costs of disposing of waste. I think that in a significant way the decision in the late 1970s to cut the revenue base of local authorities had a major impact not only in the way local authorities have been under-funded relative to local service needs but also in the way different local authoritise have very different revenue levels including transfers from central governent. This has knock-on effects in many ways from poor water quality in some areas to under-investment in roads, early childhood care and community health services (via HSE).

Much has been made about the 'bloated' size of the public service overall and the 'high pay levels' paid to public sector workers. Yes, there is a gap in salaried or wage income between public and private sectors, here, but the reasons for this gap are many and varied from different levels of education, age, gender, size of enterprise factors to union power. In general, workers in large, single enterprises fare better - partly because of union power. Now, you may refer to this as 'rent-gouging'. Another way of looking at it is to say that any group of workers will aim to maximise their income when prices - especially property - were going through the roof as they were in 1997-2007. What was driving what? I leave you think about that.

The most recent consumer price index data from CSO (12 months ending July 2009) show that the largest increases in consumer prices were: 'miscellaneous goods and services' (8.1%), alcohol & tobac (7.7%), education (4.4%) and health (3.4). Under 'miscellaneous goods and services' see the CSO list - it looks like almost all private sector provided. The biggest driver of Health was hospital servcies. Education includes 'Covers all aspects of education including primary, secondary, third level and other education and

training such as night courses, play schools and examination fees.'

I am prepared to bet that most education cost increases are related to a certain amount of private sector 'rent-gouging' plus the gathering effect of cut backs in the public domain. Ask any parent.