Archive for the 'Income Levels' Category

Income and welfare – the forgotten debate?

 

EAPN Ireland Election Blog No. 4

By Paul Ginnell, Policy Officer, EAPN Ireland

“Poverty is not an accident. Like slavery and apartheid, it is man-made and can be removed by the actions of human beings.” Nelson Mandela

This quote opens EAPN Ireland’s recent poverty briefing and its proposals to candidates and political parties in the general election. Just as political decisions in the past have helped create poverty, the next Dáil and Government have the opportunity and responsibility to make the decisions to ensure no-one in this country has to endure the burden and the stigma of living in a situation that it not of their making.

Poverty is a very real experience for many people in Ireland. Three quarters of a million people, including around 132,000 children, are at risk of poverty and so live on less than €209 per week. Almost one in every ten people live in material deprivation, meaning that they cannot afford two of eleven basic necessities. This includes one fifth of those at work.

During the election campaign we have heard some of the candidates and parties outline what they will do to tackle poverty. There has been some important discussion of how to provide adequate services and how to support people to get decent jobs. However, we have heard little if any discussion on our social welfare levels. Our basic social welfare levels, particularly for those of working age, must be set at a level which keeps people in poverty. Of course, if someone on social welfare can get a decent job this can help them out of poverty. But the reality is that in the short or long term, there will always be people who are dependent on social welfare. This is because we will always have people who are in vulnerable situations in their lives because of caring responsibilities, a disability or illness, or because they are looking for work.CSO figures

However, for those of working age, our main social welfare rates are now €188 per week, down from €204.30 in 2009 and at a level which is €20 per week below the poverty line. According to the Vincentian Partnership for Social Justice  198 of 214 urban family types which are dependent on social welfare will not be able to meet a minimum essential standard of living in 2016.

Is this really the type of society we want, where we effectively condemn hundreds of thousands of people to live a life of poverty? I don’t think so. It breaches their human rights and it shames us as a society.

So why do we allow it, and why is there no public outcry or even little public debate about it?

Maybe it is because powerful people in our society look on people who are dependent on social welfare as some sort of drain on our society, while the rest of us are living “respectable and hard-working” lives? There is a widespread view, based on very selective examples in the media but not born out in our experience, that many people who are happy to live on social welfare when they could be looking for a job. These exceptional examples are used to write off everyone else.

Maybe it is because we think that they brought poverty on themselves, so “why should we be looking after them?” Do we think this is an okay attitude for people with disabilities or carers? Or have we not matured as a nation in our understanding of those who are parenting alone?  Over 43% of those who are fully dependent on unemployment payments have been on them for less than one year and many more for less than two years. The vast majority of those who have been unemployed are doing everything in their power to get work and suffer.

Maybe it is because the right of people to have a decent income is seen as less important than the fear that if social welfare levels are too high it will not motivate people to look for work. However, does this apply to those with a disability or illness or in a caring role? If so, then for those whose situation might allow them to work, even for a few hours, it is certainly not simply about the level of their social welfare support but there are another range of issues to be addressed in terms of services and supports.

If we are talking about those on unemployment payments then there is evidence that for the majority of people social welfare rates do not replace the income people can get for work and does not disincentive them. Even for those where secondary benefits, such as housing supports, mean that income from social welfare might be close to what those people can get from work the majority of people are still motivated to get a job. Of course this also relates to the issues of decent pay from work and how people can retain secondary benefits as they move from welfare to work.

As part of this discussion we also need to understand how we can justify paying lower social welfare rates to those under 26 years of age, as a form of motivation to stay in the labour market, and €19.10 to asylum seekers in direct provision, often for many years, with no opportunity for them to get a job.

If we really want to have a discussion in this election as to what type of society we want then we need to have a mature and informed discussion about how we look after those in our society who are the most vulnerable or at a vulnerable time in their live. How we set our welfare supports so that they are adequate to keep people out of poverty and allows them to have a decent life needs to be part of the wider discussion on creating a fairer and more equal society.

For more background, see the papers from the European Minimum Income Network (an alliance led by EAPN Europe).

Within that project, there were two important Irish reports:

“… an adequate and effective minimum income system is essential for the achievement of a sustainable recovery and a more inclusive society. This is not just about the amount of money in people’s pockets but about the buying power of that money.

“We need to strengthen our minimum income scheme to ensure that everyone has the opportunity to remain active in society, reconnect to the world of work and live in dignity.  

“Inadequate minimum income schemes trap people in poverty and lead to greater social, health and economic costs for individuals and society. Inadequate schemes may help in addressing very basic needs in the short term, but they can contribute to locking people in a cycle of dependency without adequate means to access opportunities or to fully participate in society.

“Research has shown that shame accompanies poverty, and this has a disabling effect on people’s capacity to seek work and progress their lives. Austerity measures taken by Government during the crisis have had a very negative effect on those on minimum income schemes in Ireland, through more stringent means testing, changes to eligibility criteria and in some cases cuts in rates.

“Adequate and effective schemes help reduce inequality, which benefits the whole society. It is widely accepted that more equal societies are better for everyone, not just then poorest, and are more stable than more unequal societies.

“They have a high return on investment, while the cost of not investing has enormous immediate impacts for the individuals concerned and long term costs for society.

“High-level social protection systems act as ‘economic stabilisers’. Within the European Union, countries with high-level social protection systems have been best placed to resist the negative impacts of the recent crisis….”

 

The

The Vincentian Partnership for Social Justice has developed the most comprehensive approach to defining a minimum essential standard of living for Ireland.

minimum essential standard of living for Ireland.

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The most radical social welfare in decades – We can’t afford to get it wrong!

Social Welfare reform and a single welfare payment for all people of working age must address poverty traps, access to supports and services and the availability of jobs

The Minister for Social Protection, Joan Burton, has signalled the most radical change in the social welfare system for decades.  She proposes to replace seven of the most important payments with a single payment rate and common conditions for eligibility.  This process has already begun with the changes to eligibility for the One Parent Family Payment and payments for those on Community Employment schemes. The Department has also signalled that detailed proposals will be put to the Troika in March.

EAPN Ireland supports the general principle of a single payment on condition that the correct services and supports are put in place.  Equally, we are not opposed to activation measures if these supports and services are in place and if appropriate work is available.  However, as the Department itself has acknowledged, to make such changes in current conditions risk pushing some of the most vulnerable people in the country further into poverty and creating even greater poverty traps preventing people taking up work.

Background to these proposals

In November 2010 the Department of Social Protection published a Report on the desirability and feasibility of introducing a single social assistance payment for people of working age The overall proposal is that everyone age 18-64 years on this social welfare payment would be directed to the support or services they need in order to return to work or other education or training opportunities. The report proposes that all payments be aligned to the Jobseekers Allowance payment and apply to all new applicants for social welfare supports whether they be a person with a disability, a lone parent, qualify for farm assist, etc. The report proposes that carers not be included in the single payment but recently there are suggestions that they will be excluded.  

The 2010 report clearly states that the changes should only be brought in if they reduce poverty and social exclusion for people and make work pay. It also recognises that the development of supports and services is necessary to this.  It outlines clearly the major loss of income for most groups provided separately under the current system.

Since the report was published there have been consultations with different organisations including those representing people affected by the changes. It is clear from these consultations that while no organisation is opposed to the introduction of a single working age payment there are major concerns particularly in relation to the capacity of the state to provide the necessary supports and services and in relation to the current lack of jobs and opportunities for people to take up.

Therefore, organisations, including EAPN Ireland, have asked that no changes are made that would reduce the current level of current income supports until such a time that the services and supports outlined in detail in the report are put in place.

EAPN Ireland proposals to Oireachtas Committee

The Oireachtas Joint Committee on Jobs, Social Protection and Education is now preparing a report on the single working age payment.

The Europe 2020 working group of EAPN Ireland (membership below) has made a submission to the Joint Oireachtas Committee.  The submission makes it clear that we support the idea of a single social assistance payment for all people of working age, provided that the necessary services, supports and pathways to employment are put in place.   

The Department’s 2010 report which laid the basis of the current proposals for a single payment acknowledges that, without policy changes in other areas, most people moved onto Jobseekers Allowance will suffer a loss of income.  The Minister needs to spell out how these supports and services will be put in place before changing the payments or eligibility criteria. 

We are concerned that changes have already been made in Budget 2012 and that an implementation plan will be presented to the Troika in early April without any clarity on how the concerns expressed in the Department’s own report and in consultations will be addressed.

The current system allows for appropriate policies to be developed over time to meet the needs of particular groups. It would be a negative step from a policy point of view if the appropriate responses to group needs are lost in the implementation of a new single payment based on a simple template of Jobseekers Allowance.  

The services and supports in place to address the needs of those currently on the Live-Register are already under pressure and the National Employment and Entitlement Service which is being established will also not have the resources to address this. Adding even greater numbers to this system, including people facing a complex range of barriers, will only overburden an already struggling system, which is in the process of reform.

It is clear from our members’ experience and from studies that the vast majority of those who would be impacted on by the introduction of a single payment want to work but are prevented from doing so due to the barriers outlined in the Department’s report.

We are concerned that if the reforms are not correctly implemented they will increase the negative attitude towards groups such as lone-parents and people with disabilities who are often attacked, despite the evidence, as being unwilling to work.

There are currently very limited jobs available. The reforms to the welfare system must therefore go hand in hand with a strategy to create decent jobs. 

 

Poverty Traps

It is vital that any changes to the system remove, and do not deepen, poverty traps.

We have a number of very specific issues and concerns.

  • The Department of Social Protection’s 2010 report clearly acknowledges the loss of income for different groups if the single payment is introduced without other changes.  The current differential supports were put in place precisely to cover costs of services and supports such as childcare. The loss of income under the proposed changes would in particular apply to carers, to those in Community Employment and those going to work who qualify for income disregards. If the services and supports are not provided it will result in poverty traps for these families forcing them to meet these costs from more limited resources or to leave or not to take up a job or a place on a Community Employment Scheme.
  • Income disregards play an essential role in addressing the cost of services related to going to work for those receiving these payments. This includes the cost of childcare and afterschool care for lone parents and the costs incurred by having a disability such as transport.  As highlighted above, the loss of income disregards will immediately impact on the capacity of people to be able to take up employment. In this situation the changes might appear at first hand to be a saving for the Department but the actual impact would be to act as a barrier to people moving off social welfare supports and is therefore an actual increase in costs to the state.
  • While a reform of the means testing system for secondary benefits would be welcome, the introduction of a single payment based on Jobseekers Allowance would result in the loss of secondary payments for people under some of the existing payments. This would include the Household Benefit Package and free travel for people on Disability Allowance, Carer’s Allowance and the Blind Pension. The loss of these supports would be detrimental for the people affected in light of the extra costs of disability.
  • The role of Family Income Supplement (FIS) needs to be explored as it could help to overcome some of our concerns.  However, member organisations are aware of major waiting times to get this payment so if it does become part of the single working age payment support system, it will need to be easier to access.

With the exception of those undertaking caring responsibilities, the majority of those on social welfare payments want to work. They would welcome a system of accessible services which addresses their needs and supports them to access a decent job, so allowing them and their families a decent income. The implementation of a single working age payment in a considered way, with all the elements being developed together, allied with a job creation strategy, has the potential to make a key contribution to this. However, in the current climate, with cuts to essential services and little if any work opportunities, now is not the time. Cutting social welfare supports and imposing even greater conditions on people to engage with the system when there are so few opportunities will only have negative consequences for people and undermine the Department’s own goal of ensuring that all people of working age have sufficient income and opportunity to participate as fully as possible in economic and social life.

The Government must re-engage in real consultation and not continue to press forward with changes at a time when such changes will only result in greater poverty for the groups involved making it even more difficult for them to take up work and training opportunities.

Membership of the EAPN Ireland Europe 2020 Working Group includes Age Action Ireland, Congress Centres Network, Disability Federation of Ireland, Dublin Employment Pact, EAPN Ireland, Irish National Organisation of the Unemployed, Irish Traveller Movement, Migrant Rights Centre Ireland, National Adult Literacy Agency, National Youth Council of Ireland, National Women’s Council of Ireland, One Family, OPEN and SIPTU.

Widening the Boundaries

Most commentators agree that the economic situation we find ourselves in will bring decades of debt and unthinkable social misery.  EAPN Ireland member Aiden Lloyd says we will remain where we are unless we widen the boundaries of discussion and analysis.

It is quite difficult to comprehend the credibility granted to the economic establishment in terms of defining the options that we can adopt to address our economic problems. This is all the more extraordinary when considered against what can only be described as the worst reputational performance by any set of associated professions in history. Over a period of a decade or more the combined wisdom and skill-sets of accountants, financial managers, regulators, economists, ministers and specialist departmental personnel failed to manage, predict, regulate or successfully remedy the crash of the national economy. Yet, these are the very same people now defining the parameters of rational discussion and acceptable comment. According to this conventional viewpoint all options must involve the socialising of speculation-incurred debt; the rejection of default options; remaining within the Euro zone; viewing personal indebtedness as a problem for families not the state; and subjecting all sovereign decision-making to EU/ECB/IMF direction.

What is truly disturbing is the level of stricture applied within the media, even by those facilitators whom one would consider liberal in terms of widening the boundaries of debate or admired for their ability to draw out alternative perspectives. Offering non-establishment options immediately brings a wall of ridicule and an aggressive pursuit of chapter and verse solutions – ignoring the fact that definitive solutions have been as scarce as hen’s teeth on the conventional side. So, those who advocate even limited default are faced with responses that paint a picture of desolation and breakdown – empty ATM machines, collapsed public services, no credit for business, irretrievable reputational damage etc. But these things might happen anyway if we maintain our present course of action, and perhaps the only chink of light that might compel us into some sort of realistic consideration is the growing consensus that sovereign default is now more likely given the sheer scale of the debt burden that has accumulated. Undoubtedly, there is no easy way out of the mess but a constructed solution is preferable to one eventually imposed by circumstance, and it is high time that we began to bend our brains to this end.

Even though Ireland is a particular and extreme case, the difficulties introduced by laissez faire capitalism are relatively universal. For some decades now the unfettering of global capital has resulted in a flow towards speculative investment rather than investment in production, because of the greater return (assisted by generous tax breaks) this afforded. To some degree, this is an outcome arising from the sheer efficiency of capitalism in increasing the output of goods, resulting in market saturation, over competitiveness and declining profits. What should have followed, in the developed world in any case, was a steering of capital towards technological development (especially green energy development) and growing the services sector, particularly leisure, learning, healthcare, child/elder care and personal development – a natural pathway for advanced societies, whose material needs have largely been met by existing production capability. However, this is not the time to begin an analysis of capitalism, even though it will undoubtedly have to be scrutinised for its applicability and relevance in an era of climate change and declining carbon energy resources. However, before returning to national problems let us contemplate some historical wisdom that emerged from the last great economic downturn that began with the Wall Street Crash in 1929.

John Maynard Keynes was the economist who described a normal functioning economy as a circular flow of money driven by worker’s consumption – basically one person’s wages contributes to the employment of others by virtue of their purchasing of goods and services. When this circulation gets interrupted through unemployment, hoarding of savings and declining demand – as happened with the collapse of the housing bubble in Ireland – then artificial means have to put in play to restore the flow, either by increasing the money supply or by intervening in the market to stimulate spending. In a recession private sector capability is much reduced, therefore this stimulus must be provided by the state. If the stimulus is focused on poorer people, through investment in employment-creating projects then the effect is more direct, since poorer people spend a greater proportion of their income on basic items such as food, clothing, heat etc. This is the strategy being employed in the USA by President Obama. Unfortunately, economic policy in the European theatre is driven by a different belief system.

Neo-liberal economists have an unshakable belief in market forces, the so called ‘invisible hand’, which they believe always ensures that the natural laws of supply and demand will right any aberration in the market. Neo-liberals do not like state intervention. Thus they advocate addressing spending deficits arising from a reduced tax take (because of unemployment and less spending) through austerity measures – cutting public services and selling off publically owned utilities. But they are perfectly happy for the state to capitalise busted banks at the expense of its citizens, and they justify this socialisation of private debt on the basis that the state has a duty to create the conditions for market forces to operate – a moot point, but there you are. You will have gathered at this point that the European Central Bank head Jean Claude Trichet is no Keynesian, neither is the EU (in its various forms) nor the International Monetary Fund.

It is a double misfortune that we as a country, having been driven to ruin by a reckless government, are now subject to the direction of neo-liberal ideologues. The ECB-EU-IMF is determined that Ireland will refloat its banking system even if it impoverishes its citizenry in the process. Paul Krugman writing in the Irish Times last week (29/3/11) lays out the outcomes of this process to those US cheerleaders who urged a similar strategy in 2009 to the Irish one – bond yields topping 10% for the first time, unemployment at 14.7%, a doubling of interest rates on debt and an unsustainable debt burden. Dan O’Brien writing in the same paper (2/4/11) outlines a worst case scenario that may involve stress testing Ireland Incorporated, creating a banking panic. All of this is set against a backdrop of negative growth and no real signs of recovery.

It is pretty apparent that European imposed solutions do not have our interests at heart. Whatever about the noble ambitions of Jacques Delors to create a unified, mutually dependent and collective Europe it is abundantly clear that that project has long since been colonised and diverted by fiscal conservatives and big business. Despite having engineered the biggest economic meltdown since the Great Depression neo-liberals continue to dominate the policy stage. Only this week Morgan Stanley listed Ireland as ‘good for investment’ because it is a fully liberalised and deregulated economy, making it apparent that bankrupting Irish citizens is secondary to maintaining a liberal market model.

So what sort of options other than ruinous loan repayments should be given space and consideration? Well, we could default – and may anyway, if we read the subtext of previously cautious commentators. How disastrous would that be? Despite the howls of horror and quivering fingers pointing to Argentina, an Irish default would be quite different, being confined to the private debt assumed quite rashly by the previous government. True sovereign debt would not be defaulted upon, so there would be every opportunity to convince the markets that we remain honour-bound to meet our sovereign obligations.

What of the banks? Well we did manage without banks for six months in the early 1970s, and while it was a bit awkward at first, commercial life carried on as normal. Nonetheless we would need to re-establish a banking system, and to this purpose we could invite in foreign banks or bolster the few existing clean institutions to carry out this function. Since our existing contaminated banks have no capacity to provide credit to businesses they are of little commercial use anyway, so why bother resuscitating them. Admittedly, this would add to job losses, but there will be a massive reduction in staff numbers anyway, as these banks are forced to reduce the scale of their operations under the EU/ECB/IMF agreement.

One other option would involve retaining the commitment to recapitalising the banks at the expense of generations of tax payers, but with repayments stretched over a reparation-type timeframe, say twenty or thirty years, perhaps even longer. This would allow the restoration of a normal economy alongside a debt repayment regime – something post war Germany was able to achieve with considerable success. Alternatively, we could simply write down the personal debt, which is the next big hurdle we will meet – fairly soon too, if the ECB persists with its intention to impose a gradual rise in interest rates to prevent inflation (conservative economists tend to be paranoid about inflation even though it has not been a critical factor since the 1980s). This would as a matter of course also require us to seek a write-down of state assumed debt.

Now for the crunch question, and perhaps the greatest inhibitor to a widening of discussion and the onset of lateral thinking: how, if we abandon the EU/ECB/IMF package, do we meet the day to day costs of services and salaries? Well, in the normal run of events, the straight answer is through taxation, like any other prudent state. Unfortunately the Progressive Democrat-Fianna Fail illusion that the provision of quality public services is compatible with a low tax regime means that an immediate restoration of responsible levels of taxation would be a tremendous burden for families, coming on the back of increasing debt repayments, ad hoc levies and increasing unemployment. In addition, the size of the deficit, €19 billion, is too big to plug with taxation alone. Difficult as it is to swallow there will have to be savings in public expenditure, which probably means a reduction in the public service wage bill.

Although it is an evolving situation, subject to wider political agendas and perhaps the very future of the European monetary project, it is becoming fairly clear that there are no ‘one stroke’ solutions to the problems we face. A combination of debt restructuring, burden sharing with bondholders and fiscal consolidation together with a targeted investment programme to stimulate growth is the most likely package to succeed.

Trying to deal with the debt problem while restoring growth is a difficult one, but we still have some €4.9 billion in the National Pension Reserve Fund and €9 billion in cash reserves. There are also high levels of personal savings, perhaps €100 billion, a portion of which could be elicited through a national bond issue – something akin to war bonds, which could be promoted as an investment in ourselves as a nation.

These are only some of the options that might be considered, but undoubtedly there are others that debate and discussion could throw up, if it was permitted.

Finally, while a debt burden of the magnitude that Ireland has accumulated may seem insurmountable experience shows that once growth returns and employment increases significant inroads can be made into the debts that a nation carries. As things stand we are in a very bad situation and are understandably over-focused on banks, debts and indebtedness. We need to concentrate on creating jobs, facilitating entrepreneurship and resourcing public enterprise, which will in turn bring a degree of confidence and a flow of spending – which brings us right back to John Maynard Keynes and the restoration of the money circle.

Aiden Lloyd is an independent researcher and consultant. He previously worked with the European Anti-poverty Network Ireland, was national community development & equality coordinator with Pobal and is a member of the board of the Society of Cooperative Development Studies Ireland (CDSI). He has been involved in a range of community development, local development and regeneration initiatives both in Ireland and Europe.

 

 

The Establishment of a High Pay Commission

By Aine Walsh, Communications Worker with EAPN Ireland

Recent studies (Wilkinson and Pickett, 2009) have highlighted the negative effects of unequal societies on both our health and psychological welfare: the wider the gap between high and low earners the greater the prevalence of social unrest and disenchantment in a society.  The net result of that unrest and disenchantment is profound and disturbing: mental illness, the rate of imprisonment, levels of obesity and murder rates are all five times higher in the most unequal societies when compared to the least unequal. As Irish levels of income inequality are incrementally increasing it is important that we take a comprehensive look into this issue, with a view to suggesting workable solutions.

One hundred years ago, business guru JP Morgan stated that the difference between high and low pay should be no greater than 10%. He argued that such a differential is enough to create motivation for advancement.

A 2009 Behaviour and Attitudes Poll commissioned by TASC found that 85% of adults believe the government should take steps to reduce income inequality.[1] Income inequality in Ireland is in fact increasing, for example the richest group faced lower prices in June 2009 than July 2007, whilst the poorest and median group faced higher prices, as deflation is commodity specific.[2]

A recent survey in the UK highlighted the lack of informed knowledge that many people have surrounding this area; firstly, 79% of the population place themselves as middle income earners, thus indicating that the average income is a figure which most people are not aware of, with many high and low income earners placing themselves misguidedly in this bracket. Secondly, this falsehood was also shared by the wealthy (those earning over £100,000) who believed the average UK wage to be double the actual figure.[3] The creation of a High Pay Commission could help alleviate these misconceptions and address the dearth of information.

One solution that has generated considerable international debate is the mooted introduction of a High Pay Commission, which would be tasked with carrying out an in-depth analysis of income inequality in the Irish private and public sector. The rationale for creating a High Pay Commission is twofold; to increase public knowledge about inequality and to propose workable remedies to income inequality and its effects.

In effect the idea is to put a ceiling on what people can earn; a maximum wage. The concept of such a body is not entirely without precedent. Indeed the Irish government established a similar, albeit on a smaller scale, initiative to investigate and provide recommendations on how to reduce the levels of high remuneration prevalent in the Public Sector. Various actors in the UK have also been debating the possibility of a High Pay Commission and the proposal did attract some attention at the outset of the last general election campaign (Lawson 2010). Ultimately a High Pay Commission would propose a comprehensive set of joined-up regulations to tackle excessive pay.

How the Commission would work

The task before a High Pay Commission would be to investigate possible reductions in the top earners only in order to create more income equality.  The establishment of a High Pay Commission would also address the dearth of information on income inequality and its negative effects on our society. Without better information on high pay we can’t tell its effects on, for example, Ireland’s competitiveness. The High Pay Commission could also look into the possibility of tax reforms which would create further redistribution of wealth from those on a high income to the lower earners.

It is important firstly to ensure that the composition and structure of any Commission itself is sound in order to ensure viability and effectiveness. The UK organisation Compass, which is the force and catalyst behind a demand for the establishment of a High Pay Commission in the UK, has outlined the basic structure that such a body might adopt. This includes the creation of balanced Commission, led by a Director, under the instruction of a Chair and a small number of Commissioners, backed up by an expert panel of independent advisers. The High Pay commission should also be furnished with a detailed and accurate account of the economy and our economic outlook, which should be contributed to by the Department of Finance but also other expert bodies and academics in order to receive a balanced and broad perspective. The Commissioners should be broadly representative of civil society, including from the financial and business sector, organised labour, a relevant academic or economist, a journalist and a community and voluntary sector representative. The task of the High Pay Commission would be to examine existing data, commission new research, conduct hearings and test the resulting recommendations with interested parties. Their overall aim would be how best to reduce excessive risk and rewards in the medium to long-term.

TASC has argued that there are two available methods to reducing the wage gap; firstly through progressive taxation on income and wealth as is used in Sweden, the second is to have smaller differentials in income and wealth before taxes which means there is less need for redistribution, as is availed of in Japan.[4] This report also notes that preventing excessively high incomes and wealth at the top is just as important as raising incomes at the bottom.

International practice

An example of how such a structure of more equal pay could be introduced into the Irish system is demonstrated by Sweden, a similarly small economy which has successfully introduced a more equal and non-market orientated wage structure.[5] In Sweden this has resulted from an egalitarian wage structure, promoted by the Trade Unions over the past fifty years. This is a good example of the positive welfare effects of more equal distribution as chosen by workers. Government social transfers account for a much higher percentage of GDP in Sweden and Denmark than countries such as the US and Ireland. Nordic countries also tax the benefits paid out more extensively than other countries, a policy which hurts the poor very little as the tax rate tends to increase with household income.[6]

The Australian government’s Productivity Commission published a report in January 2010 entitled “Executive Remuneration in Australia; Inquiry report”. The aim of this was to examine the trends in remuneration in Australia and internationally, the types of remuneration being paid, to whom, and the relationship between remuneration and corporate performance.[7] This report also sought to; assess the effectiveness of the current framework for the oversight and transparency of remuneration, consider any mechanisms for aligning better the interests of boards and executives with shareholders and the wider community, examining the effectiveness of international responses to this issue in light of the financial crisis, and finally, providing recommendations on how the existing Australian framework governing remuneration could be strengthened.

The US has also undertaken steps in pursuit of a more equal and stable society. For instance Barack Obama has introduced individual salary caps of around $345,000 per year for those working in institutions which have received government support.[8]

A motion brought before the UK Parliament in November last year succinctly highlights why the creation of a High Pay Commission is essential;[9]

That this House believes that the Government should establish a High Pay Commission to examine the effects of high pay on the economy and society; acknowledges that over the last 30 years median earners have seen incomes increase at less than the average while the super-rich including UK chief executive officers have seen their pay increase to 76 times that of the average worker; notes three main concerns over the effect of high pay in Britain: the link between excessive pay and the financial crash, the questionable link between economic performance and high pay and the social effects of inequality due to the increase of wealth concentrated at the top of society; and calls for a public inquiry to bring all of the facts, evidence and arguments into the public domain.”

Conclusion

A myriad of possibilities for reform therefore exist, simply waiting to be explored and tested by an investigative body such as a High Pay Commission. Although the form, structure and reliability of the High Pay Commission is important, what is most essential is that some form of review is undertaken into this issue and presented to the public and our representatives in government.

Overall, an Irish High Pay Commission should aim to; encourage the retainment, recruitment and motivation of high calibre people whilst remunerating them more appropriately; increase the public’s knowledge on inequality through the publication of a regular report; investigate and relay best practices from other jurisdictions; investigate the feasibility of creating a more Nordic style system of redistribution in Ireland; the creation of legislation on this issue; and list recommendations for the reduction of excessive remuneration.

It is therefore to be concluded that a High Pay Commission is necessary. It is recommended that such an investigative body be created; charged with reviewing our high pay culture, the effect this has on society and what steps can be taken to create more positive changes. This is an issue which is adversely impacting upon the lives of every Irish citizen and thus requires the utmost attention.


[1] McDonough, T., “Hierarchy of Earnings, Attributes and Privilege Analysis”, TASC, 2009, p.2, available at  http://www.tascnet.ie/upload/file/9644%20HEAP%20BOOKLET(1).pdf, accessed July 2010.

[2] Jennings, A., Lyons, S and R.S.J. Tol, “Price Inflation and Income Distribution”, ESRI Working Papers No. 308, August 2009, p. 3, available at http://www.esri.ie/UserFiles/publications/20090804111315/WP308.pdf accessed June 2010.

[3] Aoronovitch, D., “Spare a Thought for the Undeserving Poor”, Times Online, August 2009, available at http://www.timesonline.co.uk/tol/comment/columnists/david_aaronovitch/article6799645.ece , accessed June 2010.

[4] McDonough, T., “Hierarchy of Earnings, Attributes and Privilege Analysis”, TASC, 2009, p.2, available at  http://www.tascnet.ie/upload/file/9644%20HEAP%20BOOKLET(1).pdf, accessed July 2010.

[7] Australian Government Productivity Commission, “Executive Remuneration in Australia; Inquiry Report”, available at http://www.pc.gov.au/__data/assets/pdf_file/0008/93590/executive-remuneration-report.pdf , accessed July 2010.

[8] Compass, “Never Again”, Direction for the Democratic Left Limited, p.9, available at http://clients.squareeye.com/uploads/compass/documents/Compass_NeverAgain_lowres_webready_V2_1.pdf , accessed July 2010.

Creating Greater Income Equality


Unequal societies are detrimental to our economy, to society in general and to our individual health and psychological welfare.[1] The wider the gap that exists between high and low earners the greater the prevalence of these negative effects. As Irish levels of income inequality are increasing[2] it is important that we take a comprehensive look at this issue as part of the current debate on what type of society we want in the future. It is essential that, as a first step in the process, a minimum essential standard of living is researched, implemented and monitored in order to ensure that we have a just and sustainable foundation from which to implement greater income equality.

As things exist the income floor is set by the social welfare system. This is a subsistence level of income that does not permit a life of dignity. Rather than lower the minimum wage or subsistence level provided by the Social Welfare we should focus first on establishing what exactly it is that the basic minimum income needs to be in order to ensure dignity and the opportunity to live a socially inclusive life. Sweeping the rug from under those on low incomes is not acceptable; instead we should secure their footing on the income ladder and use that as a sound foundation from which to bring improved wages. This would be more in line with what is just, equitable and socially sustainable. It is also an economically sound approach, as those on lower incomes redistribute the majority of their income back into the economy.

A minimum essential Standard of Living

Especially in these times of economic crisis social welfare transfers need to be protected therefore cuts in Government spending should not be targeted at those on the lowest incomes. In addition, in reconstructing our economy new mechanisms for redistributing wealth in a more egalitarian way can be found. The Vincentian Partnership describes a Minimum Essential Standard of Living as one which meets a person’s physical, psychological and social needs. They have devised minimum essential budgets for six household types, ranging from a lone parent with two children to a pensioner couple. These budgets are based on components such as health related costs, household services, personal care and a range of items necessary for social inclusion and participation, with approximately 2,000 items, goods and services being evaluated. Based on data collected in 2009 the minimum essential budgets per week for these household types stack up as follows: €280.81 for a female pensioner living alone, €588.26 for a lone parent with two young children, and €264.22 for a single adult male. Social welfare payments for these same family types are €269.02, €575.31 and €196 respectively. This highlights the importance of maintaining the social welfare at the current rates and increasing them if possible in order to ensure there are no shortfalls, such as that experienced by young male adults who have a weekly deficit of €68.22, which will increase to €76.22 after the introduction of the 2010 Budget.

When a household has a manifestly low income which is considerably less than that required for a Minimum Essential Standard of Living there can be no justification for measures which plunge them deeper into poverty and debt. Other choices are possible.”[3]

In 2009 the Vincentian Partnership also supported the need to protect the National Minimum Wage at its present pre-budget rate of €8.75, as those earning this rate and working 37.5 hours a week still encountered a shortfall of €49.28 a week (if living in rented accommodation) against what the Vincentian Partnership essential budget indicates. As will be discussed, the prices of basic goods and services have in fact risen over the last year, and whilst rents have in general declined this is mainly at the upper end of the rental market.  Thus there are increased difficulties for those earning the minimum wage to survive. The Government’s proposals to reduce this further, in the above scenario by €37.50, would result in a shortfall of nearly €90 a week and €360 a month. In addition the plans to introduce property and water taxes mean that those who will be hit the hardest are those with the least ability to withstand such fiscal reductions.[4]

The minimum wage should be at a level to ensure that every citizen can reach their basic expenditure costs and not be a tool with which to appease employers, the IMF or the EU. It is more important than that, it is the difference between a life of poverty and one of dignity for thousands of people. It also begs the question why the issue of reining in high pay has not been foremost on the agenda? This would have a myriad of positive effects; create more equality in our society, which is better for everyone and lessen the cost of business for companies. It could also create less risk-taking as seen in the financial sector where large bonuses were connected to short-term profit making.

Increases in the price of a number of basic goods

The importance of this is highlighted in a survey conducted by Age Action which found that between the dates of January 2008 and July 2010 the price of a number of basic goods have in fact risen throughout the recession. Increases can be seen in electricity, solid fuel and bottled gas meaning that the average cost of home heating has risen significantly. Other basic goods/services such as healthcare and travel have also seen price increases, for example; GP fees have risen by 8.15%, dental fees by 17.7%, petrol by 11.2%, whilst car insurance has risen on average by 14.8% and health insurance by 32.8%.[5] These figures reveal the increased pressure on low income earners. The combination of these factors will result in the majority of those dependent on social welfare being unable to live with basic dignity.

Wage Inequality

A national debate needs to begin on issues of rights, a social floor and equality in the context of social welfare legislation, and bringing those on lower and higher incomes closer together. The proposed cuts to social welfare payments and the minimum wage will only exacerbate the problem of pay inequality and its social ramifications. Social Justice Ireland has examined the increases in payments to those on social welfare and those in high earning political positions from 1986 to 2010, which highlights the extent of the unjustness of the proposed cuts to those already faced with poverty. The take-home weekly pay of T.D.’s for example rose by over six times more than that of someone in receipt of social welfare[6]; surely the answer to where to reduce spending is to reduce the wages of those who benefitted the most rather than vice versa, thus increasing equality and ensuring that no person on the brink of poverty is pushed over the edge. It is unacceptable that some of Ireland’s most wealthy and powerful groups are not even involved in the government’s debate on where to cut spending.

This shocking disparity between the wealthy and poor in our society, and our blasé attitude to its existence and detrimental impact, was brought to the attention of current debate in the Irish Examiner on the 6th of December last year. This article detailed the extraordinary wages of senior members of our semi-state bodies, who earn more than the leaders of major country leaders, including Barack Obama. The Chief Executive of ESB earns over €700,000 a year, way above what is received by any other public office holder, anywhere, and way above what is necessary to have an extremely high standard of living. It is wage disparities such as this that have led to the culture of risk-taking, money grabbing and overall dissatisfaction with life that is rife in developed countries such as Ireland. While it is welcomed that the Government eventually took cuts to their wages and pensions in the budget it is unacceptable that those surviving on the very minimum, and it could be argued that many are indeed not receiving the minimum required to have an acceptable standard of living, are to have their social welfare cut by a further 5%, the minimum wage to be reduced by €40 a week and taxes and charges on lower income families to be increased.

Conclusion

An opportunity to implement an equitable income structure now exists, and should be implemented before our recessionary lessons are forgotten. We need to decide as a nation the future direction of our society and change the pro-rich culture of the past to one which provides first and foremost the infrastructure to maintain every citizen’s right to equality, dignity, and economic and social security. A 2009 Behaviour and Attitudes Poll commissioned by TASC found that 85% of adults believe the government should take steps to reduce income inequality,[7] while a more recent MRBI poll conducted by the Community Platform found that 82% of the respondents agreed that the Government should introduce a wealth tax. The Governments planned budget cuts are a complete contradiction of this view and will go a long way to increasing rather than decreasing income inequality. The initiative now needs to be taken to start the essential process of introducing greater equality and sustainable progress for our society and for our economy, starting with the introduction of a minimum essential standard of living. This is an achievable goal which will have an immeasurable benefit.

 


[1] Wilkinson. R and K. Pickett, “The Spirit Level: Why More Equal Societies Almost Always do Better” Allen Lane Books, 2009.

[2] Johnston, L. “The Rising Tide that forgot to lift all Boats: poverty, inequality and the Celtic Tiger”, Limerick Student Journal of Sociology, Vol 1(1), 2009, p.6, available at http://www.ul.ie/sociology/socheolas/vol1/1/Louise%20Johnston.pdf, accessed December 2010.

[3] Vincentian Partnership, “Pre-Budget Submission 2010”, September 2009, available at http://www.budgeting.ie/images/stories/Publications/pre_budget_submission_2010.pdf, accessed November 2010.

[4] Based on calculations for a single male adult aged 25+, Vincentian Partnership, “Pre-Budget Submission 2010”, September 2009, available at http://www.budgeting.ie/images/stories/Publications/pre_budget_submission_2010.pdf, accessed November 2010.

[5] Age Action Ireland, “Pre Budget Submission 2011” available at http://www.ageaction.ie/sites/default/files/pdf/Prebudget%202011%20briefing%20documents_0.pdf , accessed December 2010.

[6] Social Justice Ireland, “TDs take-home pay rose by €980 a week while social welfare rates rose only €144 over past 24 years”, December 2010, available at http://www.socialjustice.ie/content/tds-take-home-pay-rose-%E2%82%AC980-week-while-social-welfare-rates-rose-only-%E2%82%AC144-over-past-24-year, accessed December 2010.

[7] McDonagh, T., “Hierarchy of Earnings, Attributes and Privilege Analysis” , TASC 2009, p.2, available at http://www.tascnet.ie/upload/file/9644%20HEAP%20BOOKLET(1).pdf.

Minimum Income Standards Essential for Social Protection & Recovery

Paul Ginnell is the Policy and Support Worker with European Anti-Poverty Network Ireland. Paul’s role is to support people experiencing poverty and social exclusion and their organisations, many of which are members of EAPN Ireland, to understand and to contribute to policy making in Ireland and the EU.

Minimum income or social welfare payments are a fundamental right and provide an essential safety net for people who have no work or other means to support themselves. At their most basic level, minimum income schemes are one of the cornerstones of the modern welfare state, and the mechanism by which the state can step in and ensure that an individual’s basic needs are met, and prevent extreme deprivation, homelessness etc.

The right to minimum income is an important component of a democratic society and such schemes are the basis from which every person in society can have a dignified life.

Minimum income schemes exist in all EU Member States apart from Italy, Greece and Hungary. However, formulation and implementation is the responsibility of the Member States themselves and such schemes vary greatly across the EU in terms of their quality, the levels paid and the conditions that apply to accessing them etc. In many cases they are insufficient to allow people to live with dignity, access services and employment/training opportunities, and participate fully in the society in which they live.

Individual Minimum income levels in almost all EU Member States, including Ireland, are below the 60% (of median income) at-risk of poverty line and are therefore insufficient to lift people out of poverty.

In Ireland the social welfare rate in 2010 is €196.00, while the at-risk-of poverty line (in terms of income for an individual) stands at €238.69.

Minimum income schemes currently face multiple threats: rising prices are squeezing their purchasing power, active labour market policies are increasing the conditionality of benefits, and people on minimum income are increasingly labelled as lazy and stigmatized for being in receipt of these payments. The European Anti-Poverty Network is centrally involved in a political campaign  to examine how a standard for minimum income could be developed and implemented across the EU: one which would ensure an acceptable and dignified standard of living for all.

There are strong arguments which support the need for an adequately high level of minimum income:

  • Minimum income schemes are a key instrument in preventing poverty and social exclusion, as long as the levels are sufficient to take people out of poverty.
  • They give vulnerable people the long term security they need to engage in pathways to employment, greater social participation and inclusion. For example, those with; disabilities, long-term sickness or mental health problems, and those vulnerable due to their age, family commitments, or where quality jobs are not available.
  • They are a catalyst for fair wages if wage levels are linked in a positive hierarchy to decent levels of minimum income.
  • Member States have already committed at EU or international level to ensure adequate income, but the implementation of these commitments has been weak.
  • In the current economic crisis, they not only prevent hardship for those without jobs but provide an essential floor to consumer spending to boost the economy.
  • Above all they provide a solid foundation for a socially cohesive society, built on solidarity.

In 1992 European leaders agreed a recommendation reaffirming the fundamental right of all EU citizens to a minimum income that is adequate for a dignified life. This was further confirmed in the 2008 European Commission recommendation on the active inclusion of people excluded from the labour market, which recommended that all Member States develop an integrated approach to providing adequate minimum income, linked to adequate services and pathways to employment.

As part of its campaign EAPN is lobbying for a stronger EU legal basis in the form of a Framework Directive, aimed at guaranteeing an adequate minimum income for all. Such a Directive was one of the recommendations contained in the synthesis report on minimum incomes by the EU national experts on social inclusion who reviewed Member States minimum income schemes in 2009.

On 24th September EAPN will host a conference on Minimum Income in Brussels involving its members, including EAPN Ireland, policy makers and others in order to move forward the debate and campaign on minimum income.

One of the workshops in the conference will focus on the use of Essential Minimum Budgeting Standards, benchmarks that have been developed in many Member States as a way of identifying the real income needs of different family types based on the actual cost of a basket of goods. The Vincentian Partnership for Social Justice, the organisation that carries out this research in Ireland, will be presenting the Irish experience. This method is one possible way of benchmarking minimum income levels against the real cost of living. The VPSJ have just released the impact of Budget 2010 on the real cost of living and revealed a €76.52 gap between the actual cost and the supports received for an individual over 25 years on Jobseekers Benefit. This is an increase of €8.30 from 2009.

EAPN Ireland will be actively engaged in the campaign for minimum income for a dignified life and is currently a member of the Poor Can’t Pay campaign lobbying against cuts to social welfare payment in the budget. We’ll be releasing a more detailed policy briefing on minimum income policy shortly.

Visit www.eapn.ie for more information on poverty, social exclusion, minimum income standards and social protection.

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Defending the Minimum Wage

Aiden Lloyd is the temporary Coordinator of the Irish Network of the European Anti-Poverty Network and a member of the board of the Society of Cooperative Development Studies Ireland (CDSI). He was previously the national community development & equality coordinator with Pobal, an organisation that manages social inclusion and equality programmes on behalf of Government and the European Union. He has been involved in a range of community development, local development and regeneration initiatives in Ireland and Europe.

The vulnerability of weaker sections of society becomes obvious in times of recession. Already it is clear that those who can least afford further income reductions will be asked once again to ‘share the pain’ in December. It is clear however, that sharing – in the eyes of the Government – is a fundamentally unequal process. In a recent interview on Fox News, the Taoiseach Brian Cowen asserted that our 12.5% corporation tax rate is ‘non-negotiable’. It is interesting that such a fundamental aspect of our economy is not even up for discussion in a time when everything is supposedly on the table. Sadly, the incomes of the poorest people in our society have yet to make it into the ‘non-negotiatiable’ column.

Calls for a reduction in income may be carefully masked, as were the reductions in social welfare payments at the last budget (justified on the basis of a fall in the cost of living) but they can also be overt. The call for a reduction in the Minimum Wage is totally transparent and is based not on a convincing economic narrative, but rather on political expediency from well-resourced and vocal sectional interests.

Initially, the argument to reduce Ireland’s minimum wage was articulated and promoted by IBEC on the basis that we needed to improve competitiveness. While there is certainly a need for the Irish economy to become more competitive and dynamic, it is disingenuous to present wage reduction as a panacea to the competitiveness problem. For instance, our Scandinavian neighbours manage to operate highly competitive economies while also maintaining relatively high and relatively equal income levels. Furthermore, the wage reduction argument ignores a multitude of other factors that negatively affect competitiveness including underdeveloped infrastructure, high rates, chronically poor broadband and a lack of focus on research and innovation.

More recently, ISME and the catering-hospitality sector have taken up the cudgel, calling for a reduction of one Euro in the Minimum Wage on the basis of saving jobs in sectors experiencing a significant downturn in business – mainly retail services, restaurants and hotels. Holding the line on basic income is central to anti-poverty work, so it is heartening that a robust evidence-based argument has been developed by TASC. Their report, Square Deal? The Real Cost of making a Meal in the Restaurant Sector demolished the ISME argument for wage reductions in a sector that is dominated by low pay. Many of these low pay employment sectors have been regulated for many years by Joint Labour Committees. These JLCs set wages and conditions in employment sectors where normal negotiation and regulation processes are difficult, so they act as a safeguard, especially in relation to protecting the rights and entitlements of low paid employees.

Earlier in the summer, Michael Taft drafted an interesting response to Dr. Garret Fitzgerald’s argument that wages in Ireland are unaffordable when compared to our European neighbours. Taft looked at three sectors; manufacturing, retail/wholesale, and public administration. In the case of manufacturing, Taft references evidence from EU Klems Database – which measures labour costs, productivity and capital compensation – which states that Ireland’s average labour costs rank 12th out of the EU-15, with an average of €20.76 as compared with the EU-15 average of €25.03. Similarly, Taft points out that the rise in manufacturing wage costs was not out of sync with other EU countires. In fact, from 2000-2007 wages in the sector increased by €5.20 – exactly in line with the EU-15 average.

More recently TASC made a presentation on the Minimum Wage to the Oireachtas Joint Committee on Enterprise, Trade and Employment. Some of the key points made are outlined below. These are very useful for anti-poverty organisations in developing their analysis, arguments and counter-arguments to defend the meagre income of the marginalised and low paid. A more comprehensive note is available on the TASC website.

  • The ’effect on individuals’ argument: The Minimum Wage was introduced to protect people who were living on the edge of poverty. That vulnerability remains, especially for migrants, women and young people who tend to be disproportionately represented in low paid employment. People on low pay spend a higher proportion of their income on food and a one Euro reduction would constitute an income reduction of 11.5%. Food prices in Ireland are already the second highest in Europe so this would severely impact on family poverty. The Vincention Partnership research, undertaken in 2009, demonstrates that a family of four requires an income of €578 per week. The Minimum Wage provides a weekly income of €337.
  • The economic argument: Poorer people spend most of their income on basic items like food, accommodation and clothing, therefore reducing their income will have an immediate and profound effect on demand at a time when we desperately need to stimulate demand. In addition, the tax take will be further reduced through a reduction in VAT receipts, thus further exacerbating the deficit in the public finances.
  • The competitiveness argument: Exporting firms in Ireland tend to be ultra productive because of key factors such as research, innovation and technology. These firms are thus more associated with the higher levels of pay required to secure highly skilled personnel. Minimum wage levels are not an important factor in their competitiveness.
  • The comparative labour cost argument: Ireland has many of the characteristics of a low wage economy and the hospitality sector is the largest employer of low-wage workers. When compared with other European countries, this sector has the third lowest labour cost in the EU 15 during with labour costs averaging €15.65 per hour against €12.84 in Ireland – only Greece and Portugal are lower than Ireland.

The Poor Can’t Pay – a coalition of NGOs, trade unions, and academics are also preparing a highly visible campaign against cuts to social welfare rates and the minimum wage in the next budget. As part of the 2010 campagin, the coalition has released a series of documents to support arguments for the retention of current rates. In the case of the minimum wage, you can download ’10 reasons not to cut the minimum wage’ on the Poor Can’t Pay website.

Ireland has a poor record in setting income standards for its most vulnerable citizens and in providing protection for migrant workers, who tend to be employed in relatively low pay sectors. The baseline has traditionally been set by social welfare rates, specifically means-tested allowances. The introduction of social employment schemes in the 1980s (another time of recession) brought rates of allowances that were firmly tagged to social welfare rates, so the income standard remained at a low level.

The introduction of the Minimum Wage, on foot of concerns that poverty could also be associated with employment, brought the income benchmark for those in employment to a higher level. There is now a concerted effort to bring the income benchmark back down towards the social welfare rate. While this is fairly typical of the type of onslaught that poorer people are subject to in times of recession, it is nevertheless heartening to see the formulation of a robust, evidence based defence of income rates for the lower paid emerging from the community and voluntary sector. For anti-poverty groups, the battle will focus on holding the line on income levels.

Visit www.eapn.ie for up to date information on poverty, social exclusion and inequality in Ireland and Europe.


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