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?

Posted in: Economics • Welfare

Tagged with: social welfare • cuts

Michael Taft     @notesonthefront

Michael Taft is an economic analyst and trade unionist. He is author of the Notes of the Front blog and a member of the TASC Economists’ Network.