Why we need to talk about poverty levels in Northern Ireland
Economy Watch by Neil Gibson, EY Ireland chief economist
I recently had the pleasure of attending the Joseph Rowntree Foundation (JRF) round table and launch event for their Poverty in Northern Ireland 2018 report.
The events left me with much to ponder. They were informative, inspiring and humbling. Poverty is one of the policy issues that sits firmly in the 'tough conversation' box.
It stirs up emotions and does not always generate the level of wide policy debate that one might hope for. Too often the debate is dominated by interest groups, and taxpayers steer clear.
Is it because they are sceptical of the concept of poverty in a local context or perhaps because they are uncomfortable about the tax debates that will follow?
However, as part of the poverty solution requires tax redistribution, it is necessary to have the people whose tax you are distributing in the conversation.
JRF worked hard to ensure this was the case, but it remains a difficulty.
The meeting was challenging and humbling for a number of reasons. It is challenging because the data is not as straightforward as you might imagine and concepts of relative and absolute poverty need to be carefully understood in order to correctly interpret the findings.
Humbling because, like many in the economic policy sphere, I have been fortunate to live a life in which poverty has not been something to which I have been close personally.
Hearing from people delivering frontline support for those dealing with poverty about their experiences and all the economic and social challenges that go with low income can be rather distressing.
It seems incredulous that the problem exists to the extent that it does today in a country with the wealth levels Northern Ireland enjoys. Without having experienced it first-hand, it seems somewhat disingenuous to opine on the policy solutions required.
However, as an economist, it is hard not to turn one's mind to what might need to be done.
The report remarked on some improvements in the trends, particularly with regard to falling levels of pensioner poverty, over the last decade.
It also highlighted that poverty levels were slightly lower in Northern Ireland than in England and Wales. However, the report focused heavily on the problems of lower employment rates and skills deficiencies in Northern Ireland.
The findings reinforced the oft quoted mantra that a job remains the best route out of poverty, though an important caveat was added. The job needs to be a 'good' job as levels of in-work poverty are on the rise despite minimum wage legislation and other policy progress.
Stepping back from the personal experience, the macro economist in me focuses on the redistributive effects of redressing poverty and the 'cost' that low educational attainment and poor employment outcomes have on the wider economy.
It is not easy to identify spending on poverty mitigation measures but the social protection budget is a helpful place to start.
Spending of £8.9bn in 2016/17 is a striking figure (based on Treasury PESA data). This cost is made up of pensions, welfare payments, other redistribution/financial support and the costs of running the social protection department and its various services.
But £8.9bn (£5.7bn excluding pensions) is not a small number, the estimates of income tax or VAT receipts combined only reach £6bn. Health spending and education spending which, arguably, receive more airtime than poverty, cost £4bn and £2.7bn respectively (again using PESA classifications).
The lack of attention on welfare costs is partly a function of the fact that this form of spending is referred to as 'annually managed expenditure' and does not impact directly on budgets for departmental spend.
In other words, if welfare spending rises, the money is received from Westminster and does not need to be taken from other local spending priorities.
This perhaps suggests the incentives are not as strong as they might be to meet this challenge.
The move towards more localised welfare policies, a trend accelerating in Scotland, is likely to continue. Perhaps an item on the agenda for the Executive when it returns (I have decided to speak only in positive tones on devolution to improve my mood).
As Chief Economist in EY, I am keen to see how business plays an increased role in meeting the poverty challenge. After all, businesses want and need wealthy customers.
Poverty is not good business. Perhaps, as was discussed at the round table, we need to think more in terms of growing prosperity and increasing success than dwelling on the language of poverty. How could welfare policy be modernised, what policy or tax changes could better incentivise employers to look wider in their search for talent?
All good questions that are now running around my head after the event. Helen Barnard, her team in JRF - and Quintin Oliver as their eyes and ears in NI - deserve credit for enlivening this debate.
÷Since I last wrote an Economy Watch article, the government and academic economist, Dr Graeme Hutchinson, sadly passed away.
Amongst his many achievements was his role in helping to establish the Economic Policy Centre at Ulster University, where I was previously the director. He was a passionate thinker about economic policy and I will miss his insight and ideas.
In next week's Economy Watch, we hear from Dr Esmond Birnie of the Northern Ireland Economic Policy Centre