Cut rents to make the poor richer

At last we have a government of good intent towards the poor. Tony Blair says that he will count himself a failure if society is not fairer at the end of his reign. But how is that objective to be achieved?

Most people have ambivalent attitudes towards the poor - they are keen to help the deserving, but worried about scroungers. Labour's welfare to work plan has garnered wide support because it takes both carrot and stick to the young, avoiding that dilemma. But while it will certainly help the young and single mothers, what of the rest?

Three reports out this week suggest that for many, Labour's work scheme will not manage to bridge the yawning chasm in incomes that now divides low earners from the rest. Thanks to it, poor people may get jobs, and the minimum wage ought to help. But that is against the background of the past 20 years, when the lowest paid have fallen far below average incomes.

What does being poor mean? The "Breadline Britain" report from poverty expert Professor Peter Townsend and colleagues at the University of Bristol defines poverty simply: ask the population at large what they regard as the necessities of life. When questioned by MORI, people say poverty is a lack of essentials - such as a warm overcoat, two meals a day, a fridge and a telephone. On this basis an extra 3.5 million people have fallen into poverty over the last 15 years, making a total of 11 million.

The studies sponsored by the Joseph Rowntree Foundation show that most in the bottom tenth of income distribution move in and out of work. But while getting a job lifts people off the very lowest rung, most of those on low wages are unlikely to move far up the ladder - and a third are likely to drop back into unemployment. However much a job rescues them from the worst poverty, rags-to-even-modest-middleclassdom is rare. Welfare to work will probably help many, but there is nothing in this evidence to suggest it will make a very significant difference to income redistribution.

So welfare to work may satisfy our self-interested impulse to stop the young turning into criminals. But what of our more generous, altruistic sentiments? How else is Blair's promise of a fairer society to be fulfilled?

Easy - you might say - just give the poor more money. But even supposing that is what the Government and the voters would like to do over the next few years, what are the means by which it might be done? The saints of old made it seem simple - just hand out the money with a smile. But the problem is that every penny given in state benefits only makes leaving welfare to take a job prohibitively unaffordable to those who might work. Even a small gesture, such as, perhaps, giving those on income support a free TV licence, tightens this poverty trap. Some in the poverty lobby still call for increased universal benefits, especially child benefit. But that only wastes millions on middle-class mothers. How do you pinpoint the right people?

This dilemma is as old as the hills, a problem that has foxed governments of both punitive and philanthropic intent. How do you separate the sturdy beggars (who might work) from the frail (who can't)? The Victorians hit on the workhouse as the perfect answer. Only the really desperate would enter its doors - screening out any scroungers. Once there, they would work - welfare to work incarnate. But it was a disaster. Most of the inmates were old, sick or children, not productive workers.

Besides, the workhouse cost. Examining the Victorian records of the Leeds workhouse, I found the food eaten by inmates was by no means Dickensian gruel, but three meals a day, with daily meat, beer, bread, cheese and vegetables, a far better diet than most of the poor can afford now. It was far cheaper to hand out small sums and let the poor fend for themselves. But then the old worry nagged again - how could the ratepayers be sure the parish wasn't being cheated and the work ethic undermined?

That is the mind-trap that we have to escape from if we sincerely want the poor to be richer. First, there is one large group of the poor we could help without worry, a group for whom more money would do nothing but good. We could give a fat supplement to the 2.5 million pensioners and genuinely sick who depend on income support. It would cost us about pounds 1.3bn for every pounds 10 extra a week - an act of pure generosity that does nothing to benefit the rest of us. But why not?

The problem comes with the fit, working-age poor. Yes, more of them can be helped to work, but today's new studies show how depressingly few of them are likely to move out of the low income brackets. Even if family credit, the benefit that tops up the wages paid to those in low-paid employment, was more generous, it has one cardinal fault. The more the low-paid earn, the faster they lose the housing benefit they get in order to be able to afford somewhere to live: that acts as a sharp work deterrent.

In fact it's housing benefit that lies at the root of the poverty trap conundrum.

Twenty years ago rents paid for council and housing association homes were heavily subsidised by the state. But hoping to encourage the poor to use the private sector, the Tories transferred that subsidy to people in the shape of housing benefit, believing private rented housing would flourish once the poor could make their own choice of landlord. It never happened. Instead, without subsidy, council and housing association rents soared. In London now council rents are around pounds 50, and housing associations charge some pounds 80 or more.

What single mother could go out to work and cover the cost of a rent like that? Even on family credit she would lose too much housing benefit. What's more, housing benefit is the worst administered benefit, with long delays, so the poor fear moving in and out of work and building up rent arrears. It is also seriously prone to fraud by cheating landlords.

Meanwhile, the better-off have fled public housing to buy their own homes, leaving underclass ghettos behind them. But that flight does have one advantage. If you want to target the genuinely poor you will find them all living together on estates, with virtually no one else. If the Government returned to direct rent subsidy, the extra money would go straight into the pockets of the poorest. At a stroke it would make even a low-paid job vastly more desirable and profitable. The Government would have to subsidise local authority housing budgets again - a source of tension. But the soaring housing benefit bill would come down.

The question is, do we sincerely want to make the poor richer? Are we willing to pay more of our taxes to them? The unemployable will always be with us - the feckless, sub-normal, dysfunctional and despaired; not all can be picked up, trained, dusted down and pushed into jobs. At present social security and employment ministers are up to their necks in trying to make welfare to work happen. All now is invested in that, for if it fails there will be no money or public support for more altruistic approaches to poverty. If it's a triumph, blocking off entry to new generations of the under-class, then they believe it will create the goodwill to treat the rest more generously - including those who cannot work.

Altruism is not off the agenda, it's simply on the back-burner until all the employable are found jobs.