Peter Kelly looks at how the most vulnerable people in society will experience the effects of the financial crisis this Christmas

With unemployment increasing, the number of vacancies declining and repossessions starting to creep up we are now starting to see the real impact of the credit crunch. In this context perhaps now is not the best time to be talking about tackling poverty. But the pressure to protect people living on low incomes must be stepped up if we are to ensure that levels of poverty do not rise again. In this article Peter Kelly looks at who will be hit in the fallout from the credit crunch and what it means for the fight against poverty.  

What a difference a year makes. This time last year many anti-poverty organisations were still considering the role of the ‘new politics’ in Scotland and what this could mean for the for the people they represented. Promises were being made by the new SNP Government regarding the extension of free school meals provision, for a local income tax that would be related to the ability to pay, and most interestingly, a commitment to reduce income inequality by 2017. There was little detail, but the signs that real opportunities existed to push forward the anti-poverty agenda in Scotland were there.

One year on and the context has been transformed. It is not the new politics that occupies many organisations now, but the return of what could be seen as the ‘old economics’. The credit crunch has reminded us that boom and bust has not been abolished and that the UK, let alone Scotland, is not immune to the dramatic failure of neo-liberal economic polices in the US.

The bailout of some of our best known high street banks, a direct result of the credit crunch, has rightly been the subject of a great deal of media attention. Billions will now been spent intervening in a sector of the economy where business leaders have been particularly virulent in their rejection of regulation. It is only right that we know how this investment will be spent and how we will regulate the sector in the future. But now as the crunch leads to recession, attention is turning to the effects on the ‘real economy’, particularly on the finance and construction sectors.

The Economy, Energy and Tourism Committee in the Scottish Parliament has recently taken evidence on the impact of the crunch - the discussions make grim reading. It was estimated that up to 30,000 jobs have already been lost in house development industry in Scotland (this covers surveyors, planners, sales staff and site managers as well as some construction jobs), and that the number of houses built could be cut in half by the end of the year, with only12,000 completions. In the financial sector estimates of the number of job losses have varied, with commentators suggesting between 10,000 to 40,000 jobs will be lost as a result of the credit crunch. It also seems clear that the merger of HBOS and Lloyds TSB has also put at risk thousands of jobs in Scotland. These losses will inevitably have an impact on other sectors and will lead to further increases in unemployment.

At the UK level, claimant count unemployment increases have been the highest since 1992. In Scotland claimant count unemployment has increased to 2.4 per cent, the same as the UK rate and the rate of employment, which remains one of the highest in Europe, fell by 7,000. The European Commission has estimated that unemployment will increase to 2.5 million in the UK by 2010, and that the recession here is likely to last longer than in most other parts of the EU.

So it is clear then that the recession will have a significant impact on key sectors in the Scottish economy and we are likely to see big increases in unemployment. Given the importance that Government in Scotland and the UK has placed on the need to tackle poverty it is a little surprising, and worrying, that there has been relatively little discussion of what the coming recession means for addressing poverty. Of course, the commitments that were made (halving child poverty, reducing income inequality, etc.) were made before the recession was looming.

For those committed to social justice, the key issue regarding the credit crunch and the coming recession is the impact of these developments on the patterns of poverty and inequality in Scotland and the UK, and on the commitments that have been made by Governments north and south of the border to tackling poverty.

Scotland is seen in some quarters as having had a relatively good record in relation to tackling poverty over the last 10 years. There is little doubt that the decline in child poverty is very welcome, falling from around 1 in 3 of all children to 1 in 4. However that leaves around 250,000 people living in low- income households, hardly a figure for much rejoicing. And as a recent report from the New Policy Institute and Joseph Rowntree Foundation (Monitoring Poverty and Social Exclusion in Scotland, 2008) pointed out, the decline that had been taking place has come to a halt over the last three years. But even then, the Rowntree/NPI report notes that ‘the Scottish child poverty rate is now amongst the lowest for any part of Great Britain.’ However, given the scale of the job losses that are expected, it seems very unlikely that we can avoid a return to increasing levels of child poverty.

What should also be of real concern in relation to the impact of the credit crunch are the recent trends in terms of poverty amongst adults without children. This is an area that has received little attention from policy makers over the last 10 years, with very few targeted interventions to boost incomes in comparison to the work supporting families with children or pensioners. According to the new NPI report this has resulted in the number of adults without children living in low-income households rising by around 60,000 in Scotland over the last 10 years.  The vast majority of those are adults in households where someone is working.

This relative neglect of working age adults without children is of real importance when we consider where the credit crunch is likely to hit hardest. There are two key points that need to be emphasised. The first relates to the value of welfare benefits: the NPI report notes that for a large proportion of workless, working age adults without children ‘there has been no increase in the value of social security benefits relative to inflation for at least two decades.’ For these people then, the welfare safety net no longer provides any real security. As unemployment begins to increase, many more people will begin to discover the harsh reality of welfare reform.

The second point is that the problem of low pay is still long way from being solved. Recent consultation work carried out by the Poverty Alliance has highlighted the continuing impact of low paid employment, both for those working and people trying to get back to work. Participants in one consultation felt that there was little incentive for them to return to work when all that was on offer were jobs that paid the minimum wage. The jobs that were around could not provide the financial security that people required, and would not lift them out of poverty. The NPI report finds that there are over 500,000 workers in Scotland earning less than £7 an hour. Part-time workers, especially women, remain far more likely to be low paid and some rural areas, such as Dumfries and Galloway and Moray, have high proportions of workers in low paid jobs.

Workers in these low-paid and part-time jobs will become even more vulnerable in the recession and will feel the effects to a greater extent than in the past. We know that even low paid workers have taken on higher levels of personal debt than would have been the case 20 years ago. With little chance to have built up any real savings, low paid workers will be faced with the prospect of trying to manage high levels of debt. In this situation they may be even more vulnerable to moving into poverty than those who lost their jobs in the recession of the early 1980s. 

The declining value of welfare benefits will also expose more people to poverty in the next few years. But it is not only the prospect of low value out of work benefits that faces Scottish workers who lose their jobs. The welfare system we have developed over the last 20 years is one that place far more conditions on claimants and where more than 13,000 people in the UK are ‘sanctioned’ every week for not meeting these conditions. We should also be very concerned with the proposals of the UK Government’s recent welfare reform Green Paper, such as the idea of ‘working for your benefit’.  In the context of a recession the Government’s welfare reform proposals will not help people back into work, but will only threaten already meagre incomes.

As we move into recession we are faced with the prospect of many more Scots being at greater risk of poverty. Jobs will disappear in many important sectors of the economy; jobs that are traditionally better paid. At the same time there will be pressure to keep pay increases down in many already low paid sectors. Alongside these problems, many more people are carrying crippling levels of personal debt that exposes them to real hardship if they lose their job. And finally, the welfare state, for many people, will provide little in the way of protection for those who are affected by the credit crunch. 

This is not an encouraging context for those of us trying to fight poverty. The gains that have been made over the last 10 years could all be undone very quickly. Already, it seems likely that the investment required by the UK Government to reach the 2010 target of halving child poverty will not be made. But that fact that Governments in Scotland and at Westminster have made clear commitments to tackling poverty now becomes very important. It gives campaigners an opportunity to expose policies that are causing poverty and to put more pressure to invest in helping the poorest.

The emergence of both the Scottish Campaign on Welfare Reform and the Scottish Living Wage Campaign are important developments. Both of these campaigns have involved broad coalitions of trade unions, faith groups, community and voluntary organisations and are seeking to press for changes that will protect benefit claimants and low paid workers, and that will ensure that the impact of the credit crunch will be limited. How politicians and policy makers respond to these and other social justice campaigns will be a test not only of their commitment to tackling poverty in times of recession, but also of what the ‘new politics’ really means. For the sake of those facing an uncertain future in Scotland over the next two years, we must hope that we have moved beyond the old politics (and economics) of blaming the poor and unemployed for their own situation, to a politics that values everyone regardless of their income or work status.

 Peter Kelly is Director of the Poverty Alliance. For more information on the campaigns contact him at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it