A Job is Not Enough

Tony Blair galloped through his speech on welfare earlier this week as if his thoughts were elsewhere. Which is odd, since he was reminding the country of some of his government's best successes. Long-term youth unemployment, which scarred a whole 1980s generation, is now virtually eradicated. Unemployment is at its lowest since the 1970s, saving £4bn a year in benefits. Half a million fewer children are poor, and this is on target to reach more than 1m by 2004: a quarter of the way towards that difficult pledge to abolish child poverty in 20 years.

But then there has always been a curious ambivalence at the top about how to talk about the poor: there was no word anywhere in his speech about the 80% increase in benefits for the children of the unemployed, perhaps for fear they might be thought "undeserving". Nor did poverty feature in the election campaign, leaving many disgruntled Labour supporters knowing little of what their own party had done. In front of the cameras the word is always work, work, work. "Work is the best welfare", "a hand up, not a hand out". Otherwise people might think that this target requires real redistribution.

Tony Blair was standing in one of the new Job Centre Plus offices, in Streatham, which combine benefit and employment services in plush spaces that feel like a smart building society: soft armchairs, not hard seats bolted to the floor. Here anyone wanting benefits is interviewed at once about work, with personal advisers changing the climate of claiming: more single mothers are working, up from 44% in 1997 to 51% now. So "routes into work" was Blair's theme, and who would argue with that?

Except that the government will have to admit that simply pushing everyone into low-paid work will not solve the problem of Britain's still gigantic tide of poverty. Understanding Social Exclusion, an excellent compendium of the latest research published yesterday by the London School of Economics, shows that even anticipating the maximum possible return to work, 1.5m children will stay poor, living on benefits in families that cannot work. Why are benefit levels still below the poverty line? To make sure there is always a strong incentive to take a job. While the minimum wage remains so low, benefits will stay below the poverty line.

A job cannot guarantee a family will not still be poor. No one doubts that work is essential for escape into a life that rejoins the rest of society, but a job does not always do the trick. Why? Because pay remains so pitifully low. Didn't the minimum wage put that right? No, at £4.10 an hour or £164 a week, it is still lower than the pay for similar jobs 25 years ago. Although working families tax credits greatly help, the LSE's Abigail McKnight says latest figures show that 1.4 m children in 2001 were poor, despite having a working parent. Challenged about low pay, the official solution is the one Tony Blair used in his speech - help people train to move upwards: "We want to make social mobility a reality for all." (Though how can all move upwards? Caring, catering and cleaning still has to be done by millions.) And there is little training or help for people to progress. A Job Centre manager that day told me of the new official points system for his staff: 12 points for every unemployed single mother or invalid found a job, but only one point for finding a better job for someone already in work.

Adair Turner has just been made head of the low pay commission, which recommends the minimum wage rate each year. Former head of the CBI, author of an excellent book (in the Will Hutton mould) on how to civilise capitalism, he is a good choice and was warmly welcomed by John Monks of the TUC. Though Monks gently needled that since Turner was "extraordinarily well-paid" as vice-chairman of Merrill Lynch Europe, he would be "even more keenly aware of the desperate plight of the millions of low-paid workers". Until now the commission has been a timid instrument of the Treasury, fearful of the dire predictions that a minimum wage would lose cascades of jobs. Remember, those who think New Labour was first to politicise the civil service, the shameful report produced by DTI economists just before the 1997 election "proving" the minimum wage would lose well over a million jobs if Labour were elected.

But it never happened. Now Turner must press for a higher rate, because the long-term success of the poverty strategy depends on it. Does anyone know how high the rate can go before jobs are lost? Only extreme Thatcherite market economists claim they can predict an effect spread over thousands of types of jobs, in companies big and small. Suck it and see is the wise word. Keep pushing until you reach a ceiling. Then consider other strategies, sector by sector; maybe a return to wages councils for each, maybe a state sector (and its contractors) that will pull up private pay rates by itself paying a living wage.

Reading the LSE research, it is now clear that the government's poverty abolition programme will stall halfway unless there is a more radical strategy. Ultimately that has to depend on a big rise in low pay. Increasing WFTC state subsidy for low pay ever more grossly distorts the labour market the higher it goes. First, it prevents more than one adult in a household working, forcing wives to stay home. Then it stops people trying for promotion, since they lose benefits steeply if they earn more. At present it misses maybe a quarter of eligible poor families, who fail to claim. Above all, it lets employers hold down wages permanently, paying people far too little in a growing, wealthy economy. Low pay means the well-off pay too little for services. In shops, pubs, restaurants and care homes, and for child care, domestic and office cleaning, they will have to start paying a fair rate for the job, enough to live on. The only way all the poor can get richer is by the rich paying more in prices and taxes.

Other research published this week - by Professor Lars Osberg of the institute for social and economic research - experiments with the ideas of redistribution: in the years 1979-1995, the top 10th of the population had a real increase of nearly £14,000 a year. Supposing 10% of this sum had been taken and redistributed to the poorest 10th, what effect would it have had? (This is 10% of the increase in the incomes of the rich, which is only 3% of their total incomes.) It would have halved the number of poor: it would have reduced 1995 levels of poverty to below 1979 levels. So that ends the myth that taking from the well-off would not yield enough to make a difference to the poor. However, taxing the rich more to pay extra benefits may not the best way to redistribute.

Making sure that a week's work pays a living wage is more important, especially when benefits for those who can't work will always be pegged below pay rates. Work, work, work is fine - only so long as work pays a living wage.

Understanding Social Exclusion , by John Hills, Julian Le Grand and David Piachaud.

p.toynbee@guardian.co.uk