By Richard Johnstone | 15 December 2014
Cities should be given greater financial incentives to tackle poverty by being allowed to retain more of the savings made from cutting unemployment, the Joseph Rowntree Foundation has said.
In a report published as the Sheffield City Region was given powers to boost local economic development, JRF found that 80p in every £1 saved from moving someone out-of-work into a job that pays the Living Wage goes to central government.
By contrast, The benefits of tackling worklessness and low pay report found that only 7p goes to the local authority, with the rest accrued to the NHS (10p) and the criminal justice system and housing providers (3p).
Josh Stott, policy and research manager at JRF, said that, as cities were being given additional powers over skills and back-to-work schemes, they should be better rewarded to incentivise action.
‘Otherwise we risk returning to business as usual – seeing growth but leaving behind people and places in poverty,’ he said.
‘Addressing poverty means cities can reach their full economic potential, making use of the skills and talents of all the workforce.’
According to estimates from the Centre for Economic and Social Inclusion for JRF, based on a study of the Leeds city region, the government gained £6,900 on average when a person moves from unemployment to a job paying the Living Wage. This is derived from benefit savings, increased tax take and reduced administration costs.
In total, the local economy was boosted by £14,400 a year as a result of the increased productivity and disposable income, while individuals themselves are better off by £6,500 a year.
Paul Bivand of CESI said there was increasing consensus that cities and counties should play a greater role in stimulating growth and making sure their unemployed and low-paid residents benefit.
However, they currently have no clear incentive to do so as most of the gains go to national government.
‘Successful local initiatives could be rewarded by local areas keeping benefit savings – creating an incentive to invest more resources, time and energy in promoting inclusive economic growth,’ he added.
