A Step Towards a Poverty Free Tower Hamlets? The arguments for setting a progressive Council Tax Regime. Part 1 (Theory)

Poverty and Poor Decisions

Why do people in Tower Hamlets make so many bad decisions? Looking at the data for Tower Hamlets (Overview of London Boroughs – Trust for London), people in Tower Hamlets, save less, have poorer health, generally make bad decisions. Looking at the poverty of London, it seems those bad decisions are linked to the high poverty rates.

One answer, crystalised by the attitude of Margaret Thatcher is that poor people have a ‘personality defect’. This has been the hallmark of many anti-poverty measures. Conversations center around, ‘we could make the paperwork easier’, or ‘send people a text message to remind them of their bills’, ‘let’s set up a small anti poverty fund to fund these programmes.’ These “nudges” are hugely popular with modern politicians, because they cost next to nothing. They are a symbol of virtue signalling, in which we so often treat the symptoms but ignore the causes, and feel good about ourselves. For example a recent analysis of 201 studies on the effectiveness of money management training came to the conclusion that it makes almost no difference at all. Poor people might come out wiser, but it’s not enough, like teaching someone to swim and then throwing them in a stormy sea.

People make poor decisions due to poverty – poverty is not caused by poor decisions

People behave differently when they perceive a thing to be scarce. What that thing is doesn’t much matter; whether it’s time, money or food, it all contributes to a “scarcity mentality”. This narrows your focus to your immediate deficiency. The long-term perspective goes out of the window. Poor people aren’t making dumb decisions because they are dumb, but because they’re living in a context in which anyone would make dumb decisions. Basically people are poor due to a lack of cash and hence make poor decisions.

A paper published by academics, ‘Poverty Impedes Cognitive Function’, demonstrates the above point . The academics travelled, to India, to carry out an experiment with sugar cane farmers. These farmers collect about 60% of their annual income all at once, right after the harvest. This means they are relatively poor one part of the year and rich the other. The researchers asked the farmers to do an IQ test before and after the harvest. The farmers scored much worse on the tests before the harvest. The effects of living in poverty, it turns out, correspond to losing 14 points of IQ. That’s comparable to losing a night’s sleep, or the effects of alcoholism.

Cash Transfers to the Poor – A step towards a Tower Hamlets very own Progressive Council Tax Regime

Here is the simple idea. We use Tower Hamlets own Council Tax Reduction Scheme, to establish a progressive Council Tax Regime to help families (a small step) towards achieving a monthly allowance of enough to pay for their basic needs: food, shelter, education. When it comes to poverty, we should stop pretending to know better than poor people. The great thing about money is that people can use it to buy things they need instead of things self-appointed experts think they need.