Tom Miers: Labour can tackle 'artificial poverty'

• Former Tory leader Iain Duncan Smith, on a visit to Easterhouse in 2002, is one of the few politicians to think seriously about the issue of poverty in Scotland; now Labour must do the same Picture: Donald MacLeod

The great domestic policy challenge is the issue of poverty. It is deeply shameful that our society, which has experienced such huge advances in prosperity over the last two centuries, should still include so many who suffer the effects of social deprivation.

The Labour Party's historic mission is to use the power of government to liberate the masses from the curse of poverty, yet, since devolution in 1999, very few concrete measures have been taken in Scotland to tackle this issue. Of course, since 2007 Scottish Labour has not controlled the Scottish Parliament. Yet it is hard to detect new thinking on this from the library of opposition. It must be embarrassing that the only senior politician to think seriously about the issue of poverty in Scotland in recent years is the English Tory Iain Duncan Smith.

For too long Labour has concentrated on the wrong target with regard to poverty, the number earning less than 60 per cent of median net household income. This is really a measure of inequality, and, absurdly, can deteriorate if the nation as a whole gets richer.

The truth is that almost nobody in Scotland is poor in material terms. Anyone can buy a television or a fridge, luxuries that can only be dreamed of by the genuinely poor in the developing world. Instead, Scotland's problem is that a large section of the population exists in conditions that are akin to real poverty despite their material prosperity. This phenomenon - which I will dub "artificial poverty" - is the real problem that Labour should address.

Those in artificial poverty suffer from a number of conditions that resemble the real thing: illiteracy, poor housing, frequent exposure to crime, family breakdown, chronic ill health, lack of work and so on. A quick look at the data related to some of these conditions reveals the scale of the problem.

The Literacy Commission, set up by the Labour Party itself, estimated that 18.5 per cent of Scottish adults were functionally illiterate. Some 23 per cent of the Scottish workforce is either unemployed or otherwise economically inactive. Twenty-two per cent live in social housing of one kind or another and 23 per cent of children live in a single parent household.

It is important to remember that many of those picked up by these official statistics lead fulfilling, happy lives. Nonetheless, if we assume that, either in combination or alone, these attributes often lead to "artificial poverty", we are looking at a major proportion of the population. The political commentator Will Hutton wrote of a 30/30/40 society in which 30 per cent were economically marginalised and socially disadvantaged. This may have been a little pessimistic, but it would not be unreasonable to suggest that up to a quarter of Scots experience artificial poverty to some degree.

In a recent book The Devolution Distraction, I argued that the Scottish Parliament holds most of the powers necessary to undertake a radical reforming agenda, and that further powers are not necessary for a generation at least. It is often lazily assumed that because the benefits system is a reserved matter, the Scottish Parliament has no influence on welfare issues. Yet important powers over welfare spending, education, urban development, healthcare, criminal justice and institutional law are controlled locally. In combination, these are the tools needed to address the problems of artificial poverty. Total spending on the welfare state accounts for 24bn, or 71 per cent of the Scottish Government's budget.

To its credit, south of the Border, New Labour made a serious attempt to rethink its approach to artificial poverty. The likes of Tony Blair and Alan Milburn sought to reform key public services such as health and education by introducing market disciplines that favoured the consumer.

It is probably too much to expect Scottish Labour to embrace this agenda. After all, the whole point of devolution was to inoculate Scotland from just these kinds of liberal reforms. Yet that does not means that Labour in Scotland should sit on its hands. As Gerry Hassan pointed out in these pages last week, the party has for too long seen political economy as a choice between central planning and the market. In practice that has meant long decades of protecting the producer interest and the status quo. This simply plays into the hands of Nationalists who claim that meaningful change can only come through independence.

Instead, Scottish Labour should adopt a distinctive approach to artificial poverty that draws upon an alternative and authentic left wing tradition of social reform.

There are ways in which the powers of the Scottish Parliament could be deployed to break the cycle of dependency.

The Scottish Government could remodel its own welfare efforts to reward work, perhaps by developing supplementary savings and mutual insurance products in conjunction with the financial sector. These could provide additional security for the low paid, improving incentives to work and helping the newly unemployed to re-enter the job market.

A second way to attack poverty is to engage more with independent organisations that already provide the means to escape form artificial poverty. The Scottish Government could commission services designed to achieve specific objectives in terms of employment, the rehabilitation of criminals, recovery from drug abuse and so on.

Thirdly, and most ambitiously, Labour should revolutionise its approach to public service provision. Rather than seeking to control (or be controlled by) the producer, Labour should develop new ways for individuals to organise themselves to encourage co-operation and self-help in keeping with the early socialist tradition of welfare.

The local authority model of service provision in education, planning, development and housing has proved particularly ineffectual and should be progressively replaced by a more accountable system. The co-operative model is already tentatively applied in the form of housing associations. But there is much greater scope for extending community involvement into the public realm to include local services such as schools, parks and street maintenance.

Residents of co-operative communities would hold voting rights over management, but could sell their stake and move on, so that social mobility and labour market flexibility were retained. The buyer would acquire an asset, but one which came with tied rights and responsibilities. Income from service charges and development leases could be used to commission or attract local services and infrastructure such as post offices, broadband, transport, leisure facilities and even shops. Spacious, affordable housing would be encouraged that was in tune both with individual requirements and with the tastes of the wider community.

Such a model would encourage accountability and excellence in education and other services, as well as collective husbandry of the community. This would help to re-establish a moral framework that was hostile to anti-social behaviour, truancy, drug taking and the other social ills.

Interestingly, independent organisations in Scotland such as the Hometown Foundation are already beginning to experiment along these lines. And there are also home-grown efforts to apply these ideas to education, for example the reforms being contemplated by East Lothian Council.

Currently, Labour's response to these efforts has been at best reluctant applause from the sidelines, and at worst outright hostility. Instead the party should embrace experimentation in new forms of service delivery, encouraging and inviting community-owned structures to be established across the country.

n Tom Miers is an independent public policy analyst. The Devolution Distraction is available from Policy Exchange.