Government child poverty strategy needs rethink as experts warn of looming crisis

May 7, 2013

Responding to the publication today of new projections for UK child poverty rates, prepared by the Institute for Fiscal Studies for the Northern Ireland Executive (OFMDFM), Alison Garnham, Chief Executive of Child Poverty Action Group, said:

“We always put our children’s needs first in family life, and we should do as a nation too. But today’s dire projections reveal we are in danger of failing the next generation.

“The Government has child poverty targets and a child poverty strategy because it knows poverty destroys life chances and generates huge costs to our economy. Today’s figures must lead to a rethink of a strategy that not only isn’t working but looks set to turn the child poverty problem into a child poverty crisis in the years ahead. As a result of the Government’s flawed strategy, over 1.1 million more children will be living in poverty by 2020-21.

“We need a child poverty strategy that contains policies which deliver on important issues such as job security, living wages, and affordable housing for low income families. When the right policies aren’t in place to help ensure family life is affordable, it’s inevitable that children suffer.

“The security of our families and the progress of our children need to move to the top of the Government’s list of priorities. If children aren’t put first, the threat of a child poverty crisis will become a reality.”

ENDS

Notes to Editors

  • The IFS figures are available here
  • Today’s figures update an earlier report published by the Institute for Fiscal Studies (IFS) in 2011, which estimated that the government’s changes to tax and benefits announced in the 2010 and 2011 budgets and spending review would increase relative child poverty by 800,000 from 2010 to 2020, and absolute child poverty by 600,000. http://www.ifs.org.uk/comms/comm121.pdf
  • In 1999, Tony Blair made a commitment to halve child poverty by 2010, and eliminate child poverty by 2020. Official figures show that from 1998 to 2010/11, relative low income child poverty was reduced by 1.1 million children to its lowest level in 25 years. Absolute child poverty was reduced by 2 million against a previous baseline year of 1998/99, but the absolute poverty line has since been rebased at 60% median household income in the 2010/11. (http://statistics.dwp.gov.uk/asd/index.php?page=hbai)
 

Relative low income poverty

(children)

Absolute low income poverty

(children)

1998/99 (actual) 3.4 million -
2010/11 (actual) 2.3 million 2.3 million
New IFS estimate for 2015  2.9 million  3.2 million
New IFS estimate for 2020  3.4 million  3.9 million
Government target for 2020

1.3 million

(based on current population under 18 years)

115,000

(based on current population under 18 years)

 

  • These increases are due to the Government’s tax and benefit reforms. As the IFS report states: ‘Tax and benefit reforms introduced since April 2010 can account for almost all of the increases in child poverty projected over the next few years’ (pp. 4) or ‘The result of this policy is that, despite the impact of Universal Credit, the overall impact of reforms introduced since April 2010 is to increase the level of income poverty in each and every year from 2010 to 2020’ (pp. 32).
  • In 2010 the main political parties supported the Child Poverty Act with statutory targets for 2020 and statutory requirement for Government to publish a strategy that explains how progress will be made. http://www.legislation.gov.uk/ukpga/2010/9/contents
  • The Government measures four dimensions of child poverty for the Child Poverty Act and its targets, and for the Coalition Agreement commitment on child poverty:
  • Relative low income (below 60% median household income)
  • Absolute low income (below 60% median household income help constant at baseline year)
  • Persistent poverty (3 years or longer living below 60% median household income)
  • Material deprivation (from a survey of what families can afford who are below 70% median household income)
  • In April 2013 several significant cuts to tax and benefits came into effect, including:
  1. Tax Credits cut - the difference between a recipient’s previous year income and their current year’s income that is disregarded when calculating their final award was reduced from £10,000 to £5,000. This results in a £455m cut for those receiving tax credits. http://www.hmrc.gov.uk/manuals/ccmmanual/ccm1135.html
  2. The Bedroom Tax – claimants with social housing tenancies will have their housing benefit penalised for having rooms in excess of new criteria. This results in a £490m cut for those affected claimants of housing benefit.
  3. 1% uprating cap on working age benefits and tax credits - The government have altered working-age benefits and tax credit so that instead of rising in April with the Consumer Prices Index (CPI) of the previous September, they are uprated by only 1% for the next three years. For working-age benefits and tax credits, this means a cut of £505m. On current inflation projections from the Office for Budgetary Responsibility, capping benefit uprating at 1% for three years will represent a real terms cut to the value of social security benefits and tax credits of 4% over the period. However, if inflation were to average 4% across the three years of the 1% cap on uprating, then the real terms cut would be 8.4%. If inflation averaged 5% across the three years, the real terms cut would be 11%. The new Governor of the Bank of England, Mark Carney, has indicated he prefers a more flexible target for inflation instead of the current inflexible target of 2%, increasing the possibility that inflation may be allowed to rise. Moreover, the poorer households are hit harder by inflation as they they spend a greater proportion of their budgets on basic items such as food, water and fuel, prices of which have risen faster than general inflation in recent years.
  • In the 2012 Budget it was announced that the rate of tax for those earning over £150,000 a year would be reduced from 50% to 45%. This came into effect in April 2013.

Distributional impact of 2013/14 tax and benefit measures

  • CPAG is the leading charity campaigning for the abolition of child poverty in the UK and for a better deal for low-income families and children.
  • CPAG is the host organisation for the Campaign to End Child Poverty, which has over 150 member organisations and is campaigning for public and political commitment to ensure the goal of ending child poverty by 2020 is met.