The Resolution Foundation: 200,000 more children in poverty next year
The Resolution Foundation made the news last week with their estimates of the impact on child poverty of the Summer Budget.
Their report, A poverty of information, suggests that 200,000 more children will fall into poverty in 2016/17 as a direct result of the measures in the Summer Budget. That amounts to 2.9 million children in relative poverty (after housing costs), compared with the latest figure of 2.3 million (2013/14). And the Summer Budget measures are set to raise child poverty by between 300,000 and 600,000 by 2020, on top of increases already projected by, among others, the IFS.
The report gives two projections for poverty levels in 2020, one that assumes none of the ‘flow’ effects of measures in the Summer Budget – i.e. those that only affect new claimants – will have taken effect, and one that assumes that they will have taken full effect. Clearly, as the report points out, the truth is likely to lie somewhere between; for example, the government’s costings estimate that around half of the impact of the two child policy will have taken effect by 2020. The Resolution Foundation estimate that either 3.7 or 3.9 million children will be in poverty by 2020, depending on which of these two scenarios is used.
In-work poverty is projected increase to between 2.2 and 2.3 million in 2020 – accounting for around half of the overall increase in child poverty, and the majority of the rise due to the Summer Budget measures. (The key driver of pre-Summer Budget changes is cited as being the continued uprating of benefits by CPI: CPI is projected to grow by 6.7 per cent between 2015 and 2020, whereas average earnings are projected to grow by 21.5 per cent.) The report also provides estimates of the poverty gap (for all households): in 2013/14, 17 per cent of households were in poverty, with their income on average 29 per cent below the poverty line – a poverty gap of £18.8 billion; this is projected to rise to £23.1 billion by 2020/21.
Like CPAG, the Resolution Foundation are in favour of retaining an income measure of poverty, in addition to the new ‘life chances’ measures, but noting that ‘income poverty itself is likely to be a key driver of future poverty risks’. They point out that ‘there appears to be a fundamental incoherence in targeting two factors considered to be potential drivers of the outcomes of income poverty and deprivation while rejecting the measurement of these outcomes themselves’. The report cites the 1979 Townsend definition of relative poverty:
Individuals, families and groups in the population can be said to be in poverty when they lack resources to obtain the type of diet, participate in the activities and have the living conditions and amenities which are customary, or at least widely encouraged and approved, in the societies in which they belong.
Looking at the record of the post-1997 Labour government, the Resolution Foundation point out that the proportion of children in poverty fell from 26 to 18 per cent, but argue that, even before the financial crisis hit, progress had slowed ‘because of reduced headroom for further employment gains and state support top-ups’. They produce a couple more statistics that chime with this interpretation. Between 1996/97 and 2013/14, the proportion of children in poverty fell from around one in four to around one in six, and ‘over the same period, the number of children in workless households also fell, but to a greater extent than the number in poverty’. This had the cumulative effect that, despite one million fewer children being in poverty compared to 1996/97, the number from working families (around 1.4 million) is unchanged.
Analysis of government strategy
This leads naturally enough to the report’s conclusion that the focus on worklessness in current government policy is misguided. The report notes that the design of incentives in universal credit risks ‘trapping parents at low levels of earnings’, and goes on to say that: ‘there is a significant danger that the government places too much emphasis on dealing with a problem that has to a large extent already been fixed (the proportion of workless households is at an all-time low), while ignoring the larger underlying difficulties families face’.
At the same time, however, the report also notes that ‘it is likely that the reduction in the value of child tax credit will re-strengthen the link between worklessness and income poverty’.
Perhaps the biggest take-home message for me from this thought-provoking analysis is that the great progress that was made on child poverty in the 2000s was mostly through moving parents into work, using a multi-strand approach that included investment in childcare, in family benefits, and in employment support. It’s clear, though, that the challenge of in-work poverty is one that proved a great deal thornier, and one which requires creative policy in a range of areas (reworking incentives under universal credit being one example raised by this report).
There is a very real risk, though, that this government risks throwing away what works, rather than building on it. Adding in measures on drivers of poverty and life chances to push forward policy is very welcome (if done well), but it must not come at the expense of the child poverty measures and targets which did so much to motivate government action. And the ‘national living wage’ is a welcome start towards the kind of policy mix needed to help tackle in-work poverty, as is increased childcare support. But when they are outweighed by the disavowal of the policies, such as tax credits (and therefore their successor, universal credit), that drove the successes on child poverty at the start of this century, the overall outcome is going to be bad for children – as this piece of research ably demonstrates.