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Can the comprehensive spending review deliver for 2010? The Treasury has currently embarked on a frenetic spending round that will determine the Government's priorities for the next four years. This spending review offers the Government an opportunity to fulfill its promise to halve child poverty by 2010. If it does not deliver, it seems inconceivable that the target will be met. Paul Dornan looks at its options. Introduction Introduction The signs are that this is a tight spending round, with both HM Customs and Revenue and the Department for Work and Pensions (DWP) implementing significant staff cuts, and with the March Budget already having announced a 5 per cent reduction in both departments' budgets. The seven years since Tony Blair's March 1999 commitment to eradicate child poverty have seen additional help to families and consequent reduced levels of child poverty. The figure below shows the progress made, as well as the challenge ahead. In 1998/99 child poverty ('after housing costs') stood at 4.1 million children in Great Britain (Northern Ireland is excluded from the government target, although it is covered by the policy). In 2004/05 this had been reduced to 3.4 million, or 27 per cent. Though welcome, it was insufficient to meet the first target to reduce child poverty (by a quarter by 2004/05). Although progress has been made, child poverty remains at a scandalously high level - higher in the UK now than in the past and higher than in most other European countries.
Context Not only politicians have been vying for the air time on this issue. The Fabian Society published the final report of its Life Chances Commission in March and made a series of practical policy recommendations to make greater use of life chances as a conceptual tool to drive policy to reduce poverty. This was followed in June by the Joseph Rowntree Foundation's What Will it Take to End Child Poverty? Firing on all cylinders. This report, together with the myriad of working papers and associated publications produced around it, presents very significant analysis on the problem - to families and to society - and discusses and models ways of reaching the 2010 target to halve child poverty and the 2020 target to abolish it. There is, therefore, no shortage of evidence, analysis and proposals for what needs to be done. What is needed is greater commitment. The spending review is key to the halving target. As part of the process, the Treasury is conducting a 'Children and Young People' review, focused on improving service support to families with disabled children, young people, and families and children 'at risk of becoming locked into a cycle of low achievement, high harm and high cost'.[Footnote 1] Although concentrating on the groups facing a high chance of being failed by education and other services, by focusing on services, it does not really engage with incomes. Other activity is, therefore, needed if the targets on reducing child poverty are to be met. Measuring
child poverty For the first PSA target to reduce child poverty by a quarter between 1998/99 and 2004/05, child poverty was defined as relative low income (living in a household with income below 60 per cent of the median), defined on both before and after housing costs. In 2004/05 child poverty stood at 3.4 million (after housing costs) and 2.4 million (before housing costs). In December 2003, the DWP published Measuring Child Poverty, which proposed three new measures for the period after the first PSA had expired, each relying on before housing cost incomes data only (and using a different method to adjust incomes for different families' needs).
The shift away from housing costs potentially 'loses' 700,000 children defined as poor on the after housing cost measure, but not on the before housing cost measure. These children are those whose families face high housing costs - whose housing costs make them poor - and are more likely to be concentrated in London and the south east of England. CPAG is calling for there to be numerical continuity between the after housing cost measure and the new set of measures. Without this, the Government will face charges of fiddling the figures and damaged credibility. What
should the spending review deliver?
To reduce child poverty, the Government has had recourse to two key mechanisms - increasing incomes through financial support and increasing gains from work, primarily by increasing the employment rate. Alongside this - to reduce future poverty - policy has sought to improve educational outcomes (through the education system, Sure Start and good quality childcare). More effort is clearly needed here, given the slow progress on narrowing the gap in educational attainment and this will be vital to reach the 2020 target and to sustain a much lower level of child poverty in the long term. But it is the more urgent former set of issues - on which education can build - to which this section devotes its attention. The
role of paid work The official objective is to increase the employment rate to 80 per cent and the welfare reform legislation now before the House of Commons aims to contribute to this by getting more disabled adults into work by altering the structure of incapacity benefits. CPAG supports the objective of making sure that decent paid work is available to those who want and can do it, but as over half (54 per cent) of poor children live in a household with an adult in paid work,[Footnote 4] employment does not work as a route out of poverty for all. In recent months, unemployment has also begun to creep up, though this trend is partly attributable to more adults looking for work as employment is also increasing. If unemployment levels continue to climb, it is likely to be those who are most vulnerable in the labour market who will be worst affected. Nevertheless, children with no parent in work have a much greater risk of child poverty (a child living in a household with no adult in work is 6.3 times more likely to be living in poverty than one with all the adults in paid work), and so work clearly plays a significant role in anti-poverty policy. For paid work to do more to reduce poverty, both decent job opportunities need to be available and financial returns from work increased. The spending review must address adult skills - to increase employability, to improve progression within work and to tackle wage inequality (both overall and between men and women). More needs to be done to improve the quality of support into and in sustaining work, and childcare, both to boost supply and to improve the operation of the childcare tax credit (which is only received by 0.37 million families,[Footnote 5] is only paid for registered childcare and is of greater help to smaller rather than larger families). The need is, therefore, to move beyond the 'work-first' emphasis and, to maximise antipoverty policy, towards more of an investment model where those seeking work are better helped to access training options and support in overcoming barriers to work, and where the quality of jobs is as much an issue as the employment rate. Financial
support for children The twin strategy of using both child benefit and child tax credit is key to tackling child poverty. Although tax credits have helped to make work pay and increased the incomes of most of those bringing up children, in or out of work, they have also been dogged with administrative difficulties. They have not escaped many of the traditional problems of means testing - non-take up, complexity and the poverty trap (where additional income from work is lost by reduced benefit/tax credit entitlement). And the new annual design of tax credits has resulted in overpayments (and underpayments) becoming more common, with recovery of overpaid tax credits causing significant difficulties for families, often wiping out much of any tax credit award. The Government is mid-way through a series of reforms to the tax credit system, which will help to reduce these problems, but CPAG is not convinced that these will be fully overcome. We believe they highlight the need for the second - more universal [Footnote 6] - child benefit. Alongside urging the Government to ensure that children's payments (the sum of child benefit and child tax credit) rise at least in line with average living standards, CPAG is also calling for the rate of child benefit to be increased, and the second and subsequent child rate of child benefit to be increased to that of the first child (currently it is £5.75 less) in order to direct more help to larger families who are more likely to be in poverty. Support
for those who cannot work Over two-thirds of children whose parents are in receipt of either income support or jobseeker's allowance were income poor (after housing costs) in 2004/05. The reason for this is simple: income on the safety net is less than the poverty line.
The biggest gap between the poverty line and the safety net is for those without children - the reason for this is the more generous increases to child tax credit in recent years while income support has continued to fall against wages. Since income support payments for adults make up a large constituent element in family incomes on the safety net, the low level of income support undermines the increases in child tax credit. This problem is especially acute for those who may become pregnant while on income support. The current welfare reform legislation laid before the House of Commons in July aims to increase the employment rate of disabled adults by reforming incapacity benefits. There are many issues concerning the policy and the implementation of the proposals, but one key factor is the extent to which income for those unable to work because of sickness of disability will be protected and improved. The reforms propose a new streamed approach - one focused on those returning to paid work, the other for those for whom this is clearly impossible. The Government has announced that this latter group will receive more income - which has to be welcome - but has not yet put any figure on this. Effective
delivery Paul Dornan is Head of Policy and Research at CPAG References Poverty 125, Autumn 2006 |
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