Comprehensive spending review 2007
What it needs to deliver on child poverty

Ensure the safety net protects families against poverty

Despite substantial recent increases to benefits for children, the package of financial support for families remains inadequate to protect against poverty and social exclusion. This is most starkly demonstrated by the total value of benefits and tax credit entitlements - very often less than the poverty line. The table below shows the poverty line for both couples and lone parents, each with two children aged 5 and 11, their maximum assistance entitlement (including child benefit) and the difference between the two. As can be seen, a couple family with two children are £101 a week, and a lone-parent family £42 a week, below the official poverty line.

Although we have an official poverty line (60 per cent of contemporary median income),43 the method whereby it is derived is arbitrary and not related to what constitutes an adequate income. No official assessment has been undertaken of the levels of benefit income that would constitute 'adequacy'. CPAG believes that more research and a clearer analysis are needed to establish what families need to live on, and this should be used as the basis for setting and for reviewing benefit rates. Effective uprating policies are also needed to ensure that financial support holds its value, relative to societal living standards. Lisa Harker also pointed out in her recent report for the DWP the link between the decline in the relative value of adult benefits and child poverty, and recommended that the DWP should review its benefit uprating policy (Recommendation 26).44

Increase the value of adult payments within income support in line with those for children

The failure to uprate benefits in line with societal living standards - but instead with (lower) price inflation - has resulted in adult payments in income support losing their relative value against both average earnings and the child elements. This is important for child poverty in a number of critical ways.

• It is impossible to ring-fence spending on particular family members - any consideration of child poverty has to consider the adult rates.
• The adult rates in income support are higher than the child rates in child tax credit, so the proportionate gain to the family by apparently large child gains is much lower than it appears; increases in the child element are absorbed by slower growing family incomes.
• The health of adults with caring or financial responsibility for children is critical, but it is also important for prospective mothers both before and during pregnancy. This group, often young and so subject to particularly low benefit rates, is extremely vulnerable to income poverty, which has a detrimental effect on both mother and child. CPAG believes that the Government needs to look urgently at the issue of young prospective mothers on income support. One possible policy option is to pay a 'pregnancy premium', though we recognise that this would not help reach prospective mothers until they have both recognised the pregnancy and made a claim. Alternatively, increase the overall rate of income support for younger people. Either of these would have a positive impact.

The value of the adult payments in income support has diminished since 1988, and continued unchecked by the election of New Labour in 1997. If income support had remained the same proportion of average earnings in 2005 as it was when first introduced in 1988, couples would receive £33.51 more a week than they do now and single people aged over 25 would receive £22.69 more.45 Income support has continued to wane in relation to the living standards of society because it is uprated by the Rossi Index (that is the Retail Prices Index (RPI) without housing costs), which tends to grow more slowly than the RPI.

The problem of adult benefits losing value is not restricted to childless adults, since the basis of the benefit to provide for adults living in families with children is the same. Although adults in these families receive additional child elements which have, in recent times, risen in value more rapidly, the effect on the total sum of combining both adult benefits (which have been falling in value as a proportion of wages) and the smaller child elements (which have been growing as a proportion of average earnings) dampens the overall family income increase considerably.

Child poverty cannot be tackled without a broader focus on family poverty: to address family poverty and the poverty of childless adults who may, in due course, become parents, income support needs to be raised and its uprating then needs to be on a par with benefits for children.

Uprate child benefit and child tax credit in line with the fastest growing of either prices or earnings

It is welcome that the per child element of the child tax credit is currently being increased in line with earnings inflation, but, as with income support, other elements of tax credits and child benefit are falling in value against wages. If child benefit had held the same value as a percentage of (rising) average earnings as in 1979 (around 5.2 per cent), in April 2006 children would have been getting around £22.85 per week, £5.40 more than first children received, and double what second and subsequent children got.46

Worse still, despite the understandable wish to concentrate resources on the poorest families through the child element of child tax credit, failure to uprate the family element of child tax credit in April 2005 and April 200647 continues to undermine its long-term future - both in terms of its coverage and generosity - and has provided a dangerous hostage to fortune. A future government, less disposed than the current to directing resources toward poorer families, would face no legislative barrier if it were to freeze entitlements to the child element of child tax credit and, indeed, could call on related precedent to justify a real terms cut.

CPAG believes that the current position is unsatisfactory and calls upon the Government to re-examine its position on the future uprating of benefits and tax credits. If social inclusion is to be maximised - as it should be - we will need not only to have a better understanding of what it costs families to obtain a decent standard of living, but also to ensure that change over time in the value of financial support is set in relation to the faster growing of prices or earnings inflation.

Notes

43 Albeit one in the process of being changed.
44 See note 35
45 Department for Work and Pensions, The Abstract of Statistics for Benefits, National Insurance Contributions, and Indices of Prices and Earnings 2005, 2006, Table 5.7
46 F Bennett with P Dornan, Child Benefit: fit for the future, CPAG, 2006
47 The 2 December 2004 and 5 December 2005 Pre-Budget Reports and associated documents confirm an earnings rise for the child element of child tax credit but a freeze for the family element.

Comprehensive spending review 2007
What it needs to deliver on child poverty

Contents page
Introduction
The Government’s record
What should the spending review deliver?
Provide most for those children at greatest risk of poverty
Work towards better jobs, not just more jobs
Ensure the safety net protects families against poverty
Maximise the contribution of child benefit within family support
Introduce free at the point of delivery good-quality childcare
Make the reduction of child poverty central to the new child support policies
Make education truly free at the point of delivery
Provide benefit entitlement to all UK residents equally, irrespective of immigration status
Reduce the disproportionate burden of taxation on poorer families
Improve the quality of delivery and gear it to the needs of the poorest families
Notes

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