Tuesday, December 04, 2007

Child poverty: swimming against the tide?

Never mind discs. Forget about donors. Ignore Gordon Brown’s difficulties in speaking like a human being. There’s a potential crisis for the government brewing, although depressingly few people seem to think it’s much of an issue.

According to the Joseph Rowntree Foundation’s annual report [PDF] on poverty and social exclusion:

the strategy against poverty and social exclusion pursued since the late 1990s is now largely exhausted. … ‘Doing nothing new’ no longer means, as it did a few years ago, slow but steady progress. Instead, it essentially now means that nothing changes.

Child poverty rates have been more or less stagnating since about 2003; the latest figures are for 2005/06, which recorded a fall of 600,000 children living below the official poverty line (60% median earnings after housing costs) since the 1998/99 baseline.

Tax credits, though, continue to have a substantial effect:

tax credits have been lifting a million children a year out of poverty since 2003/04. The comparable figure for the early years of the decade was around 0.6 million a year. In the late 1990s, the predecessor benefit Family Credit lifted about 0.3 million a year above the poverty line.

This figure of a million fewer in poverty is larger than the 600,000 I mentioned because the latter is a simple comparison of numbers across years, while the former is comparing against a calculation of what things would be like now without tax credits.

The trouble is that other economic factors are pushing more families into a position of pre-redistribution poverty:

At the same time, however, the number of children in working families who either are, or would be, in poverty but for tax credits, has risen steadily… In short, as the number of children helped by tax credits to escape poverty has increased, so too has the number needing tax credits in order to do that.

Another new report, from the Commons Treasury Select Committee, suggests that there is some recent progress that hasn’t yet showed up in the figures:

The Government's proposals in the 2007 Budget… are expected to mean that child poverty will be 200,000 lower than it would have been had no changes to tax credits or benefits been announced in that Budget.

The committee adds that the Chancellor expects further measures, announced in the pre-budget report this autumn but obscured by the inheritance tax idiocy, to lift 100,000 more children out of poverty (I’ve not seen an independent audit of this claim).

Barring a surge in employment (particularly among lone parents) or a big rise in benefits, the target of halving child poverty by 2010/11 would seem beyond reach.

True, this deadline and the 60% poverty line itself are arbitrary, but stalling progress is stalling progress. It can be argued, though, that focusing on such a threshold may lead to perverse results, with a focus on those just below it rather than those in the direst poverty.

In light of this possibility, the committee recommends that the Government should prioritise “measures concerned in particular with the very poorest households”, and I think they’re right.

Looking more broadly at the income distribution, the JRF notes (figure 6A) that, from 1996/97 to 2005/06, the richest 10% of people have done well in terms of income rises. The second- and third-poorest deciles have also done well, with those in the top half (barring the top tenth) doing progressively less well. An equivalent graph for 1979-97 would show a very straightforward ‘the more you start with, the richer you get’; there is very substantial redistribution going on.

However, the bottom 10% have had, by a good distance, the smallest income rises over the decade. These people are where attention is most desperately needed.

For me – and I glumly know I’m in a minority on this – child poverty is the single most important political issue there is. I’m proud of what Labour has achieved here, and I’m frustrated by what it hasn’t yet achieved. I don’t want to end up growing less and less proud, and more and more frustrated.


Dave Hill said...

As a fellow member of that minority you belong to I'd like to thank you for a sobering and invaluable post.

Jane Henry said...

Tom I don't think you're in the minority. I think child povery is a hugely important issue. I also think it isn't always about money, but also about aspiration and lack of education. I think one of the really shameful things about Labour's record is far from opening opportunities for all in many cases they've closed them, which makes it nigh on impossible to escape the poverty trap.

Tom Freeman said...

Thanks Dave.

Jane, I think you're right in the sense that a lot of people, if you ask them, will say that yes, child poverty is very important, something must be done, etc etc. (e.g. this poll). But if you don't ask them... Poverty rarely makes a good showing in those 'what are the 3 most important issues' type polls.

I also agree that concern about poverty isn't the exclusive property of the redistributionist left, and that there's room for sincere, pained disagreement about which approaches would work best.

The 'poverty trap' is a tricky one. In-work tax credits can make it more rewarding to get a job in the first place, but then the withdrawal rate can make it less rewarding to go for extra hours/more responsibility. Unconditional benefits avoid the latter problem but reduce the motive to start work - and cost more.

A benefit-cutting approach can certainly act as a spur to action, but at the cost of hurting those unable to find work due to lack of demand or whatever. Wisconsin's time-limited policy has certainly reduced welfare rolls - poverty, less so.

(BTW the IFS had an interesting report out last year - I confess I've not read it all - about the trade-off between redistribution and worik incentives.)