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Ending child poverty: moving forward Twenty-year plans are an unfamiliar feature of the UK political landscape. Tony Blair's remarkable pledge in 1999 to end child poverty by 2020 provided a vision and a compass, but not a long-term plan. Only now is the Government trying to create a full, publicly articulated, strategy for meeting its bold targets. Recent research by Donald Hirsch for the Joseph Rowntree Foundation argues that, if it is to be successful, any long-term plan must include both initiatives to expand work opportunities and to redistribute income. Introduction Introduction This progress fell short of the target reduction of one quarter, but was welcome nonetheless. Much more important than missing the target is the issue of whether progress in the right direction can be sustained. Evidence assembled by the Joseph Rowntree Foundation (JRF) [Footnote 1] shows that on present policies, this progress could stall. In putting together a public strategy to be published in the autumn, the Department for Work and Pensions has recognised the need to extend its efforts, and to bring them more systematically into a plan capable of reducing child poverty to half its 1999 level by 2010, and to close to zero by 2020. This renewal of the effort to end child poverty is a chance to address some crucial questions that so far have gone unanswered by government. To what extent can the strategy rely on 'work as the best route out of poverty', and to what extent must it accept that at any one time many children will not have working parents? For those who do enter work, by what means will working poverty, which still accounts for half the child poverty total, be abolished? Can this be done simply by raising tax credits while earnings stagnate, and if not, what tools does the Government have to work for an improvement in parental earnings? And for those out of work, how can we lift families with children out of relative poverty, while adult income support levels continue to decline relative to general incomes, being pegged only to prices? To understand the extent of these challenges, JRF looked at the potential contribution that different elements of a strategy could make over the next 14 years. The following analysis shows that we cannot expect to achieve the target either purely through redistribution or purely by expanding work opportunities. Only if strong efforts are made on both these fronts can the mission succeed. Tax
credits, benefits and welfare to work: extending the measures that
have worked so far In the welfare-to-work strategy, the big achievement has been to increase the employment rate of lone parents, from 46 per cent to 54 per cent of parents in just six years, a very rapid change. Much more can still be done to improve childcare options, since many parents still do not feel that they have satisfactory options, whether in terms of cost, convenience, type or quality, that allow them to take the kinds of jobs that are available. The Government is extending its welfare to work programmes, both for lone parents and for people with disabilities (many of whom are parents), and aims to raise the lone parent work rate to 70 per cent by 2010 - which would mean accelerating the present rate of progress in this direction. Much emphasis has been on the kind of measure that would help move towards this employment target. The going will be tough, given that those who remain out of work tend to have greater disadvantages than those who have already moved into jobs. Yet even if it is met, it will only go a small way towards meeting the objective of halving child poverty by 2010, let alone ending it by 2020. This is for several reasons. Progress has tended to be among lone parents, but most children in poverty live with couples. For lone parents and people in couples who do enter work, many still remain in poverty because they move into poorly paid, often part-time jobs, where earnings are too low to get a family above the poverty line even with the help of tax credits. And most importantly, even if 70 per cent get into work, this still means that nearly one-third of lone parents, along with a substantial number of couples, will be left depending on benefits. And most of those who remain will be those with very young children, with disabilities, or both. In these circumstances, efforts to increase work rates further, even if desirable (which is questionable), will bring diminishing returns. So of the three million or so children presently in poverty, over a million and a half are already in families in work. Of the remainder, perhaps 700,000 to 1 million are likely to stay out of work at any one time, regardless of public policy. If only a minority of low-income families can thus benefit by crossing the threshold into work, what is happening to the incomes of those who remain in their present employment situation - either in or out of work? Government transfers play a big role in this. Gordon Brown made much of the pledge, in the last Budget, to extend the indexing of the child element of the child tax credit to earnings at least until 2010. Yet, on its own, this link does not enable more families to escape poverty. In fact, under present policies, the total amount of state transfers received by low-income families with children is set to fall rather than rise relative to incomes generally. This is because child benefit and the 'family' element of child tax credit are being uprated more slowly than average earnings, while for families who do not work, income support is rising only with prices. Ad hoc boosts to tax credits or child benefit, such as those produced in some Budgets of recent years, could change this, but on announced policies the prospects look grim. The small reductions in child poverty caused by carrying forward welfare to work measures would be offset by these relative income falls, so the modellers project little further reduction in the child poverty rate under existing policy. The Institute for Fiscal Studies, which ran these models, looked at what changes in tax credits and benefits would be enough to meet the targets. To halve child poverty by 2010 would cost at least about £4 billion. This is a tiny proportion of national income, requiring us to devote an extra 3p out of every £10 we earn to redistribution, and represents less than 1 per cent of public spending. Supposing we were willing to spend it, what would be the best way to allocate such extra resources? Certainly not by putting it all into child benefit: three times as much would be needed to achieve the required reduction through this untargeted benefit as through child tax credit, targeted on income. But nor is it necessary to go all the way to the other extreme, of putting it all the increase into child tax credit. This has the disadvantage of bringing ever more families into means-testing. One compromise is to combine rises in child tax credit with some spending targeted not by income but by family size. For example, child benefit could be raised much faster than at present for families with three or more children. Since a large proportion of these families are on low incomes, this is a reasonably efficient means of reducing poverty without a means test. Looking further ahead to 2020, the cost of redistribution is much greater. To get almost all children out of poverty (literally a zero rate is not considered possible, due to there always being some families with temporarily low incomes), the Government would both have to close the present gap between benefit levels and the poverty line and uprate benefits by much more than planned at present, to reverse the decline in relative incomes caused by raising them only with prices. Between 2010 and 2020, it is estimated that annual spending would have to be raised by £28 billion compared with following present policies. Even if taxpayers coughed up this amount, on its own such redistribution would introduce all sorts of distortions. It would bring huge numbers of working families into the tax credit system, and create a yawning gulf between the incomes of out-of-work families with and without children. If the Government continued to peg out-of-work benefits for non-parents only to prices, a single woman would be getting about £200 in today's prices if she had a child, compared with just over £50 on jobseeker's allowance if she did not. The
way forward: extending the ambitions of policy Much emphasis so far has been on improving opportunities for lone parents to work. While that task is not complete - as already noted, lack of satisfactory childcare remains a significant barrier - there needs to be a wider agenda. For example, many children of couples in poverty have only one earner in their family, and could be helped greatly if a second adult went out to work, even part time. The Work and Pensions Secretary, John Hutton, has acknowledged that support for second earners needs to become an important part of welfare to work assistance. It will be important to develop this policy agenda in the spirit of choice and the improvement of family opportunities, rather than coercion. In this respect, efforts to reduce child poverty dovetail with the quest for work-life balance. What parents need is better opportunities to earn money without having to neglect the needs of their children. This depends to a large degree on employers' behaviours and attitudes, and on the pattern of jobs available. One crucial barrier to such balance that the Government can help combat is the way in which part-timers are used in many jobs. The Equal Opportunities Commission has estimated that more than half of people working part time are working below their potential - in terms of skills and past experience. Improving this could help encourage people to work and to lift their earnings. At the same time, the many lone parents whose lack of earning opportunities is linked to their low qualifications could be helped, in the long term, by improvements in the education system. Gaps in attainment are more closely linked to social background in the UK than in most other countries. Yet the Government remains reluctant systematically to spend more on educating those who suffer from childhood disadvantage. It has many schemes to help these groups in an ad hoc manner, but the main funding formula still allocates schools equal amounts for each pupil. So an antipoverty agenda needs to bring in employment policy and education policy, as well as the big Budget decisions on tax credits and benefits. A big challenge for the Department for Work and Pensions will be to engage other government departments such as Department for Education and Skills and the Department of Trade and Industry. The Work and Pensions department has always had a 'welfarist' flavour, focusing on measures for those who are not in employment. It needs to change its culture if it is to be effective in improving opportunities within work.
The
way forward: extending the ambitions of politics One of the blandest of New Labour's slogans has been 'work for those who can, security for those who cannot'. The problem is that the latter part of this slogan has never been properly defined. In practice, what it has meant in financial terms is security to collect benefits that for a quarter of a century have been declining relative to average living standards. Why should benefit rates be going down relative to national income when the amount collected in tax from each person automatically rises as people earn more? For a long time, this was based partly on the desire to limit a rising overall bill, since the number of claimants seemed to rise continually. The evidence now seems to be showing that the number of working-age claimants has at least stabilised and could well be going down. This is a good time to question why a prices rather than an earnings link can make any sense. Proper long-term support for out-of-work families will depend on the public viewing the quest to end child poverty as a priority for our society. Public attitudes are unlikely to change purely on the basis of altruism, but there are powerful arguments to show that ending child poverty is in all of our interests. Not ending child poverty will be extremely costly. So while politicians, including now the Conservatives, have signed up to the fight against child poverty, there remains a lot of persuading to do among the British public. Donald Hirsch is a special adviser to the Joseph Rowntree Foundation Reference Poverty 125, Autumn 2006 |
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