Select Committee on Social Security Report


APPENDIX 14

Memorandum submitted by National Council for One Parent Families (CB 15)

SUMMARY

  Lone parents are disproportionately affected by poverty for a number of reasons. Chief among these are the direct and indirect costs of having children. Lone parents also have to meet the direct costs of children out of a single income. Added to the costs of children is the lack of any independent source of income other than earnings, with the exception of child benefit. This leads to reliance on means-tested benefits and their attendant unemployment and poverty traps. The lack of a second earner (or the potential for one) means that lone parents will almost always be worse-off than couples. This disparity is made more stark when you consider the evidence that one parent families have relatively higher needs than two-parent families.

A commitment to tackling child poverty in one parent families

  NCOPF argues for a Government commitment to keeping children in one parent families out of poverty for the (usually temporary) stage in their lives when they are living with a sole parent. A strategic approach to eliminating poverty in one parent households should be a higher priority now than ever before. Increasing the contribution made to the direct costs of children through Child Benefit ought to be a central element in such a strategy both as an anti-poverty measure and as a way of improving work incentives. Child Benefit plays a critical role in raising the income platform which lone parents can build on when taking paid work and plays an important role in lessening the effects of both the unemployment and low income poverty traps.

Proposals for change

  We warmly welcome the recent increase in Child Benefit. This benefit was frozen for three years in 1987 and has now seen a real and welcome increase under the budget—although there is still considerable ground to make up. In his Budget speech, the Chancellor said that `child benefit remains the fairest, the most efficient and the most cost effective way of recognising the extra costs and responsibilities borne by all parents.' We welcome this commitment.

The case for a higher rate of Child Benefit

  According to recent research, Child Benefit represents one fifth of average spending on children as such it represents vital income available to lone parents starting work. We are interested in exploring options which might increase the value of Child benefit and thus improve its strategic role as a welfare to work benefit and in the process to substantially increase the contribution it makes towards the direct costs of children. Children in one parent families represent some of the nations poorest families and meeting a higher proportion of children's needs could play a significant role in reducing levels of child poverty in one parent families. However, recent lone parent benefit cuts mean that many now face a diminished income package on income support as well as in paid work.

Taxing Child Benefit

  Should it be the community as a whole who pays for an increase in child benefit, or other families with children through taxation or by some other means? Research shows that the cost of children is a significant burden for many middle income as well as low-income families. When the size of families is taken into account alongside family income, families with children are nearly all found in the middle or lower ranges of disposable income. One option would be to use the married couples allowance to fund increases. Taxation would only be an acceptable option if it was linked to a substantial increase in the level of Child Benefit.

The structure of Child Benefit

  Child Benefit for a second or subsequent child is worth 19 per cent less than for the eldest child. There is evidence that this does reflect differential spending on children, although the current difference is probably twice as large as it needs to be. The fact that the increased costs of children in one parent families is no longer recognised in the child benefit structure means that lone parents in work face greater financial hardship than before. One parent families should be compensated for this loss.

The relationship to Income Support Allowances

  Spending on children varies much less by age than do income support allowances. They do not reflect the reality of spending on children of different ages. Younger children are particularly disadvantaged when compared with older children. As more than half of lone parents on IS have a child under the age of five and over three-quarters has a child under 11, this would suggest that the under-valuing of child allowances for this age group is a significant issue for one parent families. This finding lends support to the recent decision to increase allowances for children under eleven by £2.50. However, there is some way to go before IS allowances truly reflect either average spending on children in families on IS or average spending on children in general. Income support allowances also fall short of the costs of children using a budget standards approach (rather than looking at spending on children) leaving a shortfall of at least £23 a week for a lone parent with two children.

Child Benefit for 16-19 year olds

  It is often assumed that retaining Child Benefit for this age group benefits middle-class parents the most. Whether or not this is the case, this ignores the fact that removing the benefit from all parents will make a significant difference to children in low income families. For these families, the loss of benefit is a significant factor to consider when weighing-up the costs of children staying on at school or college and has the potential to increase social exclusion.

Changing family structures

  While the idea of benefit splitting makes a lot of sense in principle (where there is genuinely shared care) it is likely to continue to be the case that women spend more of their income on children than men. This continues to be the case following relationship breakdown (perhaps with the exception of male lone parents). A simple time split may not be a true reflection of who takes primary responsibility for children's needs. Any reduction in the already meagre income for children in one parent families would be unacceptable. Safeguards would need to be introduced to ensure that both parents received an adequate income as well as to prevent abuse. This will inevitably increase costs and might also over-complicate an attractively simple benefit.

Benefits for one parent families

  Recent research indicates that lone parent families do face additional costs and have relatively higher needs. All the evidence shows that children in lone parent families suffer disproportionately severe hardship after any length of time on benefit. The removal of the Lone Parent Rate of Child Benefit has added to this hardship and has increased work disincentives for one parent families. While measures announced in the Budget will ensure that most lone parents are compensated by October 1999, even then some 60,000 lone parents will still be on average £2 a week worse off.

1. INTRODUCTION

  Since 1918, the National Council for One Parent Families has been a unique national centre of expertise on lone parenthood. Throughout our history, the organisation has been dedicated to campaigning for equality of opportunity for one parent families and tackling the exclusion, poverty and prejudice they so often face. We welcome this opportunity to comment on the inquiry into Child Benefit.

1.1 WHO ARE LONE PARENTS?

  There are 1.7 million lone parents in the UK today, of whom 91 per cent are women.[55] Between them, lone parents care for nearly 3 million children and represent 21 per cent of all families. Poverty, debt and hardship are everyday experiences for most lone parents despite trying their utmost to protect their children from its worst effects. Three in five lone parents (or 60 per cent) live in poverty (defined as half average income after housing costs) and as such are the group at greatest risk of poverty in the UK.[56] This proportion of lone parents living in poverty has increased from 19 per cent in 1979. The number of individuals in one parent families living in poverty rose from 460,000 in 1979 to 2.7 million in 1995. Individuals living in one parent families represent 21 per cent of all those living in poverty by this measure, despite the fact that they represent only 8 per cent of the population as a whole.[57]

  In monetary terms, these poverty levels are reflected in the fact that 59 per cent of lone parent families are living on gross weekly incomes of less than £150 per week compared to just 7 per cent of married couples and 18 per cent of cohabiting couples.[58] Typically, lone parents' incomes are less than half those of two-parent families, with average net incomes a little over £100 a week.[59] Around 60 per cent of lone parents rely on income support (IS) as their main source of income and just over half of the remainder (or 22 per cent of all lone parents) claim family credit (FC).[60] These are both means-tested benefits which are withdrawn as income increases and carry with them the risk of unemployment and poverty traps. There is no help with mortgage costs for lone parents working more than 16 hours a week. Research has shown that on current benefit levels lone parents who have lived in poverty for some time cannot afford to eat healthily.[61] Many experience severe hardship, poor housing, health problems, lack of access to financial services and debt.[62]

1.2 WHAT ARE THE REASONS FOR CHILD POVERTY IN ONE PARENT FAMILIES?

  Lone parents are disproportionately affected by poverty for a number of reasons. Chief among these are the direct and indirect costs of having children. It has been long accepted that having children involves time costs which result in foregone earnings or opportunity costs. Various attempts have been made to put a financial value on this.[63] Lone parents also have to meet the direct costs of children out of a single income. When set against a meagre "low-cost" budget, IS falls short of meeting the needs of children in one parent families by as much as £23 a week.[64] This situation is worse for younger lone parents who receive a lower rate of benefit under the age of 18.

  Added to the costs of children is the lack of any independent source of income other than earnings, with the exception of child benefit. This leads to reliance on means-tested benefits and their attendant unemployment and poverty traps. The lack of a second earner (or the potential for one) means that lone parents will always be worse-off than couples. This disparity is made more stark when you consider the evidence that one parent families have relatively higher needs than two-parent families.

  A series of recent studies have shown that one parent families have greater needs and experience greater hardship than two parent families with children. For example, one study found that a young child in a one parent family costs 33 per cent of an adult compared to only 19 per cent of an adult for a child in a two-parent family.[65] An older child costs 51 per cent of an adult in a one parent family compared to 28 per cent in a two-parent family. In other words, children cost nearly half as much again if there is no second adult. Another study found that the childcare costs of one parent families were substantially higher in relative terms than those for two-parent families.[66] The need for food, heating, lighting and housing costs do not halve with the departure of one adult and the absence of a second carer for the children means that there is less time to shop around for cheaper goods. Extra transport costs also result from the fact that the children cannot be left at home alone.

  The Breadline Britain survey showed that 53 per cent of children in one parent families lacked three or more necessities compared to only 24 per cent of children living with couples. Thirty-four per cent of children in lone parent households lacked seven or more necessities compared to only nine per cent of children in couple households.[67] Recent evidence on family spending and parental sacrifice found that IS provides only 70 per cent of what is actually being spent on the children in poor families and that children in one-parent families are much more likely to be poor and to go without than children in two-parent families.[68] This was the case irrespective of whether or not their parents were working. Lone mothers themselves are 14 times more likely than other mothers to go without food themselves in order to meet the needs of their children.

  In our response to the Green Paper on `welfare' reform, we argued for a Government commitment to keeping children in one parent families out of poverty for the (usually temporary) stage in their lives when they are living with a sole parent. A strategic approach to eliminating poverty in lone parent households should be a higher priority now than ever before. Increasing the contribution made to the direct costs of children through Child Benefit ought to be a central element in such a strategy both as an anti-poverty measure and as a way of improving work incentives. Child Benefit plays a critical role in raising the income platform which lone parents can build on when taking paid work and plays an important role in lessening the effects of both the unemployment and low income poverty traps.

2. PROPOSALS FOR CHANGE

  We warmly welcome the recent increase in Child Benefit. This benefit was frozen for three years in 1987 and has now seen a real and welcome increase under the budget—although there is still some ground to make up. In his Budget speech, the Chancellor said that `child benefit remains the fairest, the most efficient and the most cost effective way of recognising the extra costs and responsibilities borne by all parents.'[69] We welcome this commitment.

2.1 THE CASE FOR A HIGHER RATE OF CHILD BENEFIT

  According to recent research, Child Benefit represents one fifth of average spending on children as such it represents vital, if recently diminished, income available to lone parents starting work.[70] We are interested in exploring options which might increase the value of Child Benefit and thus improve the strategic role it has to play as a welfare to work benefit and in the process to substantially increase the contribution it makes towards the direct costs of children. Children in one parent families represent some of the nations poorest families and meeting a greater proportion of their needs could play a significant role in reducing levels of child poverty in one parent families.

  Using the budget standards approach, Child Benefit covers just over one third of the costs of children in a `low-cost' budget[71] and only 15 per cent of a `modest-but-adequate' budget.[72] Substantial progress is needed before Child Benefit meets a more realistic proportion of the direct costs of children. The Chancellor has said that a further increase would give rise to the question of whether, for higher rate tax payers at least, the benefit should be taxable. This provides an opportunity to debate how resources can best be redistributed towards the 2.8 million children currently living in one parent families. The question then arises as to whether it should be the community as a whole who pay for an increase in child benefit, other families with children through taxation or by some other means.

2.2 TAXING CHILD BENEFIT

  Research shows that the cost of children is a significant burden for many middle income as well as low-income families. When the size of families is taken into account alongside family income, families with children are nearly all found in the middle or lower ranges of disposable income.[73] One option would be to use the married couples allowance to fund increases. Taxation would only be an acceptable option if it was linked to a substantial increase in the level of Child Benefit.

2.3 THE STRUCTURE OF CHILD BENEFIT

  Child Benefit for a second or subsequent child is worth 19 per cent less than for the eldest child. There is evidence that this does reflect differential spending on children, although the current difference is probably twice as large as it needs to be. The fact that the increased costs of children in one parent families is no longer recognised in child benefit structure means that lone parents in work will face greater financial hardship than before. One parent families should be compensated for this loss.

  Children in one parent families are far less protected from poverty even when their parent is working than children in two parent families and are more likely to be deprived of essential items preventing them from participating fully in social and educational activities. If the Government no longer intends to recognise the additional costs of children one parent families in the Child Benefit structure, then it needs to compensate them for this elsewhere in the benefits system, e.g., by reversing the cuts in housing benefit and council tax benefit and by recognising the substantial transitional costs of returning to work. Our proposals are detailed in our response to the `welfare' reform Green Paper.

2.4 THE RELATIONSHIP TO INCOME SUPPORT ALLOWANCES

  Spending on children varies much less by age than do income support allowances.[74] They do not reflect the reality of spending on children of different ages. Younger children are particularly disadvantaged when compared with older children. As more than half of lone parents on IS have a child under the age of five and over three-quarters has a child under 11,[75] this would suggest that the under-valuing of child allowances for this age group is a significant issue for one parent families. This finding lends support to the recent decision to increase allowances for children under eleven by £2.50. However, there is some way to go before IS allowances truly reflect either average spending on children in families on IS or average spending on children in general.

  Income support also fails to meet the costs of children using a budget standards approach (rather than looking at spending on children) leaving a shortfall of at least £23 a week for a lone parent with two children.[76]

2.5 CHILD BENEFIT FOR 16-19 YEAR OLDS

  It is often assumed that retaining Child Benefit for this age group benefits middle-class parents the most. Whether or not this is the case, this ignores the fact that removing the benefit from all parents will make a significant difference to children in low income families. For these families, the loss of benefit is a significant factor to consider when weighing-up the costs of children staying on at school or college and has the potential to increase social exclusion.

2.6 CHANGING FAMILY STRUCTURES

  A decision is also needed on whether or not Child Benefit should be split in cases where there is shared care. In principle, this makes a lot of sense in cases where there is genuinely shared care. However, it is likely to continue to be the case that women spend more of their income on children than men. This continues to be the case following relationship breakdown (except in the case of lone fathers). A simple time split may not be a true reflection of who takes primary responsibility for children's needs. It could also be abused by non-resident parents hoping to demonstrate that they are no longer liable for child maintenance. If this were to go ahead, it would have to be firmly established that each parent in receipt of their portion of benefit would carry equal rights to being the named benefit recipient. Child Benefit is currently the gatekeeper to a range of other entitlements (e.g., eg, children's personal allowances in means-tested benefits) and the possibility of splitting these would also have to be considered. Any reduction in the already meagre income for children in one parent families would be unacceptable. Safeguards would need to be introduced to ensure that both parents received an adequate income as well as to prevent abuse. This will inevitably increase costs and might also over-complicate an attractively simple benefit.

3. BENEFITS FOR ONE PARENT FAMILIES

  The welfare reform Green Paper states that `there is no case for a one-parent benefit.' However, recent research indicates that lone parent families do face additional costs and have relatively higher needs (see above). The Government takes the view that the most significant additional cost is childcare and that measures are in place (in the form of the National Childcare Strategy and the childcare tax credit) to deal with this. The Chancellor of the Exchequer and Prime Minister have made it clear that they do not accept these arguments. But the need for food, heating, lighting and housing costs do not halve with the departure of one adult and the absence of a second carer for the children means that there is less time to shop around for bargains. Extra transport costs also result from the fact that the children cannot be left at home alone. All the evidence shows that children in lone parent families suffer disproportionately severe hardship after any length of time on benefit.

  There is clear evidence that lone parent families are particularly vulnerable to hardship, due in part to the inadequacy of benefit levels. The removal of the lone parent rate of the family premium in income support will exacerbate this for many lone parents, at least in the short term (there is an eighteen month wait for the Budget changes to come into force). While measures announced in the Budget will ensure that most lone parents are compensated by October 1999, even then some 60,000 lone parents will still be on average £2 a week worse off. The worst effects of these cuts are felt in Housing Benefit through the removal of the Lone Parent Rate of Family Premium. This should be taken into account when considering both the welfare to work incentives provided by Child Benefit and the interaction between this and the Working Families Tax Credit and Childcare Tax Credit.

September 1998


55   Ford R and Millar J, Eds (1998) Private Lives and Public Responses: Lone Parenthood and Future Policy, London: PSI. Back

56   DSS (1997) Households Below Average Income Figures: A Statistical Analysis 1979 to 1994-95, London: The Stationery Office. Back

57   The comparable figures for couples with children are that 34 per cent are living on or below half of average income after housing costs and they represent 37 per cent of individuals. Back

58   ONS (1998) Living in Britain: Results from the 1996 General Household Survey, Table 2.8. Back

59   Marsh A, Ford R and Finlayson L (1997) Lone Parents, Work and Benefits, DSS/Policy Studies Institute, London: The Stationery Office. Back

60   Own estimates derived from Hansard, Written Answers, col 583, 31 July 1997; Income Support Statistics Quarterly Enquiry, November 1997, DSS; and Family Credit Statistics Quarterly Enquiry November 1997, DSS. Back

61   Dowler E and Calvert C (1995) Nutrition and Diet in Lone Parent Families in London, London: Family Policy Studies Centre. Back

62   Kempson E (1996) Life on a Low Income, York: Joseph Rowntree Foundation. Back

63   See for example Piachaud D (1984) Round About 50 Hours a Week, CPAG and Joshi H, Davies H and Land H (1996) The Tale of Mrs Typical, London: Family Policy Studies Centre. Back

64   Oldfield N, and Yu CS (1993) The Cost of a Child, London: CPAG. Back

65   Dickens R, Fry V and Pashardes (1996) The costs of children and the welfare state, University of Essex, Discussion Paper Series. Back

66   Berthoud R and Ford R (1996) Relative Needs, London: PSI; and Dickens R, Fry V and Pashardes P (1996) The Costs of Children and the Welfare State, University of Essex. Back

67   Gordon D, Pantazis C (1997) Breadline Britain in the 1990s, University of Bristol. Back

68   Middleton S, Ashworth K and Braithwaite I (1997) Small Fortunes: Spending on children, childhood poverty and parental sacrifice, York: Joseph Rowntree Foundation. Back

69   House of Commons Hansard, 17 March 1998, col 1107. Back

70   Middleton S, Ashworth K and Braithwaite I (1997) Small Fortunes: Spending on children, childhood poverty and parental sacrifice, York: Joseph Rowntree Foundation. Back

71   Oldfield N, and Yu CS (1993) op cit. Back

72   Bradshaw J (1993) Household Budgets and Living Standards, York: Joseph Rowntree Foundation. Back

73   Oppenheim C (1994) The Welfare State: Putting the Record Straight, CPAG. Back

74   Middleton S, Ashworth K and Braithwaite I (1997) Small Fortunes: Spending on children, childhood poverty and parental sacrifice, York: Joseph Rowntree Foundation. Back

75   HC Hansard, Written Answers, 30 October 1997, col 854; and information from DSS Analytical Services Division, 31 March 1998. Back

76   Oldfield N, and Yu CS (1993) op cit. Back


 
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