What is an appropriate level
of support for children?
20. The introduction of Integrated Child Tax Credit
takes place within the context of the Government's commitment
to reduce child poverty by half within the next decade and to
eliminate child poverty over 20 years. The number of children
in relative poverty in the UK has increased threefold over the
past 20 years and the latest figures show that 4.5 million children
- one third of all children - were living in households with incomes
of less than half the average in 1998-99.[36]
Some children stay poor for long periods, and there is increasing
concern about both the short-term and long-term consequences of
this.
21. The introduction of ICC is unlikely in itself
to reduce substantially the number of children living in poverty.
It is essentially a structural change in the way benefits for
children are delivered and will not necessarily result in higher
levels of support. As IFS told us, "[ICC] can be introduced
simply as a change in the way policy is delivered and does not
require a change in distribution."[37]
Illustrative figures to explain the new structure of ICC use 2001
benefit and tax credit levels,[38]
but, as yet, no decisions have been taken on the level or levels
of ICC.[39]
The evidence from Australia and Canada shows that the introduction
of integrated support for children has led to a reduction in child
poverty.[40]
But, as Jane Millar explained, the anti-poverty effects came from
higher levels of support for children, as well as more efficient
delivery - "one without the other is not enough."[41]
22. The Government has said that the more transparent
system of support for children offered by ICC will "facilitat[e]
public debate about the appropriate level of support in the context
of the Government's commitment to abolish child poverty within
a generation."[42]
The implication appears to be that it is only when the new structure
of ICC is in place, that a public debate will follow on appropriate
levels of support. Sue Middleton, of the Centre for Research in
Social Policy at Loughborough University, warned "a very
great opportunity is being missed to look thoroughly at what we
provide for children, what the purpose of it is, whether it is
adequate, what the structure should be and so on...in this understandable
rush to get this reform through."[43]
We believe that the introduction of Integrated Child Credit
provides an opportunity for a long overdue review of the level
and structure of financial support for children in Britain which
should not be missed.
23. In pursuit of its anti-poverty goals, the Government
has set itself a milestone target for 2004, that the number of
children living in households with an income of less than 60 per
cent of the median will be by then reduced by at least a quarter.[44]
To that end, the rate of Child Benefit has been substantially
increased,[45]
as have younger children's rates within income-related benefits.[46]
But experts queried whether the Government's anti-poverty targets,
based on reducing the numbers of children living in households
with incomes of less than 60 per cent of the median, are sufficient
in themselves to establish whether levels of support for families
with children give them enough to live on. CPAG's view was that
the Government's use of various percentages of average incomes
to measure poverty said a great deal about inequality but nothing
about need.[47]
Similarly, Peter Whiteford, whilst happy with a poverty measure
based on a percentage of average income, considered that it should
be supplemented with measures of absolute adequacy because the
former "is a purely arbitrary line drawn across income distribution,
and you need to have other evidence that families can actually
cope."[48]
Sue Middleton shared this view: "The income measure has been
an immensely useful one and it is obviously there because it is
easily comparable both within countries, [and] across countries...[but]
it has no basis in any real understanding of what families need
to keep out of poverty."[49]
Professor John Veit Wilson commented, "no one knows if...60
per cent of the median is too high, too low or about right to
achieve the intended objective of preventing deprivations and
social exclusion."[50]
24. Despite the willingness of the Government in
its discussion document on ICC to enter into a public debate on
the appropriate level of support for children, the Government
has said that it does not accept that there is a single research
method which can be used to assess the adequacy of benefit levels.[51]
Nick Macpherson of the Treasury told us during the course of the
ICC inquiry, "my basic worry is that if you talk to academics,
they tend always to have different views on what an adequate level
is...I think there are potential risks in getting sidelined by
a long debate on adequacy."[52]
Professor John Veit Wilson, who had done work on seeking to define
minimum income standards, agreed "there are many sources
of information about what an inadequate income is, and a number
of methods are available to calculate what an adequate income
might be, at various different standards of adequacy."[53]
He favoured a process of 'triangulating' or comparing a range
of sources of relevant information about inadequate incomes to
assist the Government in finding a yardstick. His view was that,
given the Government's acknowledgement that "low income is
a key aspect of poverty and social exclusion,"[54]
it was important to establish what causal links existed between
low income and various social deprivation indicators (for example,
death rates, low birth weight, and educational attainment); and
where causal links were found to exist, at what levels of income
they became critical. We accept that lack of income is not the
only dimension of poverty and social exclusion. Nevertheless it
is a very important dimension. At present, the Government has
no measure for judging what level of income is needed to abolish
poverty in households containing children. In seeking to eliminate
child poverty, we consider that such a measure is essential. We
therefore recommend that the Government should establish a specific
budget to fund a variety of research by different social scientists
into the levels of income which are sufficient to keep families
with children out of poverty.
25. We also recommend that the Government convenes
an ongoing working party involving policy makers, academics and
other interested parties to assist it to devise publicly acceptable
measures of the levels of income needed to avoid poverty.
26. If ICC were to be based on existing children's
rates of benefit and tax credits would it adequately meet the
costs of children? The Government's illustrative model suggests
that the maximum rate of ICC (at April 2001 levels) would be £34.50
for a first child, and £26 for a second or subsequent child.[55]
When combined with Child Benefit, the total level of support would
rise to a maximum of £50 for a first child and £36.35
for other children.[56]
Sue Middleton has commented that these levels of child credit
do imply significant increases in support for children in families
on Income Support, if, as the model seems to assume, the same
level of credit is to be payable irrespective of the reasons for
low income.[57]
The question of the adequacy of ICC does of course relate not
only to the maximum amount available for families on very low
incomes, but also to how far up the income scale this maximum
amount continues, and at what rate it is withdrawn, tapering support
away to the minimum.[58]
27. One approach to the question of the appropriate
level of income for children is to consider what would constitute,
in Sue Middleton's, words, "a completely low, really minimum
standard of living."[59]
She told us about her own consensual budget standards methodology,
which involved setting up 'budget standards committees' consisting
of mothers from a range of backgrounds and incomes, who came together
to construct a list of goods, items, and activities which they
believed were necessary for children of different ages to keep
a child out of poverty. The figures they came up with for children
were roughly 20 to 30 per cent above the Income Support levels
pertaining at that time.[60]
28. The Family Budget Unit (FBU) have done similar
work, constructing a 'low cost but acceptable' budget, below which
families risk poverty. Their budgets are drawn up by experts (for
example on dietary adequacy) using consultation with discussion
groups on consumer preferences and draft budgets. At our request,
they updated work carried out in November 1998 on a low cost but
acceptable budget for working families, disaggregating the costs
of children, aged 4 and 10. They also looked at the costs of a
child of 16 years.[61]
Ignoring childcare costs completely, their figures suggest that
the maximum amounts of ICC would be sufficient to allow a low
cost but acceptable standard of living for younger children, but
not for teenagers, particularly those who were second or subsequent
children. However, arguably an element of childcare should be
included in the costs of a child, albeit diminishing as the child
gets older. In the case of ICC, which at its maximum level is
intended to go to families in low-paid work as well as those out
of work, it does seem even more logical to acknowledge care costs.
The FBU have included calculations showing the costs of registered
childcare for a 4 and 10 year-old (less for the latter). Under
present arrangements, which are likely to continue when ICC is
introduced, a separate childcare credit is available which meets
70 per cent of childcare costs up to a limit. Parents therefore
have to meet thirty per cent of child care costs themselves. If
30 per cent of the costs of childcare are taken into account as
part of the costs of a 4 year-old and 10 year-old child, the FBU
calculations suggest the costs of children at a low cost but acceptable
budget level would be £47 for a child aged 4; £44.14
for a child aged 10; and £55.94 for a 16 year-old. These
suggest that the maximum amount of ICC for an only or eldest child
would be sufficient to allow a low cost but acceptable standard
of living for younger children, but not for older, teenage children.
ICC levels for second and subsequent children would fall below
a low cost but acceptable standard.
29. Some people have criticised the FBU 'low cost
but acceptable' budget standard as too low. Child Poverty Action
Group have said the FBU "have erred very much on the side
of caution": "they deliberately adopted [a very modest
measure] because before with previous measures some people felt
that we were setting too high standards."[62]
The FBU themselves argue that most households, particularly two-earner
households, aim above the low cost but acceptable standard. Indeed,
when presenting their findings to the Committee, they argued that
the 'poverty threshold' which the low cost but acceptable standard
represented, was not suitable for people in paid work.
30. We were particularly interested in the work of
Sue Middleton from Loughborough University. Her work in examining
expenditure on children across a nationally representative group
showed that, at 1998 prices, parents spent an average of £49.72
per week on a child.[63]
Her analysis showed that there were degrees of variation according
to age, family type (lone parent or a couple) or size, birth order
or family income, but that the variation was surprisingly small.
In the case of families on the lowest incomes, parents were spending
a disproportionate share of their meagre income on their children,
sacrificing their own consumption in order to provide for their
children.[64]
Unlike the Family Budget Unit, Middleton's study suggested that
younger children were not significantly cheaper than teenagers.
She has written, "This finding always seems to cause some
concern among academics, particularly, it must be said, those
who are the parents of teenage children...What seems to be forgotten
is that there are areas of (higher) spending on young children
that reduce or drop out of their budgets as they get older, to
be replaced with other, possibly more visible expenditure. For
example, shoes and clothes have to be replaced very much more
frequently when children are young and growing rapidly. Disposable
nappies are a major expense that also drops out of the child's
budget."[65]
Based on her 1998 average spending figure, only single and oldest
children in families receiving maximum ICC would receive roughly
the amount which parents actually spend on them. Families with
more than one child would receive considerably less. The research
by Sue Middleton suggests that the amounts parents actually spend
on children differ remarkably little across income bands. Given
that ICC is creating a framework where all families will be part
of the same system, we believe there is a case for working towards
a maximum award of ICC, paid to families on the lowest incomes,
which reflects what parents on average need to spend on their
children, an amount which is then tapered away as income rises.
31. We received specific representations concerning
the levels of ICC which would be paid to children with disabilities.[66]
At present, Income Support and income-related Jobseeker's Allowance
give an extra premium where there is a disabled child. Similarly,
there is a disabled child credit within WFTC and DPTC. Ms Pattison
of the Department for Social Security admitted that it would be
"a relatively straightforward thing" to roll up the
disabled child premium and tax credit within ICC.[67]
We are mindful of the risk of adding extra layers of complexity.
Jane Millar drew attention to the Australian system, where "partly
as a result of political pressures, different groups started saying
'we need additional support' and pushing for that. The system
became very, very complicated with lots of small things intended
to target particular groups instead of having a single universal
benefit."[68]
Having considered the matter carefully, we have however concluded
that it is right that ICC should recognise the higher costs of
disabled children. We therefore recommend that the disabled
child premium within IS/JSA and the disabled child credit within
WFTC/DPTC be incorporated within Integrated Child Credit.
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