House of Commons - Work and Pensions

Select Committee on Work and Pensions Second Report

4 The definition and measurement of child poverty

45. Modern definitions of (child) poverty have moved away from conceptions based on a lack of physical necessities towards a more social and relative understanding. To adapt the classical Townsend[40] definition - children in Britain can be said to live in poverty when they live in families which lack the resources to enable their children to participate in the activities and have the living conditions and amenities which are customary, or at least widely encouraged or approved. They are effectively excluded from ordinary living patterns, customs and activities. The use of the word poverty implies a moral imperative that something should be done about it. Poverty in childhood is harmful to current well-being and a threat to well-becoming. Poverty in childhood is associated with many other problems - poor physical and mental health, low educational attainment, poor housing conditions and homelessness, crime, addiction, and, in adulthood, early partnering and child-bearing, family breakdown, unemployment and low pay.[41]

46. In order to identify, explain and prescribe action to tackle child poverty and to monitor how successful this action has been, it is necessary to operationalise the concept of poverty or measure it. A variety of measures of child poverty have been developed by social scientists including:

Measures that relate family income (or expenditure) to a poverty threshold.
Measures that employ administrative standards such as dependence on Income Support or other income related benefits.
Measures that are based on a lack of ability to afford items or activities considered necessary.
Measures based on expenditure patterns - for example families spending more than a certain proportion of their budget on necessities.
Subjective measures that ask people whether they feel poor or whether they feel their income is adequate.
Measures that assess outcomes that are associated with poverty and therefore are used as indicators of poverty.
Recent attempts to operationalise the concept of social exclusion (but not yet with a focus on children).

47. Unfortunately none of these measures is entirely satisfactory. Just to take one example: the most commonly used measure in the UK and internationally is one that relates net income to a threshold, such as 60% of the median. This is unsatisfactory in a number of respects:

It is an indirect measure of living standards or consumption in that it does not take account of borrowing and current income may not reflect current or future command over resources.
Family income may not represent the living standards of children - there is evidence that parents, particularly mothers, sacrifice their own living standards to protect their children.
The threshold is arbitrary and lacks transparency, in that it is unrelated to any particular budget standard or explicit standard of living.
In order to compare the incomes of families of different types and sizes, income has to be adjusted to household size using an equivalence scale, which is also arbitrary.
It is difficult to collect accurate income data in surveys, particularly for the self employed.
Then there are difficult choices to be made about whether it is income before or after housing costs or childcare costs, or before or after benefits designed to meet the extra cost of disablement, and/or whether income should be adjusted for regional variations in the costs of living.

The Government approach

48. There are three main official sources of data on child poverty, and social exclusion, in Britain: Households Below Average Income; Opportunity For All and the UK National Action Plan on Social Inclusion

HOUSEHOLDS BELOW AVERAGE INCOME

49. The Households Below Average Income (HBAI) series that is derived from an analysis of the Family Resources Survey presents very detailed data on the numbers and characteristics of children living below various income thresholds before and after housing costs. It also uses the British Household Panel Survey to provide estimates of the persistence of poverty. It is an extremely valuable source of evidence and has been the vehicle used to monitor progress towards the Government objective of reducing child poverty by a quarter between 1998-9 and 2004-5.

OPPORTUNITY FOR ALL

50. Opportunity For All is the main vehicle that "monitors our progress towards the Government's goal of a fairer, more inclusive society where nobody is held back by disadvantage or lack of opportunity."[42] As well as reviewing policy the report includes a set of indicators covering children and young people, people of working age, older people and communities. The indicators covering children and young people reproduce the measures of low income from the HBAI, but also cover children in workless families, teenage pregnancy, school attainment, infant mortality, child injuries, smoking, child protection and housing standards. The latest report shows that on most of the indicators for which there is trend data available the indicators were moving in the right direction or were static.[43] The exceptions are the inequalities in infant mortality, teenage parents not in education, employment or training and teenage conceptions, which moved in the wrong direction in the last year. The indicators in Opportunity for All cover Great Britain or England. The Scottish Executive has produced its own Social Justice reports. The DWP organised a consultation when they first began to publish these indicators and account was taken of some of the early criticisms - in particular some health indicators were added.

51. The Committee recognises that the Opportunity For All report is a welcome attempt to take us beyond measures based purely on indicators of income poverty. DWP are still changing the indicators from time to time. We received criticisms from Shelter who stated:

Opportunity for All

52. Shelter therefore propose a housing poverty index that includes homeless households with children living in temporary accommodation, households with children who are overcrowded and households with children living in poor housing. The indicators might also include more up-to-date administrative data - for example the proportion of children in families receiving social assistance or income-related Jobseekers Allowance, and these data could also be used to derive an indicator of the spatial concentration or poor children similar to one we present in paragraph 245.

THE UK NATIONAL ACTION PLAN ON SOCIAL INCLUSION

53. At the Lisbon summit in 2000, the European Council agreed to adopt an 'open method of coordination' in order to make a decisive impact on the eradication of poverty and social exclusion by 2010. Member states adopted common objectives at the Nice European Council and all member states drew up National Action Plans against poverty and social exclusion (NAPs/inclusion). The first UK National Action Plan on Social Inclusion 2001-2003 was published in July 2001[45]. In December 2001 the Laeken European Council endorsed a set of 18 commonly agreed Primary and Secondary statistical indicators for social inclusion that had been developed by a working party led by Atkinson[46]. These indicators are useful for EU comparison purposes because they are mainly based on the European Community Household Panel and the Eurostat Labour Force Survey and are therefore consistent between countries. However, only a few of them relate to children.

54. In addition, member countries were encouraged to develop Tertiary Indicators in order to provide more depth. In the UK National Action Plan on Social Inclusion 2003-2005[47] an Annex adopted a set of tertiary indicators and reported trend data from national sources that are more up-to-date than the primary and secondary indicators. The majority of these indicators were moving in the right direction. Out of a total of 28 indicators covering children, and including direct indicators of poverty, indicators of risk of social exclusion and indicators of help for the most vulnerable:

17 have moved in the right direction,
5 show no significant movement,
1 has moved in the wrong direction, and
for 5 there is insufficient data to determine a trend

55. Also in that Annex the Government presented a list of Targets - mainly those relevant to social exclusion, which already form the UK Government Public Service Agreements or local PSAs or targets set by the devolved administrations that do not follow the PSA methodology.

Measuring child poverty

56. It was partly because of the problems with the headline income measure of child poverty that the Department for Work and Pensions began to consult on alternatives in 2002.[48] The consultation document outlined four approaches:

the multi-dimensional approach of Opportunity for All;
an index of headline indicators;
a measure of 'consistent poverty' based on the Irish method; and
a core set of indicators and a measure of 'consistent poverty'.

57. The Government published preliminary conclusions from its consultation on the medium- to long-term measurement of child poverty[49], concluding that there was no consensus, and further work was needed to investigate a tiered approach and the place of relative income in any measure. A Technical Experts Group was appointed to advise on that work and the Department's conclusions were published in December 2003, after the Committee began its inquiry.[50]

58. The Government's main proposal is to adopt a tiered approach to monitor progress on child poverty in the UK over the long term. Three indicators have been adopted:

Absolute poverty - the number of children living in households with incomes below a threshold that is adjusted for inflation.
Relative low income - the number of children living in households with incomes below 60% of the contemporary median equivalised household income.
Material deprivation and low income combined - the number of children living in households that have incomes below 70% of the contemporary median and who are materially deprived (lacking certain goods and services).

59. According to the Department, "Using this measure, poverty is falling when all three indicators are moving in the same direction."[51]

60. Most of the evidence we received relating to these proposals was broadly supportive. The Committee welcomes the proposals for a measure that ensures consistency with the existing 60% of median measure and also provides a measure of the risk of material deprivation. However the Government needs to be careful that it will not be accused of "moving the goal-posts". In the evidence we have received there have been four particular concerns.

WHAT IS THE TARGET?

61. It is still not clear from the Measuring Child Poverty report what the Government's target is going to be beyond 2004-5. The report says it will be making progress when all three indicators are moving in the same direction. Does that mean they will have achieved their target of reducing child poverty by a half by 2010 when all three measures have fallen by a further quarter between 2004-5 and 2010, or any one or two? This absence of clarity is further complicated by the suggestion in the Secretary of State's Foreword to the report:

"Whereas in 1997 Britain's child poverty record was placed amongst the worst in Europe, I am clear that in order to achieve our ambitions we must strive towards being amongst the best"[

62. Also in oral evidence he suggested:

63. This is echoed in the following from the Measuring Child Poverty report:

64. "Amongst the best in Europe" suggests (in 2001) a child poverty rate of 5% in Denmark, 6% in Finland and 10% in Sweden, compared with the UK figure of 24%. However Denmark, Finland and Sweden are not content with these much lower child poverty rates and a rate around these levels seems very different from the ambition to eradicate child poverty in a generation. The Secretary of State himself defined eradicate as "pluck by the roots and obliterate."[55]

65. Measuring Child Poverty says:

66. The Committee urges the Government to state exactly which measures it will use to define the eradication of child poverty, and how it will use them. It also recommends that the next PSA target for base year 2004-05 should be derived from the 60% of median income after housing costs measure. Using the median income before housing costs figure would mask the true extent of child poverty.

HOUSING COSTS

67. Whether the target to reduce child poverty by a quarter by 2004/5 was before or after housing costs (BHC or AHC) was never specified by the Government. HBAI and Opportunity For All have published child poverty rates estimated both before and after housing costs. In its proposals the Government has now decided to adopt the BHC measure, again on the grounds that that is the practice in the Laeken/EU Primary Indicators. Yet the Secretary of State recently quoted the after housing costs figure in claiming a child poverty reduction of 200,000 in 2002-03.[57] The child poverty rate in 2002-03 was 21% BHC and 28% AHC. Thus the Committee notes that the BHC target is much easier to meet. Several organisations, including IFS, CPAG and the Zacchaeus Trust protested against these changes.[58] CPAG argued "At a stroke the measurement change in the relative low-income measure has 'removed' 900,000 children from poverty…". The Secretary of State sought to defuse criticism of this change by assuring the Committee that the Department would continue to publish after housing costs child poverty data in the HBAI reports. He also pointed out that the third tier measure in using deprivation indicators would, to an extent, reflect the impact of housing costs on living standards.[59] However, the Committee also noted evidence that whether child poverty is measured before or after housing costs makes a big difference to its spatial distribution - the North East has the highest child poverty rate on a before housing costs measure and London on an after housing costs measure. It would, therefore, be possible to meet the national target for reducing child poverty in one part of the UK whilst potentially seeing a deterioration in another, which would not be acceptable. Also the evidence suggests that after housing costs is a much better measure of actual living standards for two reasons.[60] First, before housing costs income includes any housing benefit received despite the fact that it is paid out in rent. Second, the rents that households pay in the UK are not very closely associated with the quality of their housing - the living standard they can afford is after they have paid for their housing. Rent restructuring as currently envisaged could well increase cost differentials within and between areas, and, coupled with a standard housing allowance in the social rented sector, this could intensify the problem, possibly even by forcing parents to choose between worsening their housing conditions or reducing their post-housing income.

68. An important reason for the EU to use a before housing costs measure is that their main vehicle for providing poverty data, the European Community Household Panel Survey, does not collect adequate housing data. It appears perverse to adopt the least best when in the Family Resources Survey the UK has a much more accurate source of data on housing costs. The Committee believes that the decision to adopt only the before housing costs measure is mistaken. We believe that the after housing cost statistics remain of huge relevance and should continue to be published.

CHANGE IN THE EQUIVALENCE SCALE

69. The Department has decided to change from using the McClements equivalence scale to adapt income to family or household size to the modified OECD scale. The justification given for this is that it brings the UK into line with the usage in the EU and the Laeken indicators. This change will actually increase the number of children defined as in poverty, because the modified OECD scale gives a higher weighting than the McClements scale to the needs of young children.[61] The proportion of children living in families with equivalent incomes before housing costs less than 60% of the median in 2001-02 was 21% using the McClements scale and 23% using the modified OECD scale.

THE POVERTY THRESHOLD

70. We recommend above[62] that the next PSA target for 2004-05 should be derived from the 60% of median income after housing costs measure. However, we do have misgivings about the validity of the income thresholds proposed as they are arbitrary and related to no standard of need or adequacy. We have received very strong representation in the evidence that the Government should be making use of budget standards methodology when setting poverty thresholds.[63] Some have proposed that a Minimum Income Standards Commission independent of government should be established to publish budget standards.[64]

71. A budget standard is a basket of goods which when priced provides a level of living. The evidence suggests that while budget standards do have defects they also have advantages over arbitrary income thresholds in that they are drawn up to achieve a transparent standard of living that is based on standards of nutritional adequacy, estimates of the fuel expenditure needed to achieve warmth, and so forth.[65]

72. Referring to the work of those who support budget standards, such as the Zacchaeus Trust, the Secretary of State said:

73. It is worth reflecting on this passage. It is certainly a more positive attitude to budget standards than in the Department's measuring child poverty consultation and the final proposals. Budget standards are not being advocated as an alternative to indicators. The Secretary of State is right to suggest that budget standards need to be drawn up for a range of family types and need to be revised and uprated from time to time - though the costs of doing this are tiny compared to, for example, the costs of the Family Resources Survey. He is also right that the choices about what items to include in a budget standard are often quite subjective. However, evidence suggests that they are more objective and transparent than drawing an arbitrary line on the income distribution.

74. One reason for the Department's reluctance to use budget standards is an anxiety that they will in some way be used to fix social assistance and other scale rates, and some advocates believe they can be used for this purpose. However, the Committee recognises that benefit levels cannot be determined by budget standards. Ministers have to have regard to a range of factors in fixing benefit levels including the resources available and incentive effects. In practice the Income Support and Pension Credit scales are anyway currently well above the latest version of the Family Budget Unit's low cost but adequate budget - though the FBU acknowledge that that is based on a budget originally derived in 1998 and that it needs to be revised[67]. But the fact that budget standards cannot be used to fix benefit scales does not mean that they cannot be used to inform debate about their adequacy, or to fix an income threshold in poverty measurement. The Committee believes that the research into budget standards provides important input into deciding appropriate poverty standards and we are disappointed that the Department has not properly engaged in a debate on adopting them. We recommend that the Department seriously considers revising its policy on budget standards with a view to adopting them as a tool for exploring living standards and helping to fix poverty thresholds for the future strategy on child poverty.

40 See for example, Ev 181 Back

41 This section draws on written evidence from a range of organisations and academics including: Professor Ruth Lister, Ev 2-3; Save the Children, Ev 34; Sue Middleton, Ev 67-69; Professor John Veit-Wilson, Ev 146-164; Child Poverty Action Group, Ev 188-190; and One Parent Families, Ev 204-207. Back

42 DWP (2003) Opportunity for All, Cm 5956, London: HMSO. Pg vii Back

43 See Table 1 in Annex 1 Back

44 Ev 133 Back

45 Department for Work and Pensions, United Kingdom National Action Plan on Social Inclusion 2001-2003, 2001. Back

46 Atkinson, A,., Cantillon, B., Marlier, E. and Nolan, B. (2002) Social Indicators: the EU and Social Inclusion, Oxford: University Press. Back

47 Department for Work and Pensions, United Kingdom National Action Plan on Social Inclusion 2003-2005, 2003. www.dwp.gov.uk/publications/dwp/2003/nap/index.asp Back

48 Department for Work and Pensions (2002) Measuring Child Poverty: A consultation document, London. Back

49 Department for Work and Pensions, Measuring Child Poverty Consultation: Preliminary conclusions, 2003. Back

50 Department for Work and Pensions (2003) Measuring Child Poverty, DWP. Back

51 Department for Work and Pensions (2003) Measuring Child Poverty, DWP. Pg 7 Back