Q209Mr.
Gauke: Would other witnesses agree that there is an
arbitrary element
here? Mike
Brewer: The Government’s choice of scale was
arbitrary. They basically picked the one that seemed to be used most
internationally. The OECD picked it rather arbitrarily. You can do
objective research into what is the right equivalence scale, but there
are different methods, and they never seem to give the same answer. My
research in this area basically accords with what Donald has been
saying: we give too much weight to couples and so we overstate their
poverty compared with lone parents. I am sure it is possible to do
another scientific study and come up with the opposite
result.
Q210Mr.
Gauke: We always look at this from a national perspective,
but there are disparities between income and costs on a regional basis.
London, for example, has a very high level of child poverty, and costs
are higher and the median income is higher. What would happen if we
started looking at the issue on a
regional basis? I imagine that we would find that there is more child
poverty in London, but on a national basis, would we have more or less
child
poverty? Mike
Brewer: I think you would have the same level of
poverty nationally but, as you say, you would change the distribution
of it across the regions. We looked at this a couple of years ago, and
we found what you would expect: poverty in London goes up and poverty
elsewhere goes down, particular in Scotland, which ends up with the
lowest level of child poverty of all the nations and regions of Great
Britain, once you account for the lower costs of living there. But it
should not make a difference to the national level of child poverty,
because you are just taking account of the differences between the
regions.
Q211Mr.
Gauke: We have talked about the target in the 2010 figure.
On current policies, what level of child poverty are we heading for in
2020? Mike
Brewer: The research that Donald and I did in
February this year was more of an illustrative forecast than a
projection, but it basically said that if between now and 2020 the
Government in power follow the current rules for uprating benefits and
tax credits, child poverty will start to rise, and we will probably end
up roughly where we were in 1998. Why is that? It is because the
current rules for uprating benefits and tax credits increase them much
less quickly than average earnings. Inevitably, the relative incomes of
the poor will fall back.
Q212Mr.
Gauke: You have said that the 2010 target is not going to
be met. For how long has that been apparent?
Mike
Brewer: I guess that I should give the Government
some benefit. They do have a few weeks until they have to announce the
2010 rates of tax credits. It is clearly possible for the Chancellor to
announce increases of the order that we think necessary; we think they
would cost him about £4 billion a year. It is hard to imagine
him announcing a £4 billion tax rise to pay for it, but it is
not impossible. I grant the Government that. Donald and I started
forecasting child poverty in 2010 back in 2006, and we have basically
been updating our assessment of what needs to be done since then. I
would not pretend that this is an exact science, but for the last three
years the story has been that the Government need to spend more on tax
credits if they want to hit the
target. Donald
Hirsch: The important thing is that when one makes
these projections, one makes them on present policies. Policies are
constantly being developed. Mike and I said in 2006 that the Government
needed to do a certain amount, and they have done roughly half of that
and closed half the gap. Looking ahead, that sort of projection can be
quite useful in the short term. In the long term, to say
“It’s going to get worse if nothing is done” shows
the magnitude of the task, but that should never be taken as a
forecast. On the other hand, it can show the importance of a more
systematic method of uprating, for example. That at least gives a
starting point that is not moving backwards, so that all the other
things that will have to go into a strategy are not starting from such
a dismal
projection.
Q213Mr.
Gauke: Coming back to your point about the 2010 targets,
Mr. Brewer, I am sure that you must be right. The pre-Budget
report is to be produced in the
next few weeks. Presumably, if there were a legal obligation to meet the
2010 target, the Government would have to increase child tax credits by
£4 billion. Is that how you read the operation of the
Bill?
Mike
Brewer: I’m not sure what the Bill means. If
there were a target that the Government were legally forced to hit
then, yes, mechanically they would have to increase tax credits by that
amount. I don’t know whether the Bill actually requires the
Government to do that. I suspect the man on the street might think that
is what a legal obligation would force the Government to
do.
Q214Mr.
Gauke: Presumably it would have been possible, some years
ago, to identify the need to increase tax credits under this type of
rubric, had it
applied. Mike
Brewer: Yes, and we did that. It was done outside
Government, not by
Government. Donald
Hirsch: By 2006, we could say that long-term measures
were going to be too late to take effect, because they always take a
long time to take effect. It would be unfortunate if what the Bill did
was to cause Governments not really to take those long-term measures,
but to get to the point at which we hit the panic button and then just
pass or transfer. Let’s be clear: the kind of resources you
would have to transfer even to get to a 10 per cent. target
would be massive, and it would distort all sorts of things if you did
it entirely through a redistributive tax and benefit
mechanism.
Q215Mr.
Gauke: If I might, I shall ask one more question that
flows immediately from that. Is your argument that in the early years
of the operation of the Bill, a Government should take long-term
measures to reduce child poverty—measures that might not
necessarily have an immediate, visible impact on the annual targets and
the number of people who are taken out of poverty? You could have an
immediate impact by raising benefits, but to achieve the aims of the
Bill you need to address the longer-term causes of poverty in the early
years. Donald
Hirsch:
Yes. Mike
Brewer:
Yes. Neil
O'Brien: That seems to be the political problem with
the Bill; it is difficult for any politician to say, “We are
going to miss the legally binding target that we set for ourselves, but
we are instead spending the money on something that will be better in
the longer term.” To me, that is the problem with periods in the
Bill.
Q216John
Howell (Henley) (Con): You described the Bill as being
about income and income targets, but the delivery of much of what the
Bill wants to achieve is pushed over to local government. Do you see a
mismatch between those targets and how the Bill expects them to be
delivered? Donald
Hirsch: There are certainly very limited things that
local government can do on its own. If your interpretation is correct
and is used to get central Government off the hook, then I think that
is true. There are a lot of things—not only what the Treasury
does in terms of shifting money, but relating to resources for the
education system and all sorts of things—that are influenced or
decided at national Government level, which I assume will be in some
sort of national strategy. If the fact that the monitoring is largely
put on to local authorities causes the Government to take their eye off
that ball, then that would be true.
Dr.
Ridge: The local authorities’ role is going to
be critical, in terms of how things work for children and young people
in those areas in particular. I welcome local authority involvement,
but it is going to be about resources and forging good partnerships.
Also, some of the provision in the Bill, about communicating and
consulting with children and young people in families in those areas,
could result in very good, well-centred policies that are informed with
a much stronger grass-roots perspective than they might otherwise be.
Child care policy is an example. I also would like to point out the
important issue of low-income children in rural areas, who very easily
miss out when we are looking at overall measures. The experience of
being poor in a rural area is a very particular one. Local authorities,
with this kind of duty on them, may well be able to provide better
quality services and a better response to those children and young
people.
Q217John
Howell: Earlier, one of you said that something pretty big
needs to happen. Is that something big going to happen as a result of
the delivery mechanisms set out in the
Bill? Neil
O'Brien: It seems to me that there is a complete
mismatch between the wider strategy and the targets in the Bill. In a
sense, you are not going to be voting in this place on the strategy and
all those things; you are voting on just a target that is very much
focused on central Government and everything they are doing. So, in
answer to your previous question, there is a complete
mismatch.
Q218John
Howell: My next question comes out of Dr. Ridge’s
point. There has been some comment that the Bill does not actually
force councils down the line, but maintains an approach that pushes
them more towards area-based programmes rather than towards
family-by-family programmes. Given the success of family-by-family
programmes, do you think there is sufficient flexibility in the Bill to
allow it to achieve anything good on the
ground? Dr.
Ridge: I would certainly hope so, which is not quite
the same as “there definitely is”. I think that the
intention is to achieve that kind of response on the ground. The
partnerships, the duty to consult and those kinds of arrangements could
result in a much better grass-roots response, and in local authorities
responding in more family-friendly ways to some of the issues
they
face.
Q219John
Howell: There is always a huge gap between intentions and
achievement,
though. Dr.
Ridge: Yes,
absolutely.
Q220Ms
Karen Buck (Regent's Park and Kensington, North) (Lab):
You talked a minute ago about the estimated £4 billion cost of
meeting the 2010 target. I don’t know if you heard it mentioned
in this morning’s evidence session, but you will have looked at
the report by the Centre for Social Justice estimating that it would be
possible, for around £2.5 billion, to change fundamentally the
work disincentives. Don, you in particular have done some work on the
estimated cost of poverty—around £25 billion a year. Can
the four of you help us to understand the relationship between the
estimated cost of poverty and the cost of investing in meeting
short-term targets, whether they be work incentives or the
£4 billion
in tax incentives? How quickly would it be possible to start offsetting
expenditure on poverty against the money you invest to tackle
it? Donald
Hirsch: The honest answer is that there isn’t
a sudden gain. Some of the £25 billion could come quite quickly
as a result of children who are no longer in poverty requiring fewer
services for when their lives go wrong, although it takes a while for a
society to adapt, even in those terms. Some of it will be about the
long-term impact, because if you have grown up in poverty, you might
have difficulties as a teenager that require extra spending, and some
of it will be very long term. About half of it is for future labour
market outcomes. So, the honest answer is that it helps in terms of
seeing the order of magnitude. One of the things that you can
do—it is only one of the things—is to be a bit more
generous on the direct transfer of income. It is just showing that the
cost of doing that is pretty low, compared with the overall costs we
are faced with all the time from having children with these outcomes.
One of the real difficulties that the Joseph Rowntree Foundation, which
I have done work for, has had is that it is always easiest to model the
cost and results of poverty on doing something such as income transfer.
Once you go beyond that—and we have tried—it is difficult
to say how much it will cost to have an education system that is fairer
and has better outcomes for children on low incomes. The shocking
amount that this costs to society is important, but it will be hard to
persuade the Treasury that this stream of money is going to come in as
a result of this
investment.
Q221Ms
Buck: What about specifically targeting money on removing
work
disincentives? Mike
Brewer: Then, of course, you get some money back
straight away. You get increased tax revenues, and that was the kind of
sum that the Centre for Social Justice arrived at when it worked out
the net cost of its package. Once you allow for the fact that improving
incentives encourages people to work, you typically still do not raise
money overall—you are still spending money, but it will
obviously offset some of the costs. I agree with Donald that if you are
thinking of tackling child poverty, it is an investment in children,
and the pay-offs are going to take a generation. But if you are
thinking about tackling work disincentives, yes, there is a
pay-off.
Q222Ms
Buck: This is the same question as the one Steve Webb
asked this morning. Is there any risk that investing in tackling work
disincentives as a means to encourage people into employment simply
displaces costs from one group of people to another? Unless the labour
market grows, you are not necessarily going to make any savings in
terms of gross expenditure.
Mike
Brewer: I think that most economists would argue that
the labour market would expand so that people who wanted to find a job
would be able to do so. I don’t think we see that as the
problem.
Q223Steve
Webb: May I clarify the question? You are actually right,
Karen. My worry about what the Centre for Social Justice seems to be
saying is that there is a kind of free lunch here. It is suggested that
some £2.5 billion could be spent up-front doing nice things to
the benefits systems, and 600,000 people will take jobs. You can then
take all the tax revenues, the benefits savings, the growth in the
economy and the VAT they
create, and that pays for it. I felt—this might be
pejorative—that there was a slight free lunch feel about that.
Surely, to some extent, you are just displacing other unemployed
people. You are down as an advisor to the centre’s report. Has
it taken any account at all of the fact that there is a whole set of
people who could have had those jobs but did not? You said that the
whole thing will just
expand. Mike
Brewer: Yes, as I say, I think the labour market will
expand to accept those people. Perhaps the Centre for Social Justice
exaggerated how quickly that will happen, but I think people will
respond to improved financial incentives—they will begin to work
and help offset the costs of doing this. But the package that the
centre came up with will still cost the Government money, so it is not
a free lunch—it could still cost them £3 billion after
the behavioural
responses.
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