House of Commons - Treasury - Written Evidence

Spending Review 2010 - Treasury Contents

Written evidence submitted by Save the Children UK

INTRODUCTION

Save the Children is the world's leading independent children's rights organisation. We're outraged that millions of children are still denied proper healthcare, food, education and protection and we're determined to change that.

Save the Children welcomes the government's commitment in the Comprehensive Spending Review (CSR) to ending child poverty in the UK by 2020 and the courageous decision to spend 0.7% of GNP on Overseas Development Assistance (ODA) by 2013.

We also welcome the introduction of a pupil premium and additional childcare support for two year old children from deprived homes. However we have a number of serious concerns:

— The government did not announce specific funding targeted at reducing child poverty in the CSR.

— Many of the welfare cuts announced will hurt low income families with children.

— A number of the measures announced are at odds with the government's stated aim of supporting people into work and ensuring that work pays.

— We would like to know what the impact of the CSR will be on child poverty up to 2020 (including the cuts in welfare spending that come into effect in 2012).

UK CHILD POVERTY

There are 3.9 million (30%) children living in poverty in the UK. A child is living in poverty if the household they live in has an income of less than 60% of the median household income in the UK.[41] The 2020 target to eradicate child poverty can only be met if the income of the poorest households is increased. Boosting family incomes is a very effective means of improving children's health, educational attainment and life chances.[42] Current projections indicate that the level of child poverty in 2020 will be significantly higher than the official target of 10%.[43]

Save the Children believes that measures announced in the CSR will hurt families experiencing in-work and out-of-work poverty. Of particular note are a number of measures which will make it harder for parents to move into employment. These measures appear to be at odds with stated Government objectives.

HURTING LOW INCOME FAMILIES

A number of changes in the CSR are likely to result in a reduction in the incomes of families with children living on incomes below the 60% median:

1. From 2012 couples will need to work 24 hours a week to be eligible for Working Tax Credit (up from 16 hours). 205,000 families are currently claiming Working Tax Credit and working between 16 and 24 hours.[44] Increasing the eligibility threshold to three days a week for couples will make it harder for parents to move into work and make the benefits of being in work less clear for those working less than 24 hours. It will make it harder for parents to be flexible about their working arrangements and mean that "passported entitlements" (such as childcare support) will be lost.

2. Almost half a million low income families will be affected by the cuts to childcare support being introduced from 2011. There are 488,000 families currently claiming the childcare element of Working Tax Credit (which will now only cover up to 70% of childcare costs rather than 80%).[45] Childcare costs present a major barrier to parents looking to move into work or work longer hours. Cutting the amount of support working families get to meet childcare costs will make it harder for parents to be "better off in work". Some low income parents will lose up to £30 a week worth of support (£1560 per year).

3. The Council Tax Benefit budget is being cut by 10%. Councils are being given the responsibility of administering this cut which is likely to hit families in receipt of Housing Benefit, Income Support and Job Seekers Allowance. By doing this the Government is creating greater complexity for benefit recipients. This runs counter to the idea of the streamlined Universal Credit to be introduced by Work and Pensions Secretary Iain Duncan Smith.

4. The freeze in the basic and 30 hour elements of Working Tax Credit for three years from 2011 will hit families experiencing "in-work" poverty and those families above the poverty line but on modest incomes. This is a real terms cut to the incomes of low income families.

5. Employment and Support Allowance (ESA) claimants will be migrated to Job Seeker's Allowance (JSA) if they cannot find work within a year. JSA is typically £20-£40 a week lower than ESA meaning some of the most vulnerable people in society will be hit in the pocket. This is particularly harsh because partners of disabled people are likely to work in part time/short hours jobs so they can balance work and caring commitments. This may also act as a disincentive to work for the partner.

6. Social housing providers will be allowed to charge up to 80% of market rents to their tenants. The National Housing Federation argues that this could increase by three times the current average cost of a 3 bed social housing property from £85/week to £250/wk. This change sits alongside a number of changes to housing benefit which will make it harder for people to live in social housing in better off areas.[46]

7. Educational Maintenance Allowance (EMA) is to be replaced by local discretionary support for those in full time education. EMA is currently worth £30 a week payment to 16, 17 and 18 year olds from low income families (household income up to £20,817 per year) in full-time education.

In addition to measures which directly cut the incomes of low income families, the CSR will result in a significant number of public sector job losses. These job losses are likely to hit those areas with high levels of child poverty.

— 490,000 jobs will be lost in the public sector by 2014-15. The Chartered Institute of Personnel and Development has said 750,000 public sector jobs will go by 2015-16.

MEASURES TO SUPPORT CHILDREN LIVING IN POVERTY

The CSR also included measures aimed at boosting the incomes of low income families or increasing the amount spent on children in low income families:

— A pupil premium worth £2.5 billion per year by 2014-15 targeted on the educational development of disadvantaged pupils. We are clear that this funding needs to be in addition to the schools budgets.

— Child Tax Credit payments will increase by £30 in 2011-12 and £50 in 2012-13 for low income families.

— 15 hours per week of free early education and care will be provided to all two year old children from low income families from April 2012.

The government says that child poverty won't go up in the next two years as a result of this increase in Child Tax Credit payments. However, many of the cuts in welfare spending will come into effect after 2012 and will reduce the incomes of families in poverty unless compensatory measures are announced in the interim. We would like to know what the impact of the CSR on child poverty will be up to 2020 (including the changes that come into effect after 2012).

PUBLIC SERVICE CUTS

The measures discussed in the first part of this briefing do not include cuts to public services which will impact further on the lives on families experiencing poverty. It is worth noting that analysis following the Emergency Budget in June showed that the poorest 10th of households are hit hardest by public service cuts reflecting the fact that poorer households are higher users of public services.[48]

RING-FENCING OF ODA BUDGET

1. In a spending round that saw a 20% cut in departmental budgets, the government has stuck to its pledge to spend 0.7% of national income on Overseas Development Assistance (ODA) by 2013. This is a courageous political choice in a difficult economic environment, and is something that the British public can be proud of. Sticking by our aid pledges, even during as tough a fiscal period as this, is both the right thing to do and in the UK's long term interest—David Cameron has said that those with the broadest shoulders should carry the greatest burden. This principle should apply in terms of our international spend, as well as our domestic spending: the data shows that the economic crisis has increased development needs.

2. In the context of overall spending, current ODA and the projected increase remains small, and reneging on the 0.7% pledge would not have made a significant dent in the cuts. The increase in ODA over the lifetime of the spending round is equivalent to three weeks of spending on the NHS. The total ODA spend in 2010 is equivalent to a fortnight's spend on welfare and pensions.

3. The UK will be meeting both its EU commitment by giving 0.7% by 2013, and will be joining five other European countries that currently do the same. This level of commitment will strengthen the UK's credibility and leverage in international forums on issues including international development, climate and security.

4. There is a need for the ODA increase to be invested wisely, especially at a time when public spending is under pressure. We support the broad thrust of the government's focus on transparency, accountability and results, provided it doesn't drive an excessive emphasis on attributability and visibility at the expense of long term impact.

There is further good news in the detail of the Spending Review:

— The CSR also increases the share of ODA managed by DFID. Under the 2002 International Development Act, DFID is mandated to focus solely on poverty-reduction. Channelling aid through DFID therefore ensures that UK aid is directly reaching the world's poorest people. The CSR establishes that DFID's share of UK ODA will rise over the spending period from its current level of around 87% to above 90%.

— Climate finance will account for around 6% of the aid budget, staying below the upper limit of 10% set by the previous budget.

However, some questions remain about how the increase will be managed and how aid will be allocated:

— Although aid spending will increase to 0.7% of GNI by 2013 (from the current level of 0.56%), the Spending Review has indicated that the increase will be backloaded, ie there will be a steep rise in spending in 2013 rather than a straight-line increase from 2010-2013.

— The assumptions behind the backloaded increase will require more scrutiny. Andrew Mitchell has indicated that the spike in spending in 2013 will be facilitated in part by delaying the UK's contribution to the 16th replenishment of the World Bank's International Development Association (IDA). Given that the UK is the largest donor to IDA, it could mean that the World Bank is unable to maintain current levels of disbursement to Low Income Countries for the first two years of the next IDA round.

— It is also possible that debt relief (to Sudan and Zimbabwe) may form part of the steep rise in aid spending in 2013. This, however, is incredibly difficult to plan for, given the need for international agreement.

The difference between a straight line increase to 0.7% by 2013 and a flat lining followed by a hike (a "hockey stick" rise) is over £2 billion—this carries an opportunity cost in terms of the UK's impact on global poverty

— Whereas a progressive scale up of aid would enable a gradual absorption of the increase, a sudden hike could create absorption difficulties. Proposed cutbacks in DFID's administrative staff will exacerbate this problem.

— The simultaneous announcement that DFID will spend 30% of ODA in Conflict Affected Fragile States is important but needs to be balanced against aid for poor but stable countries (eg Bangladesh, Ghana, Malawi, Tanzania and Zambia) and to fragile states that are off the agenda of the UK government (eg Haiti, Niger).

November 2010