Welfare Reform and Work Bill Committee

Written evidence submitted by The Children’s Society (WRW 40)

About The Children’s Society

The Children’s Society is a leading charity committed to improving the lives of some of the most disadvantaged children and young people across the country working through our research, campaigns and direct services. Our direct work with vulnerable groups - such as disabled children, children at risk exploitation, children in or leaving care, refugee, migrant and trafficked children - means that we can place the voices of children at the centre of our work.

Introduction

The Welfare Reform and Work Bill includes the repeal of the income targets and associated duties to eradicate child poverty set out in the Child Poverty Act 2010, in addition to a number of measures contained in the July 2015 Budget. The Children’s Society has a number of concerns with regard to the impact of these reforms on all children living in poverty and material deprivation, including children living in low income working families. This briefing covers clauses 4-6, 9 and 10.

The impact of income poverty on children (Clauses 4-6)

T here is abundant evidence that children growing up in lower income households do less well than their peers on a range of wider outcomes, including measures of health and education. For example, one recent review [1] has shown that c hildren in lower-income families have worse cognitive, social-behavioural and health outcomes, and illustrated that this is not just because low income is correlated with other household and parental characteristics. The review also highlighted that increasing household income could substantially reduce dif f erence in schooling outcomes, while also improving wider aspects of children’s well-being. Importantly longer-term poverty – linked to the specific target around reducing persistent poverty – affects children’s outcomes more severely than shorter-term poverty.

The importance of family income is also highlighted in the recent research published by the Social Mobility and Child Poverty Commission which highlights that: " children from less advantaged family backgrounds who were high attaining in early cognitive skills assessments are found to be less able or at least less successful at converting this early high potential into career success. " The report goes on to explain that " families with greater means at their disposal, financial and otherwise, are assisting their children to accumulate skills, particularly those which are valued in the labour market. " For example, the study finds that children from higher family income groups at the age of 10 are more likely to have high hourly labour income at age 42 while the opposite is true for children from lower family income groups [2] . The Government must consider the impact that significant cuts to family income will have on children’s school attainment and life chances.

Additional measures (Clause 4)

The Children's Society has welcomed many of the steps the current and previous Government ha ve taken towards addressing child poverty both now and in the future. This includes additional support with childcare costs for families in receipt of universal credit, and providing free school meals for all children aged 5-7. Measures such as these will make a real difference to children in low income families.

Worklessness and lack of access to employment is unquestionably a key driver of child poverty. Where one or more parents are out of work as a result of illness or unemployment, households are considerably more likely to be in poverty. I t should be noted , however, that while work can be a key route out of poverty, it is by no means a guaranteed one. In recent years the proportion of families in working poverty has grown substantially. The UK currently has one of the highest rates of low pay in the developed world: over 20% of full-time employees earn less than two-thirds of the pay of the median full-time worker compared to 16% in the OECD as a whole. Furthermore, recent Government data highlights that t he majority of chi ldren in poverty - 63% - are living in working households [3] .

Given what we know about the impact of family income on children’s success in the labour market in adulthood, reporting on a measure focussed solely on children in workless households will not address the pernicious e ffects of childhood poverty or indeed improve the life chances of millions of children in the UK.

Recommendation: We recommend that the Government introduce a reporting requirement for the Secretary of State regarding the number of children living in low income working families.

One additional measure which we would recommend that the Government consider is the number of families and children impacted by problem debt. Our Debt Trap report shines a light on the strain that living in debt places on children and parents [4] . It mean s that children miss out on the things their peers take for granted, but can cause problems in every area of a child’s life - arguments at home, isolation and being bullied at school, to name just a few. Families trapped in problem debt are more than twice as likely to argue about money problems, leading to stress on family relationships, and causing emotional distress for children.

Case Study - Barbara's Story

Barbara is a divorced, single mother with two children, living in her own house, with a mortgage. She is currently living on benefits, with a monthly income of around £1,100, although she is actively pursuing paid work.

Before having her second child, Barbara had juggled work and study, first training as a teacher and working full time, then working in schools while she studied for higher degrees. She stopped working when she had her second child because her job at the time involved a lot of travel.

Barbara first got into debt in 2008, when she and her partner took out a £5,000 bank loan to pay for their wedding. They also took out a £2,000 bank loan to buy bedroom furniture. Both loans were in Barbara’s name and she and her husband were working at the time and repaying their loans. When Barbara had their daughter in 2011 and stopped working, things got a bit trickier financially, but they were still managing on the money that her husband was earning, and Barbara always intended to return to work.

In 2013, Barbara’s husband woke her up one morning and informed her that he was moving out. Once the initial shock had subsided, Barbara began dealing with the emotional fall out from her husband’s sudden departure, which had a significant impact on her and her children. She also began taking steps to manage her finances; she sold her car and applied for benefits and help with the mortgage.

‘I’ve just been trying to cut back on a lot of things. Like I had to explain to [my son] that certain things he couldn’t have any more and we buy basics, I look at bottom shelves and look for bargains and things.’

Of course debt can be experienced by families with high income, w here children are not affected by poverty and as a result their outcomes are not affected in the same way. Therefore, any measures and targets around problem debt should complement – rather than replace – existing income-based measures and targets to eradicate child poverty .

Recommendation: We recommend that the Government introduce a reporting requirement for the Secretary of State regarding the number of children living in families living in problem debt.

Repeal of the Child Poverty Act (Clause 6)

By repealing sections (1-7) of the Child Poverty Act 2010 (Clause 6), the Welfare Reform and Work Bill removes the duty on the Government to report on child poverty targets according to the four key targets for eradicating poverty by 2020: relative low income, combined low income and material deprivation, absolute low income and persistent poverty. These measures were set to take into account the different facets of child poverty and in recognition that no one measure is sufficient on its own.

R elative low income is a widely used measure both in the UK as well as in the rest of Europe: whereby children are considered to be poor if they live in households with income below 60% of the household median. This child poverty measure recognises that it is not enough that children’s basic needs are met – that they have food, shelter and clothing (although our research highlights that this is not the case for many children living in poverty in the UK today) , but they also require the resources necessary for them to participate in the same activities as their peers . Relative child poverty allows us to capture the idea that being poor is in part about children being excluded from participating in what are considered to be ‘normal’ activities for their peers – things that others take for granted.

Government data released in July [5] revealed that whil st child poverty remained static between 2012/13 and 2013/14 at 3.7m children in poverty after housing costs (AHC), the number of children in families living on less than 50% of medium income has risen from 2.2m to 2.4m – meaning that there are 200,000 more children living in the most severe poverty. Although much progress has been made already in lifting children out of poverty, eliminating the targets now would divert attention and much needed action from these important goals.

Duties on local authorities to contribute to eradicating child poverty (Clause 6)

Clause 6 of the Bill also removes the duty on local authorities to produce a child poverty needs assessment and to work collaboratively to eradicate child poverty. This duty was established as part of the Child Poverty Act 2010 and was aimed at ensuring that action was taken at a local level to develop an understanding of the way that poverty was experience by local residents, and to come up with an effective set of steps to ensure that the circumstances were mitigated to the greatest possible extent.

Producing Child Poverty Needs Assessments and Strategies have helped to focus local authorities priorities on ways and means of addressing child poverty in a local area. This has been particularly powerful when it is addressed at a city region level. A good example of this is the Liverpool City Region Child Poverty & Life Chances Strategy. As this strategy document rightly points out "Growing up in poverty can affect every area of a child’s development and future life chances."

They are intended as a tool to help inform the development of plans, including the child poverty strategy, policies, commissioning and services across an area.

However, given the Government’s renewed focus on children’s life chances, this would provide an opportunity to ensure that local authorities focus on the action that they can take both to address child poverty and to improve children’s life chances.

Recommendation s :

· The Government should retain child poverty targets and duties from the Child Poverty Act to make sure that income poverty continues to be central consideration in child poverty and life chances policy. Whilst the life chances measures set out are welcome, we recommend that the Government use these as additional to the measures set out in the Child Poverty Act.

· In line with their renewed focus on children’s life chances, the Government should introduce a requirement for all local authorities to produce a children’s life chances and child poverty strategy.

· Statutory agencies should work collaboratively to eradicate child poverty and improve the life chances of children and young people in the area.

Work allowances to be included in 4 year benefit freeze (Clauses 9 and 10)

Certain working age benefits, certain elements of tax credits and child benefit will be frozen at their 2015/16 levels for four years between 2016/17 and 2019/20. The Bill introduces a four year freeze on working age benefits. This will apply to a wide range of benefits and tax credits, including those paid on account of children in the household.

S ince the freeze affects benefits and tax credits for working families as well as those for non-working families, work incentives could risk being actively undermined. Figure 1 below shows the loss to a couple with three children earning £400 per week (assuming no Housing Benefit entitlement) as a result of the introduction of a four year benefit freeze, based on OBR forecasts for RPI inflation. As can be seen, by 2020 the loss amounts to £34.20 per week for a typical low income working family compared to support rising in line with costs of living. A similar family with no earnings would lose £36.75 by the same point. Note – this is only the impact of benefit freezes, other losses such as the removal of the family element of child tax credits are not included.

Figure 1: Couple with 3 children earnings £400 per week (gross), real terms weekly loss as a result of benefit/tax credit freeze for each year to 2020

Work incentives for families on low income

The July Budget introduced new measures (introduced through a statutory instrument in the House of Commons on Tuesday 15 September) to reduce levels of income disregards in tax credits and work allowances in universal credit. These levels set the amount of earnings that a family in receipt of benefit can keep before additional earnings start to affect their benefit entitlement. They are crucial in ensuring that work pays for low income families.

Any earnings above this threshold begin to affect the amount of support that a family receives (currently at a rate of 41p for each additional £1 earned for families in receipt of tax credits).

The income threshold for tax credits is currently set at £6,420 per year, with earnings over this threshold deducted at a rate of 41p for each £1 earned above this threshold. Under the new regulations, this threshold will be reduced by £2,570 to £3,850 per year.

At a deduction of 41p in the £1, this reduced threshold will cost low income working families £1,054 per year. However, these regulations have also increased the taper rate for tax credits from 41% to 48% (from 41p in the £1 to 48p in the £1), meaning that the cost of this reduction in the income threshold will be still higher– around £1,233 per year.

These measures will only affect working families, and will significantly reduce the incentive to work. Therefore it is difficult to understand why, when other benefits are being frozen, work allowances are being actively cut. These allowances are crucial to enable families to move into work and make work pay, they should not be cut more deeply than other support for families.

Recommendation: Children should be given the same protection as is given to elderly people through the basic state pension. This means "triple locking" children’s benefits so that they rise in line with the highest of earnings, inflation or by 2.5% per year.

Questions for the Minister:

· What assessment has been made on the cumulative effect of cuts to work allowances and the benefits freeze on children and families?

· How will this affect work incentives and make sure that work pays?

September 2015


[1] Cooper, K. and Stewart, K. (2013) ‘Does money affect children’s outcomes?: http://sticerd.lse.ac.uk/case/_new/publications/abstract.asp?index=4330

[2] Social Mobility and Child Poverty Commission (2015) ‘Downward mobility and opportunity hoarding’: https://www.gov.uk/government/publications/downward-mobility-and-opportunity-hoarding

[3] Households Below Average Income (HBAI) - An analysis of the income distribution 1994/95 – 2013/14 - June 2015: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/437246/households-below-average-income-1994-95-to-2013-14.pdf

[4] Royston, S. and Surtees, J. (2014) The Debt Trap: Exposing the impact of problem debt on children. The Children's Society and StepChange Debt Charity: http://www.childrenssociety.org.uk/what-we-do/resources-and-publications/publications-library/debt-trap-exposing-impact-problem-debt-ch

[5] Households Below Average Income (HBAI) - An analysis of the income distribution 1994/95 – 2013/14 - June 2015: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/437246/households-below-average-income-1994-95-to-2013-14.pdf

Prepared 18th September 2015