Welfare Reform and Work Bill Committee

Written evidence submitted by the End Child Poverty Coalition (WRW 45)

1. About the End Child Poverty Coalition

1.1 Every day, End Child Poverty members see the real impacts that poverty has on the daily lives of children today. Low income affects direct measures of children’s well-being and development, including their cognitive ability, achievement and engagement in school, anxiety levels and behaviour.

1.2 The End Child Poverty coalition comprises over 100 UK organisations and exists to hold the Government, and all main political parties, to account for their commitment to eradicate child poverty in the UK. With child poverty set to rise in coming years, it is now more important than ever to take action to achieve this goal.

1.3 As set out in this briefing, the End Child Poverty Coalition is concerned that not only will many of the policies set out in the Welfare Reform and Work Bill increase child poverty, but that by repealing the Child Poverty Act, the Government is set on a course which will reduce our understanding of child poverty and the emphasis placed on eliminating it.

2 Child poverty is rising…

2.1 Independent projections from the Institute for Fiscal Studies (IFS) show clearly that the falls in child poverty rates seen at the beginning of this century risk being reversed. The latest official figures, for 2013/14, changed little on the previous year, but the likely upward trajectory for child poverty is clear. The most recent IFS projections, produced prior to the 2015 summer budget, suggest that, by 2020/21, 3.0 million children will be in relative poverty before housing costs, and 4.3 million after housing costs. They project that absolute poverty will stand at 3.5 million and 4.7 million before and after housing costs respectively. This would represent an increase of around 0.7 million in relative child poverty and an increase of over a million in absolute child poverty, when compared with the 2010/11 baseline established in the Child Poverty Act.

Figure 1: Percentage of children in poverty: official statistics and Institute for Fiscal Studies projections

3 …and many of the proposals in the Welfare Reform and Work Bill will cause it to rise further

3.1 The projections above predate the measures in the July 2015 Budget and the Welfare Reform and Work Bill, however. If these proposals are enacted we should expect child poverty to rise even more steeply. The four-year freeze to working age benefits will drive increased poverty, as shown by analysis of uprating decisions taken during the last Parliament. The IFS say of uprating decisions in the previous Parliament that ‘real cuts to working-age benefits are a key reason behind rising child poverty’. [1] A ministerial answer to a Parliamentary Question in January 2013 revealed that the government estimated that the three years of 1 per cent uprating alone would put 200,000 more children in poverty by 2015/16. [2]

3.2 Figure 2 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 inflationary forecasts 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 CTC are not included.  

Table 2: Couple with 3 children earnings £400 per week (gross), real terms weekly loss (compared to rates of benefit and tax credit rates rising with costs of living) following benefit/tax credit freeze for each year to 2020  

3.3 Cuts to tax credits will also have a substantial impact on child poverty. The IFS modelled the impact of different cuts to benefits for their February 2015 Green Budget, and estimated that £5.1 billion of cuts to child tax credit would increase child poverty by 300,000. [3] In fact, the Treasury estimates its three key cuts to tax credits and universal credit will be even higher, and will cut £5.5 billion by 2020/21. [4] As well as increasing child poverty, these changes significantly weaken incentives to work as the impact of cuts will fall disproportionately on low income working families. The Government’s own Evidence Review of the Drivers of Child Poverty (January 2014) found that the most important factors standing in the way of children exiting poverty were those factors contributing to a lack of sufficient income from parental employment: not just worklessness but low income from work. [5]

3.4 Increases to the National Minimum Wage (NMW), while welcome, are inadequate compensation for these cuts to support for families with children. This is for two key reasons:

Firstly, deductions from benefits and tax credits mean that low income families with children keep very little of any gain in earnings (under Universal Credit two thirds of any net income gain for a low income working family is deducted from Universal Credit entitlement).

Secondly, any gains in earnings are substantially overshadowed by major cuts to social security entitlements. For example:

A two parent, three child family with one earner working 30 hours a week at £9/hour would lose almost half their entitlement to tax credits if they were making a claim with the new rules fully implemented (as they will be by April 2017).

At present, they’d be entitled to £10,541 a year; under the new rules, they’d be entitled to £5,449 a year – a loss of £5,092.

3.5 The IFS have indicated that overall the increased National Minimum Wage will deliver a gross £4 billion increase in employment income from the increased NMW compared with approaching £6 billion in cuts to tax credits (not accounting for the four-year freeze). And the increased minimum wage targets different groups to tax credits: the former tackles low wages and the latter tackles low family incomes. The Office for Budget Responsibility (OBR) notes that ‘around half of the cash gains’ from the policy will flow to the wealthiest half of households, while the average annual gains to higher income households will be greater than those for lower income households. [6] This is because a high proportion (in its Budget analysis, the IFS estimated around half) of those who gain will have a working partner, while Brewer and De Agostini estimate that those in higher income households earning the minimum wage work more hours, and thus gain more income. [7]

4 This comes at a high cost…

4.1 Poverty robs children of the childhoods they deserve, often missing out on events most of us take for granted. They miss school trips; cannot invite friends round for tea; and cannot afford a one-week holiday away from home. Children in poverty are more likely to live in bad housing, more likely to die at birth or in infancy, and more likely to suffer chronic illness in childhood, or to have a disability.

4.2 Poverty damages children’s life chances: children from poor backgrounds lag behind at all stages of education. By the age of three, poorer children are estimated to be, on average, nine months behind children from more wealthy backgrounds. By the end of primary school, pupils receiving free school meals are estimated to be almost three terms behind their more affluent peers, a gap that grows to over five terms by 14, and leads them to achieve 1.7 grades lower on average at GCSE. [8]

4.3 Child poverty also imposes social and economic costs. Some of these are linked to reduced life chances – such as tax receipts lost to government as a result of people earning less, having grown up in poverty - but there are also the ‘fallout costs’ of child poverty, such as personal social services, school education, and police and criminal justice. Research by the Centre for Research in Social Policy at Loughborough University estimates that child poverty cost £29 billion in 2013 in financial terms alone.

5 The repeal of the Child Poverty Act will obscure increases in child poverty

Clauses 1-4 of the Welfare Reform and Work Bill introduce new reporting obligations on full employment, apprenticeships, troubled families, and workless households and educational attainment respectively. Clauses 5-6 change the Social Mobility and Child Poverty Commission to the Social Mobility Commission and repeal the bulk of the Child Poverty Act 2010.

5.1 The proposed new life chances measures – though valuable in themselves – amount, on their own, to not measuring poverty at all. Educational attainment and worklessness, in particular, are relevant indicators that are linked to child poverty, but they are far from sufficient. In particular, two-thirds of children in poverty live in households where there is someone in work. Removing existing targets and replacing them with measures that ignore the increasing reality of in-work poverty will not get to the heart of understanding child poverty in the UK.

5.2 Furthermore, these new measures are simply reporting requirements, and do not provide any accompanying targets. If these measures are to have any significance, then they must have targets attached to drive action and for the purpose of accountability.

5.3 The government has stopped talking about child poverty. By removing the child poverty remit from the existing Commission, the government is depriving itself of a source of expert advice and information. By renaming the Child Poverty Act (to the Life Chances Act), the government is sending out the message that it doesn’t care about child poverty, even as it rises to levels not seen for a generation.

5.4 This provides a sad contrast with the government – and particularly the Prime Minister’s – previous strong commitment to tackling child poverty. In his 2006 Scarman Lecture, David Cameron boldly and unequivocally set out this commitment:

‘Even if we are not destitute, we still experience poverty if we cannot afford things that society regards as essential. The fact that we do not suffer the conditions of a hundred years ago is irrelevant.

‘In the nineteenth century Lord Macaulay pointed out that the poor of his day lived lives of far greater material prosperity than the greatest noblemen of the Tudor period. But as Dickens observed, the poor of those days were still poor. Fifty years from today, people will be considered poor if they do not have something which has not even been invented yet. So poverty is relative – and those who pretend otherwise are wrong.’ [9]

6 Income must remain central to any understanding of poverty

6.1 Child poverty is multifaceted – something that poverty campaigners have always understood – but access to resources is at the heart of it. In 1979, Peter Townsend defined poverty thus:

‘Individuals, families and groups in the population can be said to be in poverty when they lack resources to obtain the type of diet, participate in the activities and have the living conditions and amenities which are customary, or at least widely encouraged and approved, in the societies in which they belong.’ [10]

6.2 Child poverty measurement is about operationalising this understanding – one which the Prime Minister well understood less than a decade ago. To achieve this, there is no perfect measure, but it is clear that income needs to be at the core. Instead of supplementing the measures that drive policy from ‘not just income’, the government is proposing to measure ‘everything but income’.

6.3 The measures in the existing Child Poverty Act are the subject of years of deep thinking and serious research. In 2003, the Treasury conducted an extensive exercise to find appropriate measures, leading to a ‘tiered approach’, in which a suite of measures were used to try and capture an understanding of the extent of poverty. This later led to the four measures in the Act, which recognise both relative and absolute poverty, material deprivation, and the damage that persistent poverty can do to life chances. The recent recession underlined the need for the full suite of measures, rather than focusing on any single measure of child poverty.

6.4 This understanding should be built upon. When the previous government consulted on changing poverty measurement in 2013, a range of experts argued against doing so lightly. The Royal Statistical Society described the existing relative measure as ‘the product of valid social science procedure’, arguing that ‘any replacement would need to be subject to the same degree of rigour, including a robust process of consultation’. [11] Given that the vast majority (97%) of respondents to that 2013 consultation believed that all the targets under the Child Poverty Act should be retained, and that the proposals in the Bill are not the product of any published research, that criterion does not appear to have been met.

7 Side-lining children in poverty

7.1 Taken together, the proposals in the Welfare Reform and Work Bill will increase the number of children in poverty. They also remove targets to end child poverty, which will lead to a loss of focus and expertise within government on tackling child poverty. This can only obscure what is happening to poverty by foregrounding other indicators that do not capture the importance of income on children’s well-being or the prevalence of in-work poverty.

7.2 For the sake of a whole generation of children, it is vital that the government reconsiders, and renews the commitment made by David Cameron in 2006: ‘I want this message to go out loud and clear: the Conservative Party recognises, will measure and will act on relative poverty’.

7.3 It would be a huge set back if the child poverty measures captured in the Chid Poverty Act 2010 – which had cross party agreement – were removed. We would urge the Government to keep the Child Poverty Act with amendments to the existing target dates. Clauses 5 and 6 should be deleted from the Bill because child poverty is a sad reality for millions of children in the UK, including those with a parent in work.

September 2015

[1] Child and Working-age Poverty in Northern Ireland Over the Next Decade: an update, Institute for Fiscal Studies, September 2014

[2] House of Commons, Hansard, Written Answers, 15 January 2013, col 715W, http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm130115/text/130115w0003.htm

[3] IFS Green Budget 2015, Institute for Fiscal Studies, February 2015

[4] Summer Budget 2015: policy costings, HM Government, July 2015

[5] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/285389/Cm_8781_Child_Poverty_Evidence_Review_Print.pdf

[6] Economic and Fiscal Outlook: July 2015, Office for Budget Responsibility, July 2015

[7] M Brewer and P De Agostini, The National Minimum Wage and its Interaction with the Tax and Benefits System: a focus on universal credit, Institute for Social and Economic Research, University of Essex, February 2013

[8] See http://www.education.gov.uk/rsgateway/DB/SFR/s000977/index.shtml

[9] http://conservative-speeches.sayit.mysociety.org/speech/599937

[10] P Townsend, Poverty in the United Kingdom, Allen Lane, 1979

[11] http://www.rss.org.uk/Images/PDF/influencing-change/rss-child-Poverty-Unit-Measuring-child-poverty-consultation-response.pdf

Prepared 14th October 2015