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A relative child poverty level of below 10 per cent would be the lowest in this country since at least 1961. It would more than reverse the doubling of relative child poverty between 1979 and 1998-99. As I said, by setting a range of targets in the legislation, we are confident that achieving all the targets will make a real and lasting difference to the children of the UK. Reducing child poverty rates to those consistent with other modern European economies with historically low levels of child poverty, such as Finland, Sweden and Denmark, would be a major achievement. The best child poverty rate that has ever been achieved in Europe is 5 per cent, but the figure has not been sustained. Using data from 2007, the best in Europe would equate to a level of 10 per cent. We propose to reduce the rate to less than 10 per cent, alongside extremely challenging targets to reduce the number of children in households suffering from persistent poverty, low income, material deprivation and absolute low income.

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The Government believe that it would not be possible to define eradication as zero children in relative income poverty. However, a rate of less than 10 per cent is an ambitious but technically feasible goal for the sustained eradication of child poverty that would put the UK's child poverty rate firmly among the best in Europe. There were technical issues with the survey used to measure poverty that meant that some children in families with short-term low income, or whose incomes were not recorded accurately in the survey-the noble Lord has referred to that-will be classed as in poverty even though they do not have low-income standards.

I hope that that has explained the 10 per cent figure. If achieved, it would put us in line with the best in Europe, and to focus on it along with the other three would enable us to make a real difference to children who are in poverty today.

Lord Freud: I thank the Minister for taking the opportunity of the probing amendment to answer so fully. His main explanation concerned data quality, and that is correct: when you look at some of the data collected, you see that there are grounds for serious concerns about their quality, so I accept what he is saying.

Lord McKenzie of Luton: Would the noble Lord expand on what he sees as the major issues around the quality of the data?

Lord Freud: One of the big problems when you do a survey is that the responses to it are apparently fairly confused, with people not knowing what they should be reporting and what they should not. Some people report nil because they do not consider benefits as part of their income. That is part of the concern. The other part is deliberate underreporting. In support of the amendment on the black economy, I have quite a lot of data to introduce to the Committee about what various academics estimate that economy to be, and where it might be.

This is a genuinely difficult issue. I imagine that if a surveyor came into noble Lords' rooms and asked them to tot up their incomes, everyone in this Room would find it pretty difficult to do that on a consistent basis. That is what some of the researchers who have questions in this area say. We will have other opportunities to discuss this.

I did a few sums on the back of a dirty piece of paper on the cost of my 0.15 per cent reduction from 10 per cent. If we were to take the IFS figure of £19 billion and calculate purely on income transfers, the cost of the reduction would be in the order of £200 million. I do not feel that I should put that kind of cost in a probing amendment, so I take pleasure in begging leave to withdraw it.

Amendment 4 withdrawn.

6.45 pm

Amendment 5

Moved by Lord Freud

5: Clause 2, page 1, line 18, leave out "60%" and insert "60.15%"

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Lord Freud: My Lords, this is pretty obviously another probing amendment. It raises the issue of why the Bill fixes on a figure of 60 per cent of median income as the target that defines the limit of poverty. I quote from the Policy Exchange document, Poverty of Ambition:

"So why choose 60% of median income as the cut-off? The answer is that there is no scientific reason, except that most academics and policy experts are happy to accept such a definition. They appear to have settled on 60% because it produces the sorts of poverty numbers they regard as plausible".

It would therefore not be acceptable for the Minister to respond to this amendment by saying that many academics think that 60 per cent is the right answer. I am very concerned that the figure has been developed as a classic example of groupthink, which has caused more tragedies in history than virtually anything else-from the Trojans thinking it smart to take wooden horses left by Greeks into their city, to people around No. 10 deciding that Saddam Hussein must have weapons of mass destruction.

I might point out that the 60 per cent figure is also suspiciously round. I have been a banker for many years, and when someone comes up to me with a round figure of 60 per cent, I look at it with great suspicion. If it had some kind of scientific basis, it would inevitably come with a decimal point attached. Does it really make a difference to a family to move them, for instance, from 58 per cent of median income to 60 or 61 per cent of median income, especially when the target process will encourage exactly that kind of manipulation? We may have seen such manipulation in recent years.

We will discuss the iron triangle later, because I have tabled another amendment. However, I will warm everyone up to the topic by arguing that we should not set the 60 per cent figure in isolation. The amount that we pay people in income transfers has an obvious impact on their incentive to work, depending on the marginal withdrawal rates that we establish. If we have withdrawal rates that motivate people back into economic activity, we have to worry about the cut-off point at which people start contributing to the Exchequer, and about the support level.

This Government have not yet done the work of linking the three elements of the iron triangle. They may discover that when they do-I have a feeling that they will look at this pretty deeply-there is some serious modelling involved, and that the 60 per cent figure may not be the optimal one. In other words, if they fixed a higher or lower figure, it might encourage more people into the workplace, and overall poverty rates would be lower-even at the arbitrary 60 per cent figure, which is not based on anything scientific or on minimum income standards. Jonathan Bradshaw, at the University of York, did us all a service in his paper that showed how arbitrary the figures that we are talking about have been.

I would welcome hearing from the Minister either why this is the best possible figure, or why the Government may have to do more work to establish that. I beg to move.

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Lord McKenzie of Luton: My Lords, Amendment 5 would change the threshold of median income used to determine whether a household is in relative income poverty from 60 per cent to 60.15 per cent. I recognise that this is a probing amendment, as was the amendment that we have just discussed. As I have already stated to the noble Lord, HBAI is the key dataset for the analysis of income poverty. However, we can agree that surveys are subject to a degree of uncertainty. It is for this reason that it is necessary to round the statistics to the nearest 100,000 children or percentage point. The change from a threshold of 60 per cent to 60.15 per cent of median income would not have a noticeable impact on the statistics when rounded to these levels.

The threshold of 60 per cent of median income is in line with international best practice. The National Statistics publication Households Below Average Income contains statistics on the number, proportion and characteristics of children in households with incomes below 50, 60 and 70 per cent of median income both before and after housing costs, as well as in low income and material deprivation. This gives an idea of the sensitivity of trends in the figures to the particular threshold used. As I said before, there will always be criticism that households whose income is just over the percentage of median income set in the target will not benefit from the legislation, and that this is arbitrary. But a level must be set and we believe that this is the right one. Just to reiterate, the Bill contains four challenging child poverty targets that must all be met by 2020. Together, they provide a comprehensive definition of success, and that is why we believe that the figure of 60 per cent is appropriate.

We use a relative measure of poverty because we accept that poverty is a relative concept. Living standards that would have been considered normal 100 years ago, such as not having running water or an inside toilet, are now indicators of unacceptably low living standards. Most academics and experts now agree that poverty in the UK should be measured with a relative measure. Among others, Professor Peter Townsend's work in the late 1970s contributed to this consensus. Initially, the relative measure used was 50 per cent of mean income. This definition was easy to understand and represented a level of income that experts generally agreed was a reasonable threshold for acceptable living standards. Since then, it has been recognised that using the median rather than the mean provides a better threshold because it is not unduly affected by the incomes of the very rich. However, changing from 50 per cent of mean income to 50 per cent of median income dropped the poverty threshold below the level of income that had been generally agreed to provide acceptable living standards. The measure of 60 per cent was therefore adopted. So using a median income threshold recognises that poverty is a relative concept which changes over time, and is the basis on which we have adopted the target.

It was suggested that using the 60 per cent threshold encourages policy makers to help the easiest to reach. Our goal is to eradicate poverty for all children. The framework that the Bill establishes for achieving the goal, using national child poverty strategies and duties on local government to tackle child poverty, applies to

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all children in the UK. The Bill contains safeguards to ensure that policy is not focused on the children that it is easiest to help. Indeed. Clause 8(2)(b) states specifically that the strategy must set out measures to ensure,

This provision ensures that the strategy must set out measures to cover all children regardless of whether they are covered by the targets and regardless of target levels.

The noble Lord reverted to his now famous "iron triangle", and I am sure that we will have a chance to debate it in due course. The issues around making work pay are very important and we have always accepted that. The Government have done a great deal in recent times to make sure that work does pay. Clearly, marginal deduction rates in relation to income transfers and withdrawal of benefits impact on incentives to work. But I would just say to the noble Lord that the number of families facing the highest marginal deduction rates, above 70 per cent, have halved since 1997, and the Government have made significant efforts to reduce the poverty trap by making work pay. Inevitably, given the generosity of the tax credits, more households will see support withdrawn as their income rises, because more people are in receipt of those credits. Again, the 60 per cent figure that has international credibility and that was originally founded on an assessment of what level of median income moved people into hardship or began to do so is the basis on which the 60 per cent is structured. I could not say to noble Lords that 60.5 per cent or 59.5 per cent would not be better measures, but I believe that it is an appropriate measure, and it is one that underpins our approach to the Bill.

Lord Freud: I thank the Minister for that answer. I confess that it leaves me disturbed relative to my groupthink case. We have drifted into a generally accepted figure without any scientific basis. One problem with being a leader in this area, in the sense of setting a statutory target based on what is effectively a comparator that has become a useful basis on which to compare countries around the rich world, is that what served perfectly well as a comparator base does not stand up so well when you subject it to a more stringent requirement; namely, a set of targets. Many people involved in this area are concerned at the fact that we have established these standards and equivalence scales without any assessment of minimum income standards, which is the scientific approach. Many amendments later will deal with that, so I will not go on about it.

Lord McKenzie of Luton: I want to ensure that it is clearly on the record that we do not accept that the 60 per cent measure is just an issue of groupthink, and that people have collectively stuck to the figure because they could not think of anything different. There is a wealth of evidence that poverty measured by the 60 per cent threshold is strongly related to poor outcomes. That was behind its conception and that is the basis for the figure. The noble Lord said that it is used as a comparator. It is in part, but it is also a driver of domestic policy, as it should be.

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Lord Freud: I thank the Minister for that clarification. I will make absolutely clear that we on our Benches accept absolutely the need for a relative measure. We do not go down the road of absolute poverty measures. We accept that the relative measure is the right way to go. In practice, the difference between absolute and relative is not as great as it seems, because every now and then one adjusts the absolute figure to reflect the requirements of living in particular societies, which is a much cruder way of using the relative poverty target. Therefore we accept the relative poverty target that the Minister talked about. Our concern is that, despite the fact that quite a few academics insist that it is a reliable figure, other academics and policy researchers have called it arbitrary. I quoted Peter Saunders, but he is not alone.

The other point that I wanted to pick up on is the impact of having a target at a level that means that for a bureaucracy, it is much easier to nudge people over the target than to work on the people farthest away from the target. I reiterate a point I made at Second Reading: both Save the Children and the IFS made the point that the number of children in severe poverty was growing even before the 2004 turning point. That may suggest the impact of targets on the way that the bureaucracy behaved.

I thank the Minister again for his explanation. It is a probing amendment; I do not want to pursue it at a later stage. I think that I have learnt all that I will learn from the Minister. Accordingly, I beg leave to withdraw the amendment.

Amendment 5 withdrawn.

Clause 2 agreed.

Clauses 3 to 5 agreed.

Amendments 6 and 7 not moved.

7 pm

Amendment 8

Moved by Lord Freud

8: After Clause 5, insert the following new Clause-

"Non-financial targets

The Secretary of State will, following consultation with the Commission (established under section 7), establish a set of non-financial targets relating to the number of children brought up in-

(a) households with parents who are married, in a civil partnership or in a long term relationship,

(b) workless households,

(c) households where one or more parent is addicted to drugs, alcohol or gambling, and

(d) households where a parent lacks level 2 key skills."

Lord Freud: My Lords, this is probably the central, most important amendment that we wish to make to the Bill. There is a real difference in philosophy between the Government and us over the Bill, and that is how best to tackle the problem of child poverty. The Government have traditionally been interested in tackling

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it through financial means. The agent in control of the child poverty agenda has been the Treasury. Sir Nicholas Macpherson, its permanent secretary, told the Treasury Select Committee in 2007:

"The primary reason that the Treasury has led on Child Poverty is that we control the levers which are critical for meeting the 2010 target, as we set the levels of financial support for families. Employment will have an important impact on achieving our goal of halving child poverty, but financial support is the most important lever".

I acknowledge that that approach seems to have been modified recently, and I note that the impact assessment to the Bill mentions balancing the approach. It states:

"Rather than just trying to address child poverty through increasing transfers ... the most effective strategies would be to combine action on income with other social policies designed to reduce the disadvantages of growing up in poor families and deprived neighbourhoods".

It concludes:

"The legislation is specifically designed to ensure that the Government uses a wide range of interventions via public services, with financial support only one of these interventions".

I apologise if I have taken some of the references that the Minister would have used to respond to the amendment. I am conscious that the Minister responsible for the Bill is the noble Lord, Lord McKenzie, who has just piloted the Welfare Reform Bill through the House, with its emphasis on individualised intervention to help the economically inactive. I therefore certainly know that he will understand and appreciate the important specific interventions to support the most disadvantaged. Indeed, many of those around this Table today discussed exactly these issues in our consideration of the Welfare Reform Bill, and I welcome the fact that we can have an informed debate around the Chamber because of that experience.

The sophisticated report by the Child Poverty Action Group, Coping with Complexity, is entirely in line with this approach. It emphasises the complexity of poverty and calls for policies to tackle a wide set of features of poverty. Let me lay my cards on the table. As noble Lords will know, my party's policy is centred on tackling the causes of poverty rather than the symptoms. Our concern is that there is an imbalance in the Bill between the two approaches. The Bill lays out a range of financial targets and contains no direct targets to deal with the causes of poverty. It smells of the traditional Treasury approach and not the modern DWP one. The amendment aims to ensure that the Government worry just as much about the fundamental causes of poverty as they do about the score card.

We are far from alone in this concern. Let me again quote the Child Poverty Action Group, which says:

"It would be churlish not to acknowledge the progress made in the official measurement of poverty and wrong to deny a political commitment to tackle the problem".

We entirely concur with that, and we would never wish to be accused of being churlish, as we discussed a few months ago. The Child Poverty Action Group continues:

"Nevertheless, the measures currently employed fall far short of capturing the multi-dimensional experience of poverty described above".

I chose the four targets in the amendment because all the current evidence indicates that they are the main drivers of poverty. I have not specified the exact

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targets because these can be developed by the commission. Indeed, it would be an invaluable service on the part of the commission. Moreover, flexibility may well be desirable in setting the precise levels that will have an impact on solving the problems, and the system should be able to absorb this.

Let me deal with the specific targets individually. The most important target relates to stable relationships. The Child Poverty Action Group found that,

Yet the underlying trends show big increases. I am indebted to the Centre for Social Justice for its document Breakdown Britain, which opens up this area. It is a little old-it dates from 2006-but it cites the big trends: a decline in the number of couples, down from 70 per cent of households in 1971 to 53 per cent in 2003, and an increase in lone-parent households from 7 per cent to 10 per cent. Couple instability has increased dramatically from 500,000 separations in 1971 to 3.5 million in 2001. At the same time as these trends have become clear, the number of cohabiting couples has increased, up from negligible levels in the 1970s to 2 million in 2003. In other words, by that year, cohabiting couples represented 10 per cent of all households and 16 per cent of all couples.

I do not think we need to take a moral stance about cohabitation compared with marriage, but the sad truth seems to be that relationships involving cohabiting parents are far more likely to break down that those of married parents. According to research undertaken for the Centre for Social Justice, it is estimated that 30,000 children aged under five experience the break-up of their married parents, while 90,000 experience the break-up of their unmarried parents. The CSJ concludes by stating:

"In other words, as the number of divorces affecting young children declines, family breakdown trends are being driven entirely by the increase in unstable cohabiting partnerships".

Here we have what on the surface looks like a major cause of poverty, and in particular of poverty in young children, but this Government do not even collect the relevant figures. The Minister, Helen Goodman, said:

"Defining the causes of poverty, as the amendments would require, is therefore not possible to achieve at present owing to gaps in the evidence base and limitations in the data available".-[Official Report, Commons, Child Poverty Bill Committee, 9/12/09; col. 423.].

The irony of this is that the "gaps in the evidence base" and the "limitations in the data available" arise chiefly because the Government created them. They did so first with the Office for National Statistics Neighbourhood Renewal Unit failure to publish a family breakdown index and statistics along with the other seven indices of neighbourhood deprivation after the Social Exclusion Unit had specifically named family breakdown as one of the causes. They did so secondly when Jacqui Smith announced that marital status would be removed from government forms.

To judge from an article in the Sunday Times on 27 December, the Government have become late converts to the importance of stable relationships and marriage.

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Indeed, a Green Paper is projected for this week outlining measures designed to shore up parental relationships. Ed Balls was quoted as saying:

"I think our policy now is actually about the strength of the adult relationships and that is important for the progress of the children".

We should welcome this recent conversion, especially as the government spokesman, Helen Goodman, said in Committee that the Government were not wholly convinced that family breakdown was a cause of poverty. Regrettably, the conversion has happened 10 years too late. So the purpose of paragraph (a) in this amendment is to ensure that we monitor and have strategies in place to prevent family break-up, whether the parents are married or cohabiting. The evidence would suggest that the greatest concern should lie with the latter group.

7.15 pm

I shall move on to address the issue of workless households. Here it is possible to speak more briefly, not least because I think that we and the Government are in agreement that work is a key route out of poverty. The issue here is less the direct effects of worklessness on income levels-indeed, this strategy on its own will do little for in-work poverty. It is disturbing that a Joseph Rowntree Foundation report has found that in each of the past two years, the number of children in low-income households where at least one adult is in paid work has grown by almost half a million from the low point reached in 2003-04.

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