The IFS today reports on its projections for poverty levels both now and looking forward to 2020. Its findings are in keeping with those from the Resolution Foundation in the autumn. The IFS projects a 50 per cent increase in relative child poverty – from 17.0 per cent in 2014-15 to 25.7 per cent in 2020-21 – and an increase in absolute child poverty from 16.7 per cent in 2014-15 to 18.3 per cent in 2020-21.
Both figures are remarkable in their own way: the increase in relative poverty will undo almost all of the work done reducing poverty from 1999-2010. And the increase in absolute poverty (also up from 17.6 per cent in 2010/11) will mean that, over a decade, the income of families towards the bottom has actually gone down – something without precedent in modern times.
The authors explain why previous projections for increased child poverty have yet to materialise. These come down to the OBR forecasts, on which the projections were based, proving wrong in three key areas:
- earnings growth was weaker than forecast: this meant the median income is lower than the OBR had anticipated, and thus the relative threshold – 60 per cent of median income – was lower, too. This ‘sluggish recovery in income’ was described by the IFS as ‘remarkable by historical standards’;
- employment growth was stronger than projected: this benefited those on lower incomes more, as it tended to be first earners going into employment, i.e. the number of workless households fell, pushing many above the poverty line (this effect boosted incomes by 2 per cent towards the bottom of the distribution but by less than 1 per cent towards the top);
- inflation was lower than the OBR had forecast: this meant that benefit cuts due to a combination of 1 per cent uprating and freezes were smaller than anticipated.
Looking ahead, the IFS projects that relative child poverty will increase for two main reasons:
- average real earnings will grow relatively strongly, meaning those whose income comes from benefits will be left behind (even where they are uprated in line with prices, as has been the norm since 1980); and
- benefits will be cut: the impact of planned tax and benefit reforms will account for 40 per cent of the increase in relative child poverty (2.9 per cent out of a total 7.8 per cent increase).
Meanwhile, the entirety of the 3.2 per cent increase in absolute child poverty is accounted for by planned tax and benefit reforms, all of which is concentrated among families with three or more children. A third of that impact is down to the two-child limit in tax credits and universal credit. The increase in absolute child poverty is much larger in lone-parent than in couple families – because the former are more dependent on benefits for income.
Contrasts with other groups are informative: around half of the projected fall in absolute pensioner poverty (from 14.9 per cent in 2015-16 to 10.8 per cent in 2020-21) is accounted for by the triple lock (the rest by earnings and private pensions). Relative pensioner poverty is projected to fall slightly (by 0.8%), with the triple lock clearly providing important protection.
Meanwhile, the increased minimum wage (branded as the ‘national living wage’) will ‘if anything… reduce official measures of inequality and poverty very slightly’, but any impacts will not be sufficiently large to make a statistically significant difference to poverty statistics. This is because the gains are dispersed across the income distribution, due to many of those benefiting being in households with a second, often higher earner.
Overall, the projections demonstrate the importance of government action in protecting children from poverty. Certainly, action on employment and wages is important, as is help with the costs of childcare and housing (the latter are not reflected in these projections, since they are for poverty before housing costs). But, as the limited impact of the increased minimum wage shows, a single wage level can only do so much to tackle poverty, especially for families with children, who face additional costs and reduced capacity to work.
Allowing benefit levels to fall away from the rest of society promises to be the primary driver of increased poverty over the next five years. Yet the success in reducing and now stabilising pensioner poverty shows what can be achieved. A triple lock for children’s benefits is the only way to ensure that they are able to share in the proceeds of economic success, and are prevented from falling behind. The alternative are the biggest increases in child poverty in a generation.