CPAG's submission to the Comprehensive Spending Review

Post date: 
06 October 2020

Please find below our submission to the Comprehensive Spending Review.

Strengthening the UK’s economic recovery from COVID-19 by prioritising jobs and skills
  1. It is vital that long-term economic growth is prioritised at the expense of short-term fixes. To achieve long-term economic growth there needs to be a greater focus on finding employment that better matches people’s skills and takes into account the individual situation of different people.
  2. The 2010s can be characterised as having very low productivity growth and rising employment. This is because the focus was on getting people back into work, with little consideration given to the suitability of the job for the individual or the long-term economic growth of the country.
  3. This employment strategy was set against a backdrop of increased automation of the labour market. This led to more codifiable jobs, which in general are found in the middle of the skill distribution, being lost and replaced only with low skilled jobs.[1] Previously, people with low levels of education could through in-work progression reach a reasonably well paid job. However, automation means that many people, and their families, are trapped in poverty, unable to leave their low-paid low-skilled jobs as there is lower demand for previous middle-skilled jobs and they do not have the skills to take advantage of new labour market opportunities. It is difficult to predict exactly what jobs will become available, it is therefore important that the DWP (as well as the education system) promotes transferrable skills that will be useful in a variety of sectors. [2] 
  4. The DWP should look at voluntary employment support programmes that have shown to be effective in terms of re-employment, in-work progression and job satisfaction. The New Deal for Lone Parents (NDLP) and the Scottish Working for Families Fund (WFF) were two highly successful programmes from recent times. They improved labour market outcomes for lone parents, while also providing a net saving to the Exchequer.[3] Some of the key design features behind the programmes were:
    1. Discretionary funds to support work and training
    2. Supportive, individually tailored, one-to-one relationships developed with advisers
    3. Work experience provided alongside training
    4. Mentoring in work to assist retention and advancement
    5. Family-friendly environment for training
  5. One key constraint to people working in productive jobs is childcare. CPAG’s Early Warning System frequently receives cases about this: “A lone parent key worker has been unable to get childcare for her two children as the local provision is full. She took two weeks sick leave but has been on unpaid leave ever since. She has been advised to claim UC just now and that she may lose her job if she cannot get childcare sorted out.”[4] 
  6. Recent OECD research found that the UK had the most expensive childcare system in the world.[5] This constrains parents, and in particular women (who generally have the majority of caring responsibilities), to take jobs closer to home that they are over-qualified for.[6] Although there is some support for childcare through the social security system, public spending on early childhood education and care has fallen as a share of GDP since 2010 and remains considerably below the OECD average.[7] Accessible, affordable and good-quality childcare also leads to improved educational outcomes for children, leading to higher economic growth in the long-term.[8]
  7. Extended schools are an area that would lead to substantial improvements on current childcare provision as well as improved educational outcomes for children. Currently the biggest gaps in childcare provision are for older children, parents who work atypical hours and disabled children.[9]
  8. Childcare itself is also a key source of employment in its own right. A recent Social Mobility Commission report found that “low pay, a high workload and a lack of career development for early years workers risk having a serious impact on the provision of care and education services for the under-fives.”[10] Making childcare a viable career option would not only provide thousands of jobs in an important sector of the economy but also improve the quality of childcare, leading to greater child development.
  9. In addition, reforms to social security would help improve work incentives. Introducing a second worker allowance and reducing the universal credit taper rate would encourage people to work (more hours) as well as giving money to low-income households whose finances have been hit by COVID.
Levelling up struggling families – helping children maximise their potential
  1. It is not only labour supply that needs to be bolstered in the recovery period but also labour demand. A variety of studies have found that the fiscal stimulus with the highest multiplier is giving money to low-income households.[11] Giving money to richer households just leads to higher savings, while increasing government investment leads to a crowding out of private investment.[12]

  2. The most effective way to give money to low-income households is through the social security system. The emergency COVID upratings led to increased household spending across the country – helping disadvantaged communities and supporting local businesses. Reversing the £20 increase in the universal credit standard allowance and working tax credit would only save the government £6 billion and would lead to a large fall in consumption and consequently labour demand. It would also increase child poverty by 350,000.[13] Retaining additional help with housing costs is also essential.

  3. There is strong evidence to suggest that families with children have experienced greater hardship during the pandemic.[14] High levels of poverty pre-pandemic mean that earnings losses are particularly acutely felt by families. Also, while it is true that some households have been able to save more during the pandemic due to reduced activities outside the home, for families who always had limited resources for activity outside the home, there were no such savings to be made. At the same time life at home has become more expensive – with greater demands on food and home energy, as well as the need to buy additional personal and health products to keep safe and healthy.[15]
  4. CPAG’s Early Warning system has recently received multiples cases on the hardship felt during the pandemic – for example: “A lone parent with four children moved from income support to UC when she started a part time job in February.  This client's monthly earnings fall below the earnings threshold so the cap is applied and her UC is reduced by £220 a month and £95 to repay her UC advance. She will not benefit from the increase in the standard allowance because of the cap, or from the pause on deductions from UC because that does not include deductions to repay UC advances.”[16]
  5. An effective way to target resources towards some of the poorest families would be to remove the benefit cap and the two child limit. This would only cost £1.4 billion and reduce child poverty by 200,000.   It would also pull 450,000 children out of deep poverty (below 50% of median income). Many of these families have not benefited at all from the emergency COVID measures. In addition, the rationale behind these policies does not make sense in the middle of an unexpected recession.
  6. Removing just the benefit cap would cost £460 million and would have a large effect on deep poverty. 100,000 fewer children would be in deep poverty and 140,000 fewer children would live in families below 40% of median income. The poverty gap (of those capped) would fall from 36% to 19%. Child poverty would only fall by 40,000 as the vast majority of capped families are significantly below the poverty line.
  7. However, it is not just the poorest families that have hit been hit hard by COVID. Increasing child benefit by £10 per week would help all families whose finances have been shocked by COVID by providing a small income platform and help prevent them from falling into poverty.  This would cost £6.6 billion and reduce child poverty by 450,000 as well as helping to stimulate the economy to recover from the pandemic.[17] Child benefit is a universally supported policies, which has lost one quarter of its value since 2010.[18]
  8. Free school meals (FSM) are another area that would help struggling families level-up, improve educational outcomes and increase work incentives. Current eligibility criteria mean that parents often face a cliff edge when they reach a certain amount of hours e.g. working 17 hours a week at National Living Wage means you are no longer eligible.[19] Rolling out universal free school meals in England would cost about £1.6 billion more than the current status quo, help struggling families and reduce stigma around claiming FSM.[20] Alternatively increasing eligibility to everyone on tax credits or universal credit would cost about £700 million.
  9. There is also a long-term benefit to increased social security spending. There is a strong evidence base showing that higher benefits in childhood leads to improved health, education and employment prospects.[21][22] It is beneficial for the long-term health of the economy to invest in families now.
Ensuring every young person receives a superb education
  1. There is a well-documented attainment gap between students from low-income families and students from more well-off families. At the start of school pupils claiming Free School Meals are on average four months of schooling behind their classmates, this grows throughout school.[23] By the end of secondary school, the gap is over nineteen months.
  2. It is too early to tell what the effect of COVID is on the attainment gap, although an extensive survey carried out by CPAG found large differences in educational provision by income.[24] 40% of low-income families were missing at least one essential resource to support their children’s learning. This is supported by a literature review of previous school closures which found that on average the attainment gap grew by 36%.[25] The £350 million National Tutoring Program will hopefully mitigate some of the school closure effect. However, it is likely a substantial attainment gap will remain.
  3. The economic impact of reducing the attainment gap is potentially very large. A recent survey of economists found that the most favoured policy response to improve private sector productivity was investment in human capital.[26]
Summary of recommendations
  • Prioritise long-term productive employment over getting people back into any job quickly
  • Invest in childcare, in particular extended schools, to help increase the labour market opportunities of parents
  • Use social security as an effective fiscal stimulus to help the economy recover from the pandemic
  • Keep the £20 upratings – removing them would see 350,000 children pushed into poverty
  • Scrap the benefit cap and two child limit – this would only cost £1.4 billion and would pull 200,000 children out of poverty and 450,000 children out of deep poverty
  • Increase child benefit by £10 a week – providing a small income boost to all families affected by COVID. This would reduce child poverty by 450,000
  • Increase the eligibility threshold for free school meals to all families receiving universal credit or working tax credit
  • Invest in education in order to reduce the attainment gap and improve the long term productivity of the economy

[1] Montresor, Giulia. "Job polarization and labour supply changes in the UK." Labour Economics 58 (2019): 187-203.

[2] Autor, David. Work of the Past, Work of the Future. National Bureau of Economic Research, 2019.

[3] McQuaid, R., Bond, S., Fuertes, V. et al. Evaluation of the Working for Families Fund (2004-2008). The Scottish Government; Evans, M., Eyre, J., Millar, J. and Sarre, S. (2003) New Deal for Lone Parents: Second Synthesis Report of the National Evaluation. Department for Work and Pensions.

[4] Early Warning System, #719 (06/05/20), CPAG

[5] Is childcare affordable? OECD, 2020

[6] The 'gender commuting gap' widens considerably in the first decade after childbirth, Institute for Fiscal Studies, 2018

[7] PF3.1 Public spending on childcare and early education, OECD Family Database

[8] Doing better for families, OECD, 2011

[9] Haddad, M., Lambie-Mumford, H. & Sims, L, Extended Schools, CPAG, 2018

[10] The stability of the early years workforce in England, Social Mobility Commission, 2020

[11] Baker, Scott R., et al. Income, liquidity, and the consumption response to the 2020 economic stimulus payments. No. w27097. National Bureau of Economic Research, 2020.

[12] Boehm, Christoph E. "Government consumption and investment: Does the composition of purchases affect the multiplier?." Journal of Monetary Economics (2019).

[13] Author’s calculations using UKMOD, Family Resource Survey 2017-18 and Understanding Society COVID module

[14] Lee T., Families  hit hard because nothing for children in COVID-19 response, CPAG, 2020

[15] Hirsch D., Cost of a Child 2020, CPAG, forthcoming

[16] Early Warning System #561 (27/4/20), CPAG

[17] Author’s calculations using UKMOD, Family Resource Survey 2017-18 and Understanding Society COVID module

[18] Author’s calculation from Child Benefit and Guardian’s Allowance: Rates and tables,  Revenue Benefits; Retail Price Index, Office for National Statistics

[19]  Author’s calculations using hourly National Living Wage rate and universal credit eligibility criteria

[20] Author’s calculations from universal infant free school meals (UIFSM) – final revenue payment for academic years 2018/19, Department for Education,2019; Schools, Pupils and their Characteristics: January 2019 Accompanying Tables, Department for Education,2019

[21] Aizer A, Eli S, Ferrie J, Lleras-Muney A. 2016. The long-run impact of cash transfers to poor families. American Economic Review 106(4): 935–71

[22] Hoynes H, Schanzenbach DW, Almond D. 2016. Long-run impacts of childhood access to the safety net. American Economic Review 106(4): 903–34

[23] Attainment Gap Report, Education Endowment Foundation, 2017

[24] Cost of Learning in Lockdown: Family Experiences of School Closures, CPAG, 2020

[25] Impact of School Closures on the Attainment Gap, Education Endowment Foundation, 2020

[26] The UK Productivity Puzzle, Centre for Macroeconomics, 2020