The truth behind the latest poverty statistics

Robert Tinker

Yesterday the DWP published updated statistics on poverty in Britain. As predicted here, despite being four years into an austerity parliament the publication of the Households Below Average Income (HBAI) for 2012-13 shows that poverty (relative and absolute) unchanged on the previous year.

For a country half way through an unprecedented period of economic adjustment, these results may come as a surprise. So what is going on? To find out we need to look beyond the snapshot reflected in this data.

Yesterday’s data do not pick up the tax and benefit reforms implemented by the coalition which will have the greatest impacts on low income households, particularly the decision to uprate benefits in line with CPI inflation and the below inflation (one per cent) cap on most working age benefits between 2014-15 and 2015-16.

These policies will bring down the income of many of the UK’s poorest households, but did not come into effect until April 2013 and are not yet reflected in the data. The chart below shows the difference these policies make to the generosity of entitlements.

The most common measure of poverty (relative poverty) reflects the view that to have the capability to participate in society and live without shame people should have an income that is not too far below that of the typical household. Between 1997-98 and 2010-11 the progressive structure of Labour’s tax and benefit reforms meant the number of people living in relative poverty fell, driven mainly by falls among children and pensioners.

The regressive overall design of coalition tax and benefit reform will lead to an increase in poverty and inequality. Between 2010-11 and 2015-16 relative poverty is forecast to increase by 600,000 among children (before housing costs) and 800,000 among working-age adults (before housing costs). On current policies relative poverty is expected to rise into the 2020s due to indexation policies which see working age social security rise at a slower rate than median income.

So yesterday’s figures provide a snapshot of the number of people in poverty, but do not take a view on the impact that coalition tax and benefit reform will have on poverty in the years ahead.

With this in mind, it’s worth pausing to consider what else could be in the pipeline.

Plans outlined by George Osborne imply £25bn of further reductions in spending after the next election. Rather than pile all of this onto public services, the Chancellor has said the government expects £12bn to come from the benefits bill. Having committed to the ‘triple lock’ which guarantees pensions to rise by the highest of wages, prices or 2.5 per cent each year, this means Osborne expects to find these savings from working age social security.

As the chart below shows, spending on pensioners (dark green) accounts for half of all social security spending.

Cuts on this scale would require the government to ‘think the unthinkable’. The question, as my colleague put it in an earlier post, is whether this represents the ‘unelectable’ too.

Robert Tinker is a researcher at the Fabian Society

2 Comments:

  1. Dan Filson

    Apologies for typos, but my eyesight is poor and I cannot expand what is on the screen.

    Reply
  2. Dan Filson

    Figure 1 does not show when or if benefits started to be linked to either prices index and if at one tone linked to RPI, which I doubt, when the switch to CPI occurred. I know my pension is linked to CZpI now, but what else and from when?

    Figure 4 shows that in cash terms the DWP expenditure directed at children and HMRC child benefit are not greatly difference from what they was in 1994-95 although up at the start of the graph from the 1991-92 level. If so, little wonder there is little improvement in child poverty over successive governments. But the tax credit regime was aimed at boosting family incomes of those in work and on low pay.

    It might be interesting to see how much would have been achieved had there been (a) a marked annual rise in national minimum wage and the living wage, (b) a broadly corresponding reduction in employer national insurance to compensate employers for the shifted burden (c) an increase done some time back in the threshold for the basic rate of income tax by several thousand pounds coupled with with a retained 10% starting rate for the first few thousand falling into liability, but with the threshold for higher income tax rates still coming play on TAXABLE income ( after the tax free amount therefore) at roughly the same points as now.

    I would be interested in seeing a chart showing for each decile income group of population the effective marginal rare on incomes from the combination of income tax, national insurance contributions and means-tested benefits, and am fairly sure we would see some surprisingly high overall effective marginal rates at the lower 3 deciles.

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