Wednesday 19 March 2014

How many working poor parents might be able to work more?


19 March 2014


Paul Gregg has written an interesting blog on working poverty https://smcpcommission.blog.gov.uk/2014/03/18/working-poverty-whats-going-on/
in which he suggests that the Universal Credit rules might be used to identify the working poor who might be expected to work more. The expectation in UC is that:
·                  One adult in a couple is in full-time work.
·                  Lone parents, or the second adult in a couple:
o    Work full-time if the youngest child is aged 13+.
o    Work part-time if the youngest child is aged 5-12.
o    Are not expected to work if the youngest child is under 5 years old.
It is possible to estimate an approximate size of these groups using secondary analysis of the Households Below Average Income (HBAI) data for 2011/12.

In 2011/12 17.5% of children were in households in poverty (income less than 60% median BHC). Of these 20.0% were with lone parents not in employment and 14.3% were with couples not in employment. So the rest 65.7% were working poor.  Of these, 4.3% had lone parents in full-time employment and 5.3% had couples both in full-time employment who could not be expected to work more. This leaves 90.4% of the working poor with children with a possible potential to work more.

The proportion of poor children with parents with working potential are as follows:
·         With lone parents working part-time whose youngest child is 13+=3.9%
·         With couples one adult working full-time and one part-time whose youngest child is 13+=2.1%
·         With couples one adult working full-time and one not working  whose youngest child is over 5=12.6%
·         With couples both working part-time=16.7%

The self-employed present problems because the HBAI classification is “Couple with children; one or more full time self-employed”. It is possible to identify that 41.4% of these have two adults working full-time. The rest have one adult working part-time or not at all.

·         With couple one adult full-time self-employed and one adult working part-time or not working with youngest child over 5= 6.5% (or 1.8% if youngest child 13+)


That gives a total of 41.8% (or 37.1% if 13+ for the self-employed) of children in working poor households where the adults have some more working potential.

This of course assumes the work is available. There may be other barriers to exploiting their work potential including disability or caring responsibilities. We found that 16.7% of those with work potential had an adult only with a disability, 6.8% had a disabled child only and 3.8% had a disabled adult and a disabled child. If these are deducted then the proportion with work potential would be 30.4% (or 27%).

It would be possible to obtain a more accurate assessment of the working potential using the Family Resources Survey.

The tables below provides a more detailed summary of the data.



Households with children in the sample
%
Children in the UK
%

6364
100
13088001
100
Equivalent income less than 60% median before housing costs
1058
16.6
2293048
17.5


100

100
No employment
429
40.5
785871
34.3
Lone parents unemployed
283
26.7
458563
20.0
Couples unemployed
146
13.8
327308
14.3
Some employment
629
59.5
1507177
65.7


100

100
Lone parents




Working fulltime
39
6.2
6411
4.3
Working part-time
74
11.8
146247
9.7
Of which youngest child 13+

29
4.6
58786
3.9





Couples




Couples both full-time
37
5.9
80937
5.3
Couples full-time and part- time
74
11.8
175293
11.6
Of which youngest child 13+
16
2.5
32033
2.1





Couples one working full-time one not working
152
24.2
428705
28.4
Of which youngest child 5+
78
12.4
191194
12.6





Couples both part-time
100
15.9
252671
16.7





Self employed
153
24.3
359216
23.8
Couples both full-time
66
10.5
148875
9.9
One part-time/not working
87
13.8
210341
14.0
Of which youngest child 5+
43
6.8
97226
6.5
Or 13+
Or 12
Or 1.9
Or 26728
Or 1.8





Total with some work potential

42.2 or 37.3

41.8 or 37.1



Work intensity of household
Total
Not working
Some work potential
Fully working

No disabled members
55.3%
72.8%
81.5%
69.8%
Disabled adult(s) only
29.5%
16.7%
8.7%
18.3%
disabled child(ren) only
6.2%
(6.8%)
7.3%
6.8%
Disabled adults and children
9.1%
(3.8%)
(2.4%)
5.1%
Total
100.0%
100.0%
100.0%
100.0%

Brackets indicate small numbers

Note:  This article gives the views of the author, and not the position of the Social Policy Research Unit, nor of the University of York.

Saturday 15 March 2014

The non-uprating of child benefits - impact on poverty gaps

Note:  This article gives the views of the author, and not the position of the Social Policy Research Unit, nor of the University of York.
Jonathan Bradshaw and Lindsay Judge write in an article for the North East Child Poverty Commission Blog:


Objectives
This note attempts to illustrate the impact that uprating benefits in line with prices since 2010 would have had on the poverty gap of a low wage family in 2014/15.
Method
It is based on the tax/benefit model developed and maintained by Professor Steve Wilcox and mainly used for the annual UK Housing Review. The model simulates the net disposable income of different family types using different earnings levels, given the existing tax and benefit rules. In this note we have taken one family type – a couple with two children, with one earner, working a range of hours on the minimum wage (from October 2014 £6.50 per hour), the living wage (outside London) as at October 2014 (£7.85 per hour) and £10 per hour. The net disposable income after direct taxes, net rent and net council tax are deducted,  is compared with the after housing costs poverty threshold for a couple plus two children in 2012/13 £364 per week. We do not yet know what the poverty threshold is for 2013/14 or 2014/15. It is unlikely to be very different given what has been happening to benefits and earnings over that period.
A number of assumptions are included in the model:
  • Rent= £120 per week.
  • Council Tax=£28.95 per week. Council Tax Benefit is assumed to be calculated on the basis of the old national scheme3.
  • The 30 hours bonus for Working Tax Credit and Housing Benefit is included after 30 hours.
Base line results
Figure 1 shows the results for the minimum wage case working between 24 and 45 hours per week. The red horizontal line is the poverty threshold. The items below the zero line are deduction from earnings including income tax and national insurance contributions, rent net of housing benefit and council tax net of council tax benefit. Then above the zero line are earnings net of these deductions, child benefit, child tax credit and working tax credit. The poverty gap is the gap between the top of the bars and the poverty threshold. Even working 40 hours per week this family is £25 short of the poverty threshold.
Figure 1: Minimum wage case
graph showing poverty gap (minimum wages case)
The Living Wage and the £10 per hour cases are presented in Figures 2 and 3. It can be seen that in neither case does the net income reach the poverty threshold. The increase in earnings is offset by losses of means-tested benefits and tax credits and extra income tax and national insurance contributions. At 40 hours per week the poverty gaps are £23.23 for the Living Wage case and £19.64 for the £10 per hour case.
The numbers for these and all the figures are given in the appendix.
Figure 2: Living wage case
graph showing poverty gap (Living wage case)
Figure 3: £10 per hour case
graph showing poverty gap (£10/hour case)
Simulating inflation uprating
CPAG4 has made estimates of what child benefit and child tax credit would have been if they had been uprated since 2010 in line with the RPI and the CPI and in the case of child tax credit if the Chancellor had not reneged on his promise in 2010 to uprate child tax credit by more than inflation. These estimates have been used to adjust child benefit upwards by 13% and child tax credits upwards by 8.5%. Working tax credit has also been uprated by 9.5%5 in Figure 4. The net income is still below the poverty threshold but the poverty gap has now fallen to £7.80 for 40 hours.
Figure 4: Minimum wage case with inflation uprating of child benefit and tax credits
graph showing poverty gap (Minimum wage plus uplift case)
However this does not take account of the non-uprating of housing benefits and council tax benefit scales. In Figure 5 these are uprated by 5.6%. The poverty gap at 40 hours has now fallen to £3.28.
Figure 5: Minimum wage case with inflation uprating of all benefits and tax credits
graph showing poverty gap (Minimum wage plus full uplift case)
Conclusion
Families with children with one earner in full-time employment on low earnings cannot reach the poverty threshold. Even if they earn £10 an hour, their net income is short of the poverty threshold because of the very high marginal tax rates in our highly means-tested tax and benefit system. This is why over two-thirds of poor children have a parent in employment. Increasing wage rates without tackling the UK’s high marginal deduction rates is not an effective solution to child poverty.
In-work benefits are much more effective but their effectiveness has been undermined by the Coalition Government decision to freeze child benefit for three years from 2011 and uprate it and tax credits and other working-age benefits by 1% from 2013. The poverty gap for a 40 hour a week minimum wage family increased from £3.28 per week to £25.32 per week. Thus those who were working poor have become poorer.
APPENDIX: Data tables

NOTES