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

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

Figure 3: £10 per 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

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

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

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NOTES

[1] Professor of Social Policy University of York and Durham University

[2] Senior policy and research Officer, Child Poverty Action Group

[3] Which is likely to make it more generous than what households actually receive from local schemes.

[4] CPAG (2014) POLICY NOTE 2: UPRATING AND THE VALUE OF CHILDREN’S BENEFITS December 2014 http://www.cpag.org.uk/sites/default/files/CPAG-Uprating-childrens-benefits-policy-note-Dec-14.pdf

[5] If a family was claiming WTC without the 30 hour element the tax credit has lost 9.4% of its value over the course of the parliament because the basic element was frozen for 3 years and then uprated by 1%, and the couple/LP element uprated by CPI for first 2 years and then 1% thereafter. If the family was also in receipt of the 30 element they have lost slightly more - 9.6% - of WTC’s value (because that element was also frozen for three years).

Jonathan Bradshaw on Social Policy: Selected Writings 1972-2011

Jonathan Bradshaw has been a leading social policy scholar for over 40 years. He has made seminal contributions to the comparative study of child well-being, poverty and the adequacy of benefits, as well as writing on a range of important social policy issues. He founded the Social Policy Research Unit at the University of York, contributed to numerous landmark studies of poverty and minimum income standards in Britain for the Joseph Rowntree Foundation, and issued a wake-up call to policymakers worldwide by producing the first international “league table” of child well-being.

This volume brings together Bradshaw’s best writings and demonstrates his clear, humane thinking based on systematic evidence and analysis. It will interest social policy students, practitioners and policy makers and is required reading for anyone who wants to understand how and why poverty and low child well-being persist in the twenty-first century.

The book was produced to mark Jonathan Bradshaw’s retirement and to introduce future generations of social policy students and scholars to his work.  It was sponsored by the Joseph Rowntree Foundation, the Social Policy Research Unit and the Foundation for International Studies on Social Security.

More information about Jonathan Bradshaw, including a full and up to date list of his publication, can be found on his profile page.

Download here for free:

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UK child well-being has improved – but will it last?

Jonathan Bradshaw[1]

When UNICEF Innocenti Research Centre published Report Card 7in 2007 showing the UK was at the bottom of the international league table of child well-being, UNICEF UK called a conference at Ditchley Park to discuss the findings. This resulted in the Ditchley Declaration which was supported by all the political parties. The Department of Children, Families and Schools published a Children’s Plan, more resources were found for child care, schools, child health and the child poverty strategy and there was all party support for the Child Poverty Act in 2010. We already knew from national data that things for children improved between 2004 and 2010 – out of 48 national indicators of child well-being covered in The well-being of children in the UK[2]only two had got worse and 13 showed no clear trend.

In order to know how well we are doing for our children we really need to compare their outcomes with children in other countries. Now UNICEF Innocenti Report Card 11[3]repeats the comparative analysis of child well-being six years later, and with more up-to-date data, and the UK’s comparative position has improved. In 2007 the UK was bottom of 21 rich nations in child well-being. In 2013 the UK comes 16 (or 14 if subjective well-being is included) out of 29 rich countries. In 2007 the UK was in the bottom third of the league table on children’s material well-being, education, family and relationships, behaviours and risks and subjective well-being and in the middle third on health and safety. In 2013 it is in the top third on housing and the environment (not included in 2007), middle third on all other domains except education, which is still in the bottom thirds thanks to mainly to our high NEET rates.

The Innocenti Centre has structured the indicators somewhat differently in RC11 but direct comparisons can be made for a number of indicators. The UK has moved up the league table on:

• Life satisfaction
• Finding classmates kind and helpful
• Liking school
• Subjective health
• Family affluence
• Child poverty rates and gaps
• Child deprivation
• Immunisation
• Eating fruit
• Eating breakfast
• Smoking
• Drinking
• Cannabis
• Fighting
• Being bullied 

Things UK children still do not do well on comparatively include:

• Infant mortality
• Low birth weight
• Staying on
• NEET
• Teenage fertility

So RC11 is a good news story. It shows that if the effort is made, children’s lives can be improved.

There is no room for complacency.

The UK is 16 behind, for example, Slovenia, Czech Republic and Portugal - all much poorer countries. We should still be doing much better.

Also the evidence in RC11 predates most of the policies introduced by the Coalition Government to cut the deficit. Unemployment has gone up and most of the cuts to benefits and services have been loaded on families with children (rather than pensioners) at a time when real living standards have been falling. Already there is evidence that child deprivation and absolute poverty have begun to increase. Evidence from the Understanding Society survey suggests that the subjective well-being of 11-15 year olds has begun to fall. NEET rates are up and there may even be a reduction in staying on rates in England. Just as the evidence emerges that we have made progress in comparison with other countries, we are once again moving backwards

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[1] Professor of Social Policy, University of York. Contributed to the background research for Innocenti Report Cards 7 and 11.

[2]Bradshaw, J. (2011) The well-being of children in the UK, Bristol: Policy Press.

[3] UNICEF Office of Research (2013). ‘Measuring Child Well-being in Rich Countries: A comparative overview’, Innocenti Report Card 11, UNICEF Office of Research, Florence

Martorano, B., L. Natali, C. de Neubourg and J. Bradshaw (2013). ‘Child Wellbeing in Advanced Economies in the Late 2000s’, Working Paper 2013-01, UNICEF Office of Research, Florence. http://www.unicef-irc.org/publications/pdf/iwp_2013_1.pdf

Martorano, B., L. Natali, C. de Neubourg and J. Bradshaw (2013). 'Child Wellbeing in Economically Rich Countries: Changes in the first decade of the 21st century', Working Paper 2013-02. UNICEF Office of Research, Florence. http://www.unicef-irc.org/publications/pdf/iwp_2013_2.pdf

Bradshaw, J., B. Martorano, L. Natali and C. de Neubourg (2013). ‘Children’s Subjective Well-being in Rich Countries’, Working Paper 2013-03. UNICEF Office of Research, Florence. http://www.unicef-irc.org/publications/pdf/iwp_2013_3.pdf

Report highlights 'bleak' poverty levels in the UK

The Poverty and Social Exclusion (PSE) Project published its first report today. 'The Impoverishment of the UK' reveals significant levels of poverty and deprivation.

Funded by the Economic and Social Research Council, it is a major collaboration between a group of UK universities including York and is the largest and most authoritative study of poverty and deprivation ever conducted in the UK.

The report is the subject of a special edition of Tonight titled Breadline Britain which is broadcast on ITV at 7.30pm on 28 March.

The PSE approach – now adopted by the UK Government and by a growing number of rich and developing countries - identifies people falling below a publicly-determined minimum standard of living. This method of measuring poverty was pioneered in 1983 and repeated in studies in 1990, 1999, 2002/03 and 2012. The project thus provides detailed, robust and definitive trends over 30 years.

Gill Main and Professor Jonathan Bradshaw, of the Department of Social Policy and Social Work at York, are members of the Poverty and Social Exclusion research team. They were responsible for developing the scale of child necessities and analysing the child poverty and deprivation results.

Professor Bradshaw says: “The findings of this study are shocking, indicating a level of poverty and deprivation which should be a wake-up call to policymakers and the public at large.”

Professor David Gordon, of the Townsend Centre for International Poverty Research in Bristol and head of the project, says: “The results present a remarkably bleak portrait of life in the UK today and the shrinking opportunities faced by the bottom third of UK society.  About one third of people in the UK suffer significant difficulties and about a quarter have an unacceptably low standard of living. Moreover, this bleak situation will get worse as benefit levels fall in real term, real wages continue to decline and living standards are further squeezed.”

Today 33 per cent of the UK population suffers from multiple deprivation by the standards. set by the public, compared with 14 per cent in 1983.

For a significant and growing proportion of the population, living conditions and opportunities have been going backwards. Housing and heating conditions, in particular, have deteriorated rapidly.

• One in three people could not afford to adequately heat their homes last winter and 29 per cent had to turn the heating down or off or only heat part of their homes. The number of households unable to heat the living areas of their homes is at a record high – now 9 per cent compared to 3 per cent in the 1990s and 5% in 1983.
• Overcrowding is as high as it was in 1983: today 9 per cent of households cannot afford enough bedrooms for every child aged 10 or over of a different sex to have their own bedroom (back up from 3 per cent in 1999).
• The number of households unable to afford damp-free homes has also risen since 1983 – from 6 per cent to10 per cent.
• One in five households can’t keep their home in an adequate state of decoration – up from 15 per cent in the 1990s.
• Overall, across all these aspects of housing, around 13 million people (aged 16 and over) in Britain cannot afford adequate housing conditions, up from 9.5 million in 1999

Increasing numbers of children also lack items considered essential for a stimulating environment and for social participation and development.

•  The proportion of school age children unable to go on school trips at least once a term has risen from 2 per cent in 1999 to 8 per cent today. 

 “Levels of deprivation today are worse in a number of vital areas – from basic housing to key social activities - than at any point in the past thirty years,” says Joanna Mack from The Open University, who, with Stewart Lansley, devised the study method in 1983. ‘These trends are a deeply shocking indictment of 30 years of economic and social policy and reflect a rapid growth in inequality. This has meant that, though the economy has doubled in size during this period, those at the bottom have been increasingly left behind.” 

There is widespread public agreement on what constitutes a minimally acceptable diet. Over 90% agree that, for children, this means: three meals a day; fresh fruit and vegetables; and meat, fish or a vegetarian equivalent at least once a day. 

• Yet well over half a million children live in families who cannot afford to feed them properly.

Our research shows that, in households where children go without one or more of these basic food necessities: 

• In 93 per cent at least one adult skimp on their own food ‘sometimes’ or ‘often’ to ensure others have enough to eat.

“It is not as a result of negligence but due to a lack of money that so many children are going without adequate food,” comments Professor David Gordon.

Significant proportions of the population find it difficult to cope on their current incomes:

• One in four adults have incomes below what they consider is needed to avoid poverty
• More than one in five have had to borrow in the last year to pay for day to day needs
• One in three can’t afford to save
• One in four can’t afford to replace or repair broken electrical goods (12 per cent in 1999).

Overall, people feel poorer:
More than one in three adults today say they genuinely feel poor some or all of the time compared to 27 per cent in 1999