Poverty
David Phillips, IFS
May 13th, 2011
© Institute for Fiscal Studies
Poverty: what’s coming up
• Relative poverty fell significantly under Labour
– Fell for pensioners and children
– Rose for working age adults without children
– Progress stalled in Labour’s third and final term
• In 2009-10 poverty measured BHC fell by 500,000
– 200,000 for each of pensioners and children (BHC)
– 100,000 for working-age parents (BHC)
– Unchanged for working-age non-parents (BHC)
• Unchanged measured AHC
© Institute for Fiscal Studies
Defining poverty for HBAI
• Focus on rates rather than numbers
• Relative notion of poverty
– Individuals in households below 60% of the contemporary BHC
and AHC median
• No account of depth of poverty
© Institute for Fiscal Studies
Poverty fell in Labour’s first two terms…
30%
25%
20%
15%
10%
5%
0%
1981
1985
1989
1993
60% AHC Median
1997
2001
2005
60% BHC Median
Source: HBAI Data (FES and FRS)
© Institute for Fiscal Studies
2009
… rose between 2004/5 and 2007/8 …
30%
25%
20%
15%
10%
5%
0%
1981
1985
1989
1993
60% AHC Median
1997
2001
2005
60% BHC Median
Source: HBAI Data (FES and FRS)
© Institute for Fiscal Studies
2009
… it fell a bit in 2008/9…
30%
25%
20%
15%
10%
5%
0%
1981
1985
1989
1993
60% AHC Median
1997
2001
2005
60% BHC Median
Source: HBAI Data (FES and FRS)
© Institute for Fiscal Studies
2009
… and fell again in 2009-10
30%
25%
20%
15%
10%
5%
0%
1981
1985
1989
1993
60% AHC Median
1997
2001
2005
60% BHC Median
Source: HBAI Data (FES and FRS)
© Institute for Fiscal Studies
2009
What about different poverty thresholds?
1996-97 Rate
70% of
BHC
Median
60% of
BHC
Median
50% of
BHC
Median
40% of
BHC
Median
28.1
19.4
10.6
4.3
Source: HBAI Data (FRS)
© Institute for Fiscal Studies
What about different poverty thresholds?
70% of
BHC
Median
60% of
BHC
Median
50% of
BHC
Median
40% of
BHC
Median
1996-97 Rate
28.1
19.4
10.6
4.3
Change
-2.7
-2.3
-0.8
+1.0
2009-10 Rate
25.4
17.1
9.8
5.4
Source: HBAI Data (FRS)
© Institute for Fiscal Studies
What about different poverty thresholds?
70% of
BHC
Median
60% of
BHC
Median
50% of
BHC
Median
40% of
BHC
Median
1996-97 Rate
28.1
19.4
10.6
4.3
Change
-2.7
-2.3
-0.8
+1.0
Third Term
(-0.5)
+(0.1)
(+0.2)
(+0.5)
2009-10 Rate
25.4
17.1
9.8
5.4
Of which
Source: HBAI Data (FRS)
© Institute for Fiscal Studies
Benefit rates increased strongly in 2009-10…
Basic State Pension
BHC Poverty
RPI inflation
0.5% Line
1.3%
Single Pensioner on Pension Credit
Single Adult on IB
Single Adult on JSA
Part-time working Lone Parent, 1 child
Non-working Lone Parent, 1 child
Non-working couple, 3 children
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Growth in benefit entitlements 2008-09 to 2009-10
Source: HBAI data
© Institute for Fiscal Studies
But fell back relative to inflation in 2010-11
RPI inflation
5.0%
Basic State Pension
Single Pensioner on Pension Credit
Single Adult on IB
Single Adult on JSA
Part-time working Lone Parent, 1 child
Non-working Lone Parent, 1 child
Non-working couple, 3 children
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Growth in benefit entitlements 2009-10 to 2010-11
Source: HBAI data
© Institute for Fiscal Studies
Child Poverty
• Child poverty fell in 2009–10
– By 200,000 to 2.6 million or 19.7% (BHC)
– By 100,000 to 3.8 million or 29.1% (AHC)
– Measured BHC it is lowest since 1985
• Reduced rate of poverty for lone parents, single
earner and non-working couples
– Increase in worklessness amongst couples acted to
increase poverty
© Institute for Fiscal Studies
Falls in poverty rates not evenly spread
Group
Poverty Rate
Fraction of Child population
1996-97
2009-10
1996-97
2009-10
Full time (f/t)
12%
9%
4%
6%
Part time (p/t)
29%
16%
4%
6%
Workless
64%
45%
14%
11%
Self employed
22%
23.5%
13%
12%
Two f/t
1.5%
3%
13%
16%
One f/t, One p/t
4%
4%
23.5%.
21%
One f/t
23%
19%
17%
17%
One or two p/t
61%
49.5%
3%
4.5%
Workless
72%
62%
9%
6%
ALL
27%
20%
100%
100%
Lone parents
Couples
© Institute for Fiscal Studies
A decline in worklessness
Group
Poverty Rate
Fraction of Child population
1996-97
2009-10
1996-97
2009-10
Full time (f/t)
12%
9%
4%
6%
Part time (p/t)
29%
16%
4%
6%
Workless
64%
45%
14%
11%
Self employed
22%
23.5%
13%
12%
Two f/t
1.5%
3%
13%
16%
One f/t, One p/t
4%
4%
23.5%.
21%
One f/t
23%
19%
17%
17%
One or two p/t
61%
49.5%
3%
4.5%
Workless
72%
62%
9%
6%
ALL
27%
20%
100%
100%
Lone parents
Couples
© Institute for Fiscal Studies
Contributions to the overall fall in child poverty
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
All Children
Incidence Effects
© Institute for Fiscal Studies
Composition Effect
Total Change
1.0
Contributions to the overall fall in child poverty
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
All Children
Lone Parents
Workless
Couples with children
Workless
Incidence Effects
© Institute for Fiscal Studies
Composition Effect
Total Change
1.0
Contributions to the overall fall in child poverty
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
All Children
Lone Parents
Full-time
Part-time
Workless
Couples with children
Self-employed
Two FT
One FT, One PT
One FT
One or Two PT
Workless
Incidence Effects
© Institute for Fiscal Studies
Composition Effect
Total Change
1.0
Child poverty to 2013-14
• Almost certain the last Government’s 2010-11
target of 1.7 million or fewer in poverty will be
missed
• IFS research suggests 2.6 million children in poverty
in 2010-11 (Joyce (2011))
• Rising to 2.9 million by 2013-14
• Of this projected 300,000 increase in child poverty,
200,000 is due to reforms announced by the
coalition Government
© Institute for Fiscal Studies
The Child Poverty Strategy (1)
• ‘Eradication’ of child poverty by 2020 is obligatory.
• Coalition government has published its first strategy
on how it plans to meet this
– Universal Credit (reduce relative child poverty by 350,000)
– Work Programme, increased conditionality of benefits
– Reducing family breakdown and supporting families with
“multiple and interrelated problems”
– Expansion of care part time childcare to 110,000 low
income 2 year olds
– Pupil Premium
© Institute for Fiscal Studies
The Child Poverty Strategy (2)
• New targets introduced
– Material deprivation and very low income
– Employment, educational inequalities, teen pregnancy,
crime rates amongst children
• Are these as important as or supplementary to those
in child poverty act?
• Many similarities with last Government’s strategy
– Identified similar issues and policy priorities
• Spending and welfare cuts make targets very
challenging
© Institute for Fiscal Studies
Pensioner falls and is at its lowest level
since 1984…
45%
Number of pensioners
living in poverty now:
40%
35%
2.1 million (BHC)
30%
25%
20%
15%
1.7 million (AHC)
10%
5%
0%
1961
1969
1977
1985
Pensioners AHC
Source: HBAI Data (FES and FRS)
© Institute for Fiscal Studies
1993
2001
Pensioners BHC
2009
Working-age adults without dependent children
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1981
1985
1989
1993
60% of AHC Median
1997
2001
60% of BHC Median
Source: HBAI Data (FES and FRS)
© Institute for Fiscal Studies
2005
2009
Regional trends in poverty
• DWP publish regional poverty rates
• But do not account for differences in cost of living
• Here we make use of regional price indices
constructed by ONS for 2004-05.
– Unlikely that relative prices remained constant
– But better than assuming same price level across country
Regional trends in poverty
Before adjusting for price differences:
• The rate of poverty is
– Highest in West Midlands, Lowest in South East
– London has only the 9th highest poverty rate
– Fell most in Scotland, rose in West Midlands
After adjusting for price differences:
• The rate of poverty is
– Highest in West Midlands, Lowest in South East
– London has the 2nd highest poverty rate
– Wales has 8th highest instead of 4th highest poverty rate
Regional trends in poverty by group
• Child poverty
– Fell in every region or nation under the last Labour
government, except in the West Midlands
• Pensioner poverty
– Fell in every region or nation under the last Labour
government
• Working-age non-parent poverty
– Rose in every region of the country under the last Labour
government
Poverty: summary
• Relative poverty fell for second year running on a
BHC basis
– Child and pensioner poverty lowest since mid 1980s
– Poverty amongst working age adults without dependent
children at historically high levels
• Poverty fell under Labour
– Decline in first two terms stalled in third term
• 2010-11 may be a challenging year
– Benefits rates fell in real terms
© Institute for Fiscal Studies