Child poverty, tax and benefit policy and the
labour market since 1998-99
Robert Joyce
© Institute for Fiscal Studies
Overview
 Background
 Child poverty trends
 Explaining the trends

The effects of tax and benefit reforms

Subgroup analysis
 Conclusions
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Policy background
 In 1999 the Labour Government announced:
• Target to ‘eradicate’ child poverty by 2020-21.
• Interim targets for 2004-05 (75% of 1998-99 level) and 201011 (50% of 1998-99 level).
 Child Poverty Act (2010) commits current and future
governments to 2020 target.
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Child poverty since 1998-99
Relative poverty,
UK (BHC)
Absolute poverty,
UK (BHC)
Material deprivation and
relative low income
%
Million
%
Million
%
Million
n/a
1.7
n/a
n/a
n/a
1.3
1998–99
1999–00
2000–01
2001–02
2002–03
2003–04
2004–05
2005–06
2006–07
2007–08
2008–09
Change since 1998–99
Change since 2004–05
IFS projection for 2010-11
Target for 2010–11
Sources: Calculations based on Family Resources Survey, various years; Department for Work and Pensions (2010). UK poverty
levels for the years 1998/99 through 2001/02 draw on the DWP’s imputed estimates of poverty levels in Northern Ireland over this
period.
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Child poverty since 1998-99
1998–99
1999–00
2000–01
2001–02
2002–03
2003–04
2004–05
2005–06
2006–07
2007–08
2008–09
Relative poverty,
UK (BHC)
Absolute poverty,
UK (BHC)
Material deprivation and
relative low income
%
26.1
25.7
23.4
23.2
22.6
22.1
21.3
22.0
22.3
22.5
21.8
Million
3.4
3.4
3.1
3.0
2.9
2.9
2.7
2.8
2.9
2.9
2.8
%
26.1
23.4
19.1
15.2
14.1
13.7
12.9
12.7
13.1
13.4
12.4
Million
3.4
3.1
2.5
2.0
1.8
1.8
1.7
1.6
1.7
1.7
1.6
%
20.8
Million
2.6
17.1
16.3
15.6
17.2
17.1
2.2
2.1
2.0
2.2
2.2
n/a
1.7
n/a
n/a
n/a
1.3
Change since 1998–99
Change since 2004–05
IFS projection for 2010-11
Target for 2010–11
Sources: Calculations based on Family Resources Survey, various years; Department for Work and Pensions (2010). UK poverty
levels for the years 1998/99 through 2001/02 draw on the DWP’s imputed estimates of poverty levels in Northern Ireland over this
period.
© Institute for Fiscal Studies
Child poverty since 1998-99
Relative poverty,
UK (BHC)
Absolute poverty,
UK (BHC)
Material deprivation and
relative low income
1998–99
1999–00
2000–01
2001–02
2002–03
2003–04
2004–05
2005–06
2006–07
2007–08
2008–09
%
26.1
25.7
23.4
23.2
22.6
22.1
21.3
22.0
22.3
22.5
21.8
Million
3.4
3.4
3.1
3.0
2.9
2.9
2.7
2.8
2.9
2.9
2.8
%
26.1
23.4
19.1
15.2
14.1
13.7
12.9
12.7
13.1
13.4
12.4
Million
3.4
3.1
2.5
2.0
1.8
1.8
1.7
1.6
1.7
1.7
1.6
%
20.8
Million
2.6
17.1
16.3
15.6
17.2
17.1
2.2
2.1
2.0
2.2
2.2
Change since 1998–99
Change since 2004–05
–4.2
+0.5
–0.6
+0.1
–13.6
-0.5
–1.8
-0.1
–3.7
-0.0
–0.4
-0.0
IFS projection for 2010-11
Target for 2010–11
n/a
1.7
n/a
n/a
n/a
1.3
Sources: Calculations based on Family Resources Survey, various years; Department for Work and Pensions (2010). UK poverty
levels for the years 1998/99 through 2001/02 draw on the DWP’s imputed estimates of poverty levels in Northern Ireland over this
period.
© Institute for Fiscal Studies
Child poverty since 1998-99
Relative poverty,
UK (BHC)
Absolute poverty,
UK (BHC)
Material deprivation and
relative low income
1998–99
1999–00
2000–01
2001–02
2002–03
2003–04
2004–05
2005–06
2006–07
2007–08
2008–09
%
26.1
25.7
23.4
23.2
22.6
22.1
21.3
22.0
22.3
22.5
21.8
Million
3.4
3.4
3.1
3.0
2.9
2.9
2.7
2.8
2.9
2.9
2.8
%
26.1
23.4
19.1
15.2
14.1
13.7
12.9
12.7
13.1
13.4
12.4
Million
3.4
3.1
2.5
2.0
1.8
1.8
1.7
1.6
1.7
1.7
1.6
%
20.8
Million
2.6
17.1
16.3
15.6
17.2
17.1
2.2
2.1
2.0
2.2
2.2
Change since 1998–99
Change since 2004–05
–4.2
+0.5
–0.6
+0.1
–13.6
-0.5
–1.8
-0.1
–3.7
-0.0
–0.4
-0.0
IFS projection for 2010-11
Target for 2010–11
18.2
n/a
2.4
1.7
n/a
n/a
n/a
1.3
Sources: Calculations based on Family Resources Survey, various years; Department for Work and Pensions (2010). UK poverty
levels for the years 1998/99 through 2001/02 draw on the DWP’s imputed estimates of poverty levels in Northern Ireland over this
period.
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Would the reduction in child poverty have been
as big using other poverty lines?
 Cheapest way of reducing a binary poverty measure is to
slightly raise incomes of those just below poverty line.
In practice, difficult to target resources that precisely.
Have policy-makers been focusing efforts on a narrow set of
children?...
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Child poverty under various poverty lines in 1998–99
and 2008–09 (Great Britain)
Cumulative proportion of children
60%
50%
40%
1998–99
2008–09
30%
20%
10%
0%
0%
10%
20%
30%
40%
50%
60%
70%
Income as a percentage of national median
Source: Family Resources Survey 1998-99 and 2008-09.
© Institute for Fiscal Studies
80%
90%
100%
Would the reduction in child poverty have been
as big using other poverty lines?
 Cheapest way of reducing a binary poverty measure is to
slightly raise incomes of those just below poverty line.
 In practice, difficult to target resources that precisely.
 Have policy-makers been focusing efforts on a narrow set of
children?...
• Do not see striking evidence of this.
• Child poverty would have fallen using any poverty line from 43% to
100% of the median.
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Explaining the trends
1. Will investigate (direct) impact of tax and benefit reforms over
period.
2. Will look at which groups have driven trends, and suggest
possible reasons for this with help of labour market data
(Labour Force Survey).
 Note that the tax and benefit system and labour market trends
are likely to interact.
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% growth in nominal entitlements to state support
for example families with children
Couple,
3 children,
no work
Lone parent,
1 child,
no work
Lone parent,
1 child,
part time work
Growth in
poverty line
(BHC)
Change in
BHC child
poverty rate
(ppts)
1998–99
1999–00
2000–01
2001–02
2002–03
2003–04
2004–05
2005–06
2006–07
2007–08
2008–09
Source: Calculations using the IFS tax and benefit micro-simulation model, TAXBEN.
Notes: The table shows annual changes in maximum entitlements to benefits assuming no private income (except the working lone
parent, who is assumed to earn an amount that is below the personal income tax allowance and the primary threshold for National
Insurance contributions) ignoring housing benefit and council tax benefit and the value of free school meals. Shaded cells mark
instances where entitlements grew faster than the BHC poverty line.
© Institute for Fiscal Studies
% growth in nominal entitlements to state support
for example families with children
Couple,
3 children,
no work
Lone parent,
1 child,
no work
Lone parent,
1 child,
part time work
1998–99
2.4
–3.8
–5.5
1999–00
9.3
8.6
9.3
2000–01
13.4
8.8
18.1
2001–02
9.1
6.4
7.2
2002–03
4.1
3.2
4.2
2003–04
8.6
6.6
7.4
2004–05
6.0
4.6
5.0
2005–06
2.5
2.0
3.1
2006–07
3.1
2.7
3.0
2007–08
3.7
3.3
3.7
2008–09
6.9
5.4
6.2
Growth in
poverty line
(BHC)
Change in
BHC child
poverty rate
(ppts)
Source: Calculations using the IFS tax and benefit micro-simulation model, TAXBEN.
Notes: The table shows annual changes in maximum entitlements to benefits assuming no private income (except the working lone
parent, who is assumed to earn an amount that is below the personal income tax allowance and the primary threshold for National
Insurance contributions) ignoring housing benefit and council tax benefit and the value of free school meals. Shaded cells mark
instances where entitlements grew faster than the BHC poverty line.
© Institute for Fiscal Studies
% growth in nominal entitlements to state support
for example families with children
Couple,
3 children,
no work
Lone parent,
1 child,
no work
Lone parent,
1 child,
part time work
1998–99
2.4
–3.8
–5.5
1999–00
9.3
8.6
9.3
2000–01
13.4
8.8
18.1
2001–02
9.1
6.4
7.2
2002–03
4.1
3.2
4.2
2003–04
8.6
6.6
7.4
2004–05
6.0
4.6
5.0
2005–06
2.5
2.0
3.1
2006–07
3.1
2.7
3.0
2007–08
3.7
3.3
3.7
2008–09
6.9
5.4
6.2
Growth in
poverty line
(BHC)
Change in
BHC child
poverty rate
(ppts)
Source: Calculations using the IFS tax and benefit micro-simulation model, TAXBEN.
Notes: The table shows annual changes in maximum entitlements to benefits assuming no private income (except the working lone
parent, who is assumed to earn an amount that is below the personal income tax allowance and the primary threshold for National
Insurance contributions) ignoring housing benefit and council tax benefit and the value of free school meals. Shaded cells mark
instances where entitlements grew faster than the BHC poverty line.
© Institute for Fiscal Studies
% growth in nominal entitlements to state support
for example families with children
Couple,
3 children,
no work
Lone parent,
1 child,
no work
Lone parent,
1 child,
part time work
Growth in
poverty line
(BHC)
1998–99
2.4
–3.8
–5.5
3.8
Change in
BHC child
poverty rate
(ppts)
-0.9
1999–00
9.3
8.6
9.3
5.0
-0.4
2000–01
13.4
8.8
18.1
5.9
-2.3
2001–02
9.1
6.4
7.2
6.3
-0.2
2002–03
4.1
3.2
4.2
3.7
-0.5
2003–04
8.6
6.6
7.4
2.4
-0.5
2004–05
6.0
4.6
5.0
4.0
-0.8
2005–06
2.5
2.0
3.1
3.5
+0.7
2006–07
3.1
2.7
3.0
4.1
+0.4
2007–08
3.7
3.3
3.7
4.3
+0.2
2008–09
6.9
5.4
6.2
3.6
-0.7
Source: Calculations using the IFS tax and benefit micro-simulation model, TAXBEN.
Notes: The table shows annual changes in maximum entitlements to benefits assuming no private income (except the working lone
parent, who is assumed to earn an amount that is below the personal income tax allowance and the primary threshold for National
Insurance contributions) ignoring housing benefit and council tax benefit and the value of free school meals. Shaded cells mark
instances where entitlements grew faster than the BHC poverty line.
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The (direct) impact on child poverty of direct tax
and benefit reforms since 1998-99
 We simulate child poverty in 2010-11 under various direct tax
and benefit systems:
1.
The actual 2010-11 system (‘baseline’ projection).
2.
The 2010-11 system as it would be if left unreformed since a
particular year (‘counterfactual’ projections).
 Comparing results from 1 and 2 gives estimate of direct impact
(in 2010-11) of all reforms since that year.
 We do this for each year since 1998-99.
 Does not account for behavioural responses.
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What if...?
 ...the direct tax and benefit system had not been reformed
since 1998-99?
 First have to define ‘no reform’. Definition will affect result!
 A few reasonable possibilities. We use two:
•
1998-99 default uprating - parameters of direct tax and benefit
system uprated in way that was default in 1998-99.
•
GDP uprating – all such parameters indexed to nominal GDP.
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Child poverty in UK in 2010-11 under various direct
tax and benefit systems
Direct tax and benefit system in 2010–
11
Simulated child poverty in 2010–11 (BHC)
1998–99 default uprating
GDP uprating
%
Million
%
Million
Actual 2010–11 system
18.2
2.4
18.2
2.4
Memo: actual 1998-99 level
26.1
3.4
26.1
3.4
Source: authors’ calculations using Family Resources Survey 2007-08 and 2008-09, TAXBEN, and updates of the
assumptions set out in Brewer, Browne, Joyce and Sutherland (2009).
© Institute for Fiscal Studies
Child poverty in UK in 2010-11 under various direct
tax and benefit systems
Direct tax and benefit system in 2010–
11
Simulated child poverty in 2010–11 (BHC)
1998–99 default uprating
GDP uprating
%
Million
%
Million
1998–99 uprated
31.8
4.2
28.2
3.7
Actual 2010–11 system
18.2
2.4
18.2
2.4
Memo: actual 1998-99 level
26.1
3.4
26.1
3.4
Source: authors’ calculations using Family Resources Survey 2007-08 and 2008-09, TAXBEN, and updates of the
assumptions set out in Brewer, Browne, Joyce and Sutherland (2009).
© Institute for Fiscal Studies
Child poverty in UK in 2010-11 under various direct
tax and benefit systems
Direct tax and benefit system in 2010–
11
Simulated child poverty in 2010–11 (BHC)
1998–99 default uprating
GDP uprating
%
Million
%
Million
1998–99 uprated
31.8
4.2
28.2
3.7
2004–05 uprated
22.0
2.9
18.6
2.5
Actual 2010–11 system
18.2
2.4
18.2
2.4
Memo: actual 1998-99 level
26.1
3.4
26.1
3.4
Source: authors’ calculations using Family Resources Survey 2007-08 and 2008-09, TAXBEN, and updates of the
assumptions set out in Brewer, Browne, Joyce and Sutherland (2009).
© Institute for Fiscal Studies
Child poverty in UK in 2010-11 under various direct
tax and benefit systems
Direct tax and benefit system in 2010–
11
Simulated child poverty in 2010–11 (BHC)
1998–99 default uprating
GDP uprating
%
Million
%
Million
1998–99 uprated
31.8
4.2
28.2
3.7
2004–05 uprated
22.0
2.9
18.6
2.5
2007–08 uprated
21.4
2.8
19.8
2.6
Actual 2010–11 system
18.2
2.4
18.2
2.4
Memo: actual 1998-99 level
26.1
3.4
26.1
3.4
Source: authors’ calculations using Family Resources Survey 2007-08 and 2008-09, TAXBEN, and updates of the
assumptions set out in Brewer, Browne, Joyce and Sutherland (2009).
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Financial work incentives and tax and benefit
reforms since 1998-99
 Since 1998-99 reforms have tended to:
•
Strengthen incentive for lone parents to be in work (Working
Families Tax Credit introduced in Oct 1999).
•
Weaken incentive for potential second earners in couples to
be in work (tax credits means-tested and assessed at family
level).
•
Weaken incentives for working parents to increase their
earnings, and more so for couples (introduction of child tax
credits and working tax credits in 2003-04).
 Reforms since 2004-05 have had negligible effects on
financial work incentives for parents.
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Direct tax and benefit reforms since 1998-99
 Direct impact of reforms was to reduce child poverty a lot.
 This is mostly, or entirely, due to reforms before 2004-05 and
after 2007-08.
 Period in which tax and benefit reforms did little (or nothing) to
reduce child poverty coincides perfectly with period in which it
rose.
 Suggests very strong link between those reforms and child
poverty over time.
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Child poverty by family type and work status
(Great Britain)
 Fall in child poverty between 1998-99 and 2004-05 aided by
falling poverty risk for both lone parents and couples.
 Rise after 2004-05 due to rising poverty risk for children of
couples.
 Acted to increase child poverty by 1.4 ppts (approx. 2between 200405 and 2008-09.
 Particularly due to one-worker couples, whose earnings seem to have
tailed off...
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Median real earnings amongst parents in
couples, 1998-99 to 2008-09 (workers only)
1.40
1.35
1998-99 level = 1
1.30
1.25
1.20
1.15
1.10
1.05
1.00
Men in 1-earner couples
Women in 1-earner couples
Men in 2-earner couples
Women in 2-earner couples
0.95
0.90
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Labour Force Survey
Notes: Years are financial years. Figures are 3-year moving averages for the whole of the UK
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Child poverty by family type and work status
(Great Britain)
 Fall in child poverty between 1998-99 and 2004-05 aided by
falling poverty risk for both lone parents and couples.
 Rise after 2004-05 due to rising poverty risk for children of
couples.
 Acted to increase child poverty by 1.4 ppts (approx. 200,000)
between 2004-05 and 2008-09.
 Particularly due to one-worker couples, whose earnings seem to have
tailed off...
 Higher lone parent employment also important (1998-99: 46%;
2008-09: 56%).
 Acted to reduce child poverty by 0.7 ppts (approx. 100,000)
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Child poverty by number of children in family
(Great Britain)
 Families with 3 or more children explain most (approx. 85%) of
reduction in child poverty since 1998-99.
 Two reasons:
 Poverty risk for such children fell from 40% in 1998-99 to 32% in
2008-09 (was 30% in 2004-05).
 Such children (i.e. large families) became less common – reduces
poverty because they have relatively high poverty risk.
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Child poverty by age of youngest child in family
(Great Britain)
 Fall in child poverty since 1998-99 driven by families with younger
children.
 Poverty rate for children in such families has to large extent
converged with that for families with older children (used to be much
higher).
 We show that tax and benefit reforms over the period have driven
this convergence.
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Child poverty by region (Great Britain)
 Reduced poverty risks in North West, North East, Yorkshire,
Scotland explain majority of total reduction in child poverty
between 1998-99 and 2004-05.
• Parental employment rates increased a lot in those regions over that
period.
 Increased poverty risk in West Midlands acted to increase
child poverty by 0.7 ppts (approx. 100,000) since 2004-05.
• Only region to experience rise overall since 1998-99 – up by 7
percentage points (sensitive to particular base year).
• Likely reason: only region where employment rate amongst parents
lower in 2008-09 than 1998-99 (big fall in 2008-09).
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Conclusions
 Child poverty has fallen a lot since 1998-99.
 But progress towards targets stalled after 2004-05.
 Very strong evidence that tax and benefit system has been
major driver of trends since 1998-99.
 Unsurprising, given measure of poverty and scale of ambition.
 Labour market trends for parents important as well.
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