IFS
Recent trends in poverty
Luke Sibieta
Institute for Fiscal Studies
28th March 2006
What’s coming up?
• Poverty fell during Labour’s first two terms
– Most for pensioners and children
– Longest sustained fall in poverty of recent times
• Relative poverty rose in 2005/06
– For all groups except pensioners
– New high amongst working-age non-parents
• Absolute poverty also rose
• Low growth in benefit and tax credit rates
© Institute for Fiscal Studies, 2007
Defining Poverty for HBAI
• GB up to 2001/02, UK from 2002/03
– Focus on rates rather than numbers
• Relative notion of poverty
– Proportion of individuals in households below 60%
of the contemporary BHC and AHC median
• Income-based
• Sensitive to choice of threshold
• Snapshot: no account of length
© Institute for Fiscal Studies, 2007
Poverty fell in Labour’s first two terms
30%
25%
20%
15%
10%
5%
0%
1979
1984
1989
60% AHC Median
© Institute for Fiscal Studies, 2007
1994
1999
60% BHC Median
2004
Poverty rose in 2005/06
30%
25%
20%
15%
10%
5%
0%
1979
1984
1989
60% AHC Median
© Institute for Fiscal Studies, 2007
1994
1999
60% BHC Median
2005
Across all thresholds?
1996-97 Rate
© Institute for Fiscal Studies, 2007
70% of
AHC
Median
60% of
AHC
Median
50% of
AHC
Median
40% of
AHC
Median
31.9
25.3
16.9
8.8
Across all thresholds?
70% of
AHC
Median
60% of
AHC
Median
50% of
AHC
Median
40% of
AHC
Median
1996-97 Rate
31.9
25.3
16.9
8.8
Labour 1 Change
-1.8
-2.1
-1.6
(-0.3)
© Institute for Fiscal Studies, 2007
Across all thresholds?
70% of
AHC
Median
60% of
AHC
Median
50% of
AHC
Median
40% of
AHC
Median
1996-97 Rate
31.9
25.3
16.9
8.8
Labour 1 Change
-1.8
-2.1
-1.6
(-0.3)
Labour 2 Change
-1.8
-2.6
-1.9
(-0.2)
© Institute for Fiscal Studies, 2007
Across all thresholds?
70% of
AHC
Median
60% of
AHC
Median
50% of
AHC
Median
40% of
AHC
Median
1996-97 Rate
31.9
25.3
16.9
8.8
Labour 1 Change
-1.8
-2.1
-1.6
(-0.3)
Labour 2 Change
-1.8
-2.6
-1.9
(-0.2)
Change in 2005/06
+0.8
+1.1
+1.0
(+0.4)
© Institute for Fiscal Studies, 2007
Across all thresholds?
70% of
AHC
Median
60% of
AHC
Median
50% of
AHC
Median
40% of
AHC
Median
1996-97 Rate
31.9
25.3
16.9
8.8
Labour 1 Change
-1.8
-2.1
-1.6
(-0.3)
Labour 2 Change
-1.8
-2.6
-1.9
(-0.2)
Change in 2005/06
+0.8
+1.1
+1.0
(+0.4)
2005-06 Rate
29.1
21.6
14.4
8.7
© Institute for Fiscal Studies, 2007
Across all thresholds?
70% of
AHC
Median
60% of
AHC
Median
50% of
AHC
Median
40% of
AHC
Median
1996-97 Rate
31.9
25.3
16.9
8.8
Labour 1 Change
-1.8
-2.1
-1.6
(-0.3)
Labour 2 Change
-1.8
-2.6
-1.9
(-0.2)
Change in 2005/06
+0.8
+1.1
+1.0
(+0.4)
2005-06 Rate
29.1
21.6
14.4
8.7
Labour to date
-2.8
-3.6
-2.5
(-0.1)
© Institute for Fiscal Studies, 2007
What about children?
• 2004/05 Target
– Cut number of children in poverty by ¼ compared
with 1998/99
– Narrowly missed
– Used slightly different measure of child poverty
• 2010 Target
– Cut child poverty by ½ compared with 1998/99
• 2020 Target
– “Eradicate” child poverty
© Institute for Fiscal Studies, 2007
Further adrift from 2004/05 target
4.5
million
4
3.5
3
2.5
2
1.5
1998
© Institute for Fiscal Studies, 2007
1999
2000
2001
2002
2003
2004
Required path, AHC
Required path,BHC
Child poverty, AHC
Child poverty, BHC
2005
Further adrift from 2004/05 target
4.5
million
4
3.5
3
2.5
2
1.5
1998
© Institute for Fiscal Studies, 2007
1999
2000
2001
2002
2003
2004
Required path, AHC
Required path,BHC
Child poverty, AHC
Child poverty, BHC
2005
2010 target looks very challenging
3.5
3
2.5
2
1.5
1998
2000
2002
2004
2006
2008
2010
Child poverty
Progress to date
Required path
Projected path under current policies
© Institute for Fiscal Studies, 2007
How much might 2010 target cost?
• Child poverty needs to fall by 1.1 million more to
meet target
• Before Budget we estimated they were 1 million short
in 2010/11 under current policies
• Measures announced in Budget estimated to lift a
further 200,000 out of poverty
– Still 800,000 left
• Our estimates suggest that to have a 50/50 chance of
doing will require £4 billion of new public expenditure
© Institute for Fiscal Studies, 2007
For whom has child poverty risen?
• Focus on number of children in poverty (BHC)
• Look at 100,000 rise in 2005/06
• Can decompose the rise in child poverty into:
– A changing risk for specific family types
– The changing composition of families with children
© Institute for Fiscal Studies, 2007
Decomposing the 100,000 rise in child poverty
-75000
-50000
-25000
0
25000
50000
75000
100000
125000
150000
175000
Lone Parents
Full-time
Part-time
Workless
All Lone Parents
Couples with children
Self-employed
Two FT
One FT, One PT
One FT
One or Two PT
Workless
All couples with children
All children
Composition Effect
© Institute for Fiscal Studies, 2007
Incidence Effects
Total Change
For whom has child poverty risen?
• Focus on number of children in poverty (BHC)
• Can decompose the rise in child poverty into:
– A changing risk for specific family types
– The changing composition of families with children
• Increased incidence of poverty amongst
couples with children
• Lower incidence of poverty amongst lone
parents offset this
• Few compositional effects
© Institute for Fiscal Studies, 2007
What about “severe” child poverty?
40% of AHC 40% of BHC
Median
Median
1996-97
© Institute for Fiscal Studies, 2007
11.0%
4.9%
What about “severe” child poverty?
40% of AHC 40% of BHC
Median
Median
1996-97
11.0%
4.9%
2004-05
9.9%
5.3%
© Institute for Fiscal Studies, 2007
What about “severe” child poverty?
40% of AHC 40% of BHC
Median
Median
1996-97
11.0%
4.9%
2004-05
9.9%
5.3%
2005-06
10.4%
5.5%
© Institute for Fiscal Studies, 2007
Pensioner poverty continues to fall
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1979
1984
1989
Pensioners
© Institute for Fiscal Studies, 2007
1994
1999
Non-Pensioners
2005
Working-age non-parents
20%
15%
10%
5%
0%
1979
1984
1989
60% of AHC Median
© Institute for Fiscal Studies, 2007
1994
1999
60% of BHC Median
2005
Absolute poverty
• Does relative poverty matter if absolute
incomes are rising in real terms?
• Lets look at a measure of absolute poverty
• Absolute notion of poverty
– Proportion of individuals in households below 60%
of the 1996/97 BHC and AHC median
© Institute for Fiscal Studies, 2007
Absolute poverty falls up to 2004/05
40%
35%
30%
25%
20%
15%
10%
5%
0%
1979
1984
1989
60% AHC Median
© Institute for Fiscal Studies, 2007
1994
1999
60% BHC Median
2004
Rises in 2005/06, but not by much
40%
35%
30%
25%
20%
15%
10%
5%
0%
1979
1984
1989
60% AHC Median
© Institute for Fiscal Studies, 2007
1994
1999
60% BHC Median
2005
Why have we seen these patterns?
• Low or negative income growth in lower part
of income distribution
• Sampling error?
– Rise in absolute (AHC) and relative poverty (BHC
or AHC) are statistically significant
• Slow growth in earnings and self-employment
income?
• Low growth in benefit and tax credit rates?
© Institute for Fiscal Studies, 2007
Benefit and Tax Credits in 2005/06
• Child element of child tax credit uprated with
earnings, BUT…
• Family element frozen in nominal terms
• Working Tax Credit and Child Benefit only
went up with RPI
• Very small changes in other benefit rates
© Institute for Fiscal Studies, 2007
Summing up
•
•
•
•
Relative and absolute poverty rise
Ends longest fall in poverty of recent times
Still much lower then its 1996-97 level
Poverty amongst working-age non-parents at
increased by the most
• Need to find new money to achieve 2010 target
– Difficult in a tight CSR
© Institute for Fiscal Studies, 2007