Budget claims on child poverty do not stack up
The Chancellor claims that the Budget will have a “statistically insignificant” impact on child poverty in 2012-13 – and valiant attempts to illustrate the Budget’s progressive credentials continue. Can the child poverty claim be substantiated? For a number of reasons I think not.
Most importantly, the Budget has not considered the distributional impact of service cuts. The ONS have shown that households who are poorest receive far more from the state in benefits in kind (such as education or health services) than the richest. As an FT analysis suggests, the losses poor families will experience from spending cuts will far outweigh the impacts of tax and benefit changes.
But even if the impact of services cuts is discounted (and there is no good reason why it should be) by the Budget’s own admission (see p65 para A10) the model used to simulate child poverty impacts only includes “two-thirds of benefits and tax credits changes” that are proposed. Those that are missed out (full set of data sources here) include:
Housing Benefit cuts, cuts in DLA (where around 12% of claimants are children), cuts to grants for mothers (the Sure Start Maternity Grant and the Health in Pregnancy Grant) and increased conditionality for lone parents (less than 10% of whom are expected to move into work after being moved from Income Support to JSA or ESA). In particular Housing Benefit cuts (about 33% of Housing Benefit claimants are families with children) will have a significant impact on child poverty, meaning real terms reductions in household income – as this post so vividly shows.
Much has been made of the progressive credentials of the £150 increase in Child Tax Credit. This rise is welcome, and without it the picture would have been far worse. But it is important to note that CTC is not disregarded for the purposes of Housing Benefit, while Child Benefit is (a change that was introduced in Budget 2008, where it was claimed that the disregard was worth up to £17 a week for working families on low incomes). Reducing the value of Child Benefit, and replacing the income lost with CTC, may look as if it’s not a cut, but for families in receipt of Housing Benefit it will be – their CTC increase will be taken away from their Housing Benefit allocation.
And from 2011 all benefits (CTC has a two year exemption, and Child Benefit is frozen for three years) will be indexed to CPI rather than to RPI. This means as the years after 2012 progress, their real terms value will fall. If child poverty is to be reduced, the incomes of the poorest need to rise more quickly, not more slowly. Already the Treasury charts show that when other tax changes (the two-thirds included in the model) are taken into account families in the bottom decile will only be better off by around £70 a year in 2012. When other cuts are taken into consideration, there will be significant numbers of families who see this amount fall to zero or below.
During PMQs, the Prime Minister was quick to point out that child poverty had risen in the last years of the Labour Government – a direct impact of rising unemployment. But while the impacts of worklessness have been considered in the Government’s analysis of Labour’s record, they are not taken into account in the Budget’s child poverty modelling. The models are based on how households would be affected as per the current distribution of people in and out of work. Given the OBR has predicted claimant unemployment rising by around 100,000 – and that forecasts of public sector job losses are far higher – it seems highly likely that child poverty will rise as a result of increasing worklessness.
Finally, as others have highlighted, the deciles are not broken down demographically – for example given the extent of the cuts that mothers have seen, it is inevitable that some of the poorest families with young children will find their incomes are affected far more than the decile level analysis suggests.
The 2012-13 child poverty claim is dubious – and given the extent of the benefit cuts proposed after this date it seems even less likely that it will be substantiated in the years ahead. If implemented, this Budget will lead to more children becoming poorer – the chances of missing the 2020 goal for ending child poverty are high.