Stagnating incomes for the middle, more hardship for the poorest
Sometimes official statistics throw a light on a completely separate issue and that’s the case with today’s personal finance figures from the government’s Measuring National Well-being project. This programme dates back to the time when David Cameron wanted to establish his progressive credentials and aims to measure ‘wellbeing’. I’d guess that most commentators are going to note that average families’ incomes have stopped rising, but the figures also show how a controversial benefit change is going to hit the poorest hardest.
What is to be said about these figures? Well, obviously there’s the drop in real incomes last year. This is no surprise, given that private sector pay settlements have hardly grown since the end of the recession:
In fact, wages have been falling in real terms for a long time and household consumption has followed. We’ve been arguing for some time that this is one of the factors holding back demand. The fact that average incomes actually fell last year is depressing, but we shouldn’t load all the blame onto the current government: it’s clear that increases in income slowed drastically after 2001/2.
As I noted at the start, I think it’s possible that several commentators will pick up on this point. But what struck me were the data on poverty in the Office for National Statistics’ article. There’s a very interesting table showing the poverty rates for different groups of UK households in 2009, and I’ll concentrate here on non-pensioner households:
Look at the two groups with the highest poverty rates (**) – it seems obvious that these should be a focus for anti-poverty efforts. But the government only targets one of these groups – workless households. Large families will actually be more likely to be in poverty as a result of the government’s policies – and they are well aware of this.
Back in 2010, the new government’s “State of the Nation” report (their prospectus for their welfare policies) identified three priorities: poverty, worklessness and welfare dependency. Worklessness is still at the heart of their policies: in June, Iain Duncan Smith insisted that it is one of the “root causes” of child poverty.
But, even though large families face the same sort of risk of poverty as workless ones, we hear much less about how the government plans to help them. In fact, one of the government’s flagship policies, the “benefit cap” will hit them especially hard.
From next year the government will ‘cap’ the maximum amount a family can receive in benefits, whatever their needs. Means-tested benefits recognise that the more children a family has, the more money it needs to survive, so it stands to reason that the benefit cap will hit large families hardest. And the government knows that this is so; their own Impact Assessment says that the families most likely to be hit are out of work and:
a. Larger than average, in the most part with three or more children, and thereby receiving larger than average Child Tax Credit payments and Child Benefit payments; or
b. situated in high-rent areas, and thereby receiving large Housing Benefit payments; or
c. both of these factors combined.
Ministers must know about the impact their policies will have on large families. Today’s figures show that the government knows that these families are more likely to be poor – after all, they come from one of the Prime Minister’s pet projects. When will they act on this information? Even if it is politically impossible for them to reverse such a high profile policy, surely they could do more to mitigate its effects?
(*) Figures are UK, £ per week equivalised 2010/11 prices
(**) There is a difference in the number of people in these groups – 770 in households with no worker and 187 in households with four or more children. This means that we can have more confidence in the poverty rate for the workless households than for large families – but there’s enough people in this group for us to be confident that the poverty rate for this group is higher than for all the groups below it in the table.