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Embargo

Until 00.01 am Tuesday 11 October 2011

Contacts

Bonnie Brimstone Institute for Fiscal Studies 020 7291 4818 07730 667 013 (out of hours)

Press Release

Universal Credit not enough to prevent a decade of rising poverty A new forecast of income poverty among children and working-age adults in the UK has been published today by the Institute for Fiscal Studies, funded by the Joseph Rowntree Foundation. The research forecasts poverty for each year between 2010–11 and 2015–16, and for 2020–21. It accounts for all announced tax and benefit policies, including Universal Credit, and incorporates the latest official economic and demographic forecasts. The report uses two of the four measures of poverty defined in the Child Poverty Act (2010). Key findings from the report are as follows:

The period between 2009–10 (the latest household income data available) and 2012–13 is likely to be dominated by a large decline in real incomes across the income distribution. Absolute poverty is forecast to rise by about 600,000 children and 800,000 working-age adults. Median income is expected to fall by around 7% in real terms, which would be the largest three-year fall for 35 years.

In the longer term, the planned introduction of Universal Credit will act to reduce both absolute and relative poverty. The long term effect of Universal Credit is to reduce relative poverty by about 450,000 children and 600,000 working-age adults in 2020–21.

However, the net direct effect of the coalition government’s tax and

benefit changes is to increase both absolute and relative poverty. This is because other changes, such as the switch from RPI- to CPI- indexation of means-tested benefits, more than offset the impact on poverty of Universal Credit.

Absolute and relative child poverty are forecast to be 23% and 24%

in 2020–21 respectively. These compare to the targets of 5% and 10%, set out in the Child Poverty Act (2010) and passed with cross-party support. This would be the highest rate of absolute child poverty since 2001–02 and the highest rate of relative child poverty since 1999–2000. Modelling of scenarios in which employment rises by more than expected or take-up of benefits increases (perhaps as a consequence of Universal Credit strengthening work incentives or being easier to understand for benefit claimants) suggests that such factors cannot be relied upon to make a large difference to poverty rates.

James Browne, one of the authors of the report, said “The previous government significantly increased spending on benefits and tax credits for families with children, and child poverty fell by nearly a quarter between 1998 and 2009, but this was still not enough for the government to hit its child poverty targets. The Child Poverty Act imposes even more stringent

The Institute for Fiscal Studies

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targets in a much more constrained fiscal environment. Even if there were an immense increase in the resources made available, it is hard to see how child poverty could fall by enough to hit this supposedly legally binding target in just nine years. If the government disagrees, then it should set out concrete suggestions about how it will achieve the targets, ideally backed up by quantitative modelling similar to that in our report.”.

ENDS Notes to Editors:

1. ‘Child and working-age poverty from 2010 to 2020’ by Mike Brewer, James

Browne and Robert Joyce will be launched at a briefing at 10am on Tuesday 11

October 2011 (http://www.ifs.org.uk/events/715). Please let Bonnie Brimstone

know if you wish to attend: 0207 291 4818 / bonnie_b@ifs.org.uk.

2. The forecasts are produced using a static tax and benefit micro-simulation model

augmented with forecasts of macroeconomic and demographic variables from

official sources.

3. There are many ways in which poverty could be conceptualised and measured.

The Government has sensibly recognised this, and has suggested various

indicators of child wellbeing and development beyond family income; but it has

also reiterated its commitment to the specific income-based child poverty

targets that it inherited, as set out in the 2010 Child Poverty Act. The income

measure referred to is at the household level, net of taxes and inclusive of

benefits and tax credits, and equivalised using the modified OECD equivalence

scale. Figures in this press release refer to poverty with incomes measured before

housing costs have been deducted. The full report also presents projections of

poverty with incomes measured after housing costs have been deducted. The

qualitative conclusions are very similar for both measures.

4. In 2009-10, the latest year for which actual data is available, the relative poverty line was as follows:

Single adult, no children: £165 per week.

Couple, no children: £248 per week.

Lone parent, 1 child: £215 per week.

Lone parent, 2 children: £264 per week.

Lone parent, 3 children: £314 per week.

Couple, 1 child: £297 per week.

Couple, 2 children: £347 per week.

Couple, 3 children: £396 per week.

These values refer to all sources of income after subtracting all tax and national

insurance payments, and adding all income from benefits and tax credits. They

assume that all children are aged under 14.

5. For embargoed copies of the report or other queries, contact Bonnie Brimstone

at IFS: 020 7291 4800, bonnie_b@ifs.org.uk.

6. Chris Goulden, JRF Poverty Policy and Research Manager, is available for

comment. Please contact Charlotte Morris on 07800 615 105 or charlotte.morris@jrf.org.uk.

The Institute for Fiscal Studies

Limited by Guarantee,

Registered in England: 954616

7 Ridgmount Street

London

WC1E 7AE

7. The Joseph Rowntree Foundation (JRF) is one of the largest social policy research

and development charities in the UK. For further information go to

www.jrf.org.uk.

8. The table below shows the central poverty forecasts from the report. An

individual is considered to be in relative poverty if it lives in a household whose

income is below 60% of the median in that year, and in absolute poverty if it

lives in a household whose real-terms income is below 60% of the 2010–11

median. The relative poverty line therefore moves each year with the income of

the median household, but the absolute poverty line is fixed in real terms.

Children Working-age parents Working-age adults without

children

Millions % Millions % Millions %

Relative poverty

2009

(actual)

2.6 19.7 2.3 17.1 3.4 15.0

2010 2.5 19.3 2.1 16.6 3.5 15.0

2011 2.5 19.2 2.2 16.7 3.6 15.1

2012 2.6 19.6 2.2 17.0 3.7 15.1

2013 2.8 21.6 2.4 18.3 3.8 15.5

2014 2.9 22.0 2.4 18.5 3.8 15.3

2015 2.9 22.2 2.4 18.5 4.0 15.9

2020 3.3 24.4 2.6 20.0 4.9 17.5

Absolute poverty

2009

(actual)

2.2 17.0 2.0 14.9 3.1 13.6

2010 2.5 19.3 2.1 16.6 3.5 15.0

2011 2.8 21.1 2.4 18.1 3.7 15.7

2012 2.8 21.8 2.4 18.7 3.9 16.0

2013 3.1 23.2 2.5 19.5 4.0 16.3

2014 3.0 22.9 2.5 19.2 4.0 16.0

2015 3.0 22.8 2.5 19.0 4.1 16.0

2020 3.1 23.1 2.5 19.0 4.7 16.8

Notes: Poverty line is 60% of median before-housing-costs income. Years refer to financial

years.