Child and working-age poverty from 2010 to 2020 Mike Brewer, Professor of Economics, ISER, University of Essex and Research Fellow, Institute for Fiscal Studies (drawing on work by James Browne, Rowena Crawford, Carl Emmerson, Wenchao Jin, Robert Joyce and Gemma Tetlow, Institute for Fiscal Studies. For originals, see www.ifs.org.uk)
What s coming up Background Poverty Fiscal crisis and changes to welfare benefits How we produce our forecasts Poverty in 2010 to 2015, and 2020 Impact of coalition government s tax and benefit changes Conclusion
Relative child poverty, 1961 1998 30% 25% 20% 15% 10% 5% 12 years to half child poverty 0% 1960 1970 1980 1990 2000 2010 Notes: Years refer to calendar years until 1993, financial years thereafter. Incomes measured before housing costs have been deducted.
Relative child poverty, 1961 2009 30% Spent lots of money, and poverty fell by a quarter from 1998 to 2009 25% 20% 15% 10% 5% 0% 1960 1970 1980 1990 2000 2010 Notes: Years refer to calendar years until 1993, financial years thereafter. Incomes measured before housing costs have been deducted.
Child Poverty Act (2010) Requires (???) government to achieve specific levels of poverty in 2020 Relative child poverty must be less than 10% Absolute child poverty (< 60% of 2010 median income) must be less than 5% Less than 5% of children must be suffering material deprivation and relative low income (<70% of median income) Persistent poverty target yet to be defined
Relative poverty working-age adults without children, 1961 2009 30% 25% 20% 15% 10% 5% 0% 1960 1970 1980 1990 2000 2010 Notes: Years refer to calendar years until 1993, financial years thereafter. Incomes measured before housing costs have been deducted.
The fiscal crisis in the UK 55 All spending: no action Current receipts: no action 50 45 Northern Rock nationalised: Feb 2008 Lehman Bros collapse: Sep 2008 % of GDP 40 35 30 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Sources: Office for Budget Responsibility; IFS calculations.
The fiscal crisis in the UK 55 All spending: no action Current receipts: no action 50 All spending: March 2011 Current receipts: March 2011 45 40 35 Percentage of national income 30 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Sources: OBR; IFS calculations.
Composition of fiscal tightening (% GDP) 0.5% 1.0% 2.0% 1.7% 1.0% Tax Investment spend Public services Benefit spend Debt interest
The paper Aim: forecast relative & absolute poverty amongst children & workingage adults Method Start with base data on distribution of private income and household characteristics: 2008 09 Family Resources Survey Up-rate financial variables using official forecasts (to 2015) or own assumptions (to 2020) Re-weight data to reflect socio-demographic change, including employment changes, using (mostly) official forecasts Simulate tax liabilities, and benefit entitlements, given stated government policy and usual rules for indexing tax and benefit system Adjust incomes for non-take-up / non-reporting of means-tested benefits and to align with official statistics
Issues 1. Aligning simulated income distribution with actual income distribution 2. Simulating future changes to benefit system 3. Use of re-weighting to reflect employment and demographic changes
1. Aligning simulated income distribution with actual income distribution (2008-9 FRS) 600,000 500,000 Number of children 400,000 300,000 200,000 Simulated Take-up Actual 100,000 0 0 50 100 150 200 250 300 350 400 450 500 /week
2. Simulating future changes to benefit system Lots of changes have been announced, and some are not easy to reflect in microsimulation model Making medical tests tougher Savings affecting families whose incomes change Savings that vary by local area Increase in female state pension age (behavioural response) Universal Credit
3. Re-weighting to reflect employment and demographic changes Control for Population by region Population by age and sex Population who are Asian Population who are in work Number of 1-person and 2+ person households Number of households in London and Scotland Number of families with children in England, Scotland, Wales, NI Number of lone parent families Uses algorithm in Gomulka (1992) implemented in Stata
3. Re-weighting to reflect employment and demographic changes (simulated 2015) 400,000 350,000 300,000 250,000 200,000 150,000 No reweighting Actual 100,000 50,000 0 0 50 100 150 200 250 300 350 400 450 500 550 600
Results coming up... 2010 11 to 2013 14 Large fall in living standards 2014 15 and 2015 16 Universal Credit introduced 2015 16 to 2020 21 Economy growing, employment rising
Poverty, 2009-2015 26% 24% 22% Children (relative) Children (absolute) Working-age without children (relative) Working-age without children (absolute) Poverty rate 20% 18% 16% 14% 12% 2008 2009 2010 2011 2012 2013 2014 2015 Notes: 2008 and 2009 figures are actual. Years refer to financial years. Incomes measured before housing costs have been deducted.
Poverty forecasts to 2020 under current policies 26% 24% Children (relative) Children (absolute) Working-age without children (relative) Working-age without children (absolute) 22% Poverty rate 20% 18% 16% 14% 12% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Notes: 2008 and 2009 figures are actual. Figures for 2016 to 2019 interpolations between forecasts for 2015 and 2020. Years refer to financial years. Incomes measured before housing costs have been deducted.
Relative poverty: impact of reforms since 2010 26% 24% Children (on stated policies) Children (no reforms) Working-age adults without children (on stated policies) Working-age adults without children (no reforms) 22% Poverty rate 20% 18% 16% More cuts take effect in 2013 Universal Credit helps reduce poverty but impact of indexation change grows 14% 12% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Notes: 2008 and 2009 figures are actual. Figures for 2016 to 2019 interpolations between forecasts for 2015 and 2020. Years refer to financial years. Incomes measured before housing costs have been deducted
Variants and sensitivities Child Working-age non-parents 2015 baseline 22.2 15.9 Lower employment and earnings Progressive earnings growth 21.5 15.8 22.4 15.6 Average annual growth in median 2020 baseline 24.4 17.5 +0.5 Higher earnings 25.9 17.5 +1.2 Fall in workless households 24.4 17.1 +0.6 Full take-up 22.8 16.3 +0.6
Prospects for child poverty targets 30% 25% Relative poverty rate 20% 15% 10% Relative poverty Absolute poverty 5% 0% 1960 1970 1980 1990 2000 2010 2020 Notes: Years refer to calendar years until 1993, financial years thereafter. Forecasts for 2016 to 2019 interpolations between forecasts for 2015 and 2020. Incomes measured before housing costs have been deducted.
Summary GDP fell considerably in 2008-2009, but impact on living standards delayed until 2010-2012 Earnings falling in real terms Large welfare cuts and tax rises Poverty forecast Expect absolute and relative poverty to rise in next 3 years From 2014, Universal Credit slows rise in poverty, but overall effect of post-2010 changes outweighed by other welfare cuts Poverty in 2020 highest for 20 years Poverty fairly insensitive to general changes in employment/earnings
Spare slides
3. Re-weighting to reflect employment and demographic changes 35,000 30,000 25,000 20,000 15,000 10,000 5,000 60+ 45-59 30-44 25-29 20-24 16-19 16-19 10-15 0-9 0 Men, 2010 Men, 2015 Men, 2020 Women, 2010 Women, 2015 Women, 2020
3. Re-weighting to reflect employment and demographic changes 35,000 30,000 25,000 20,000 15,000 All 1 person 10,000 5,000 0 Households, 2010 Households, 2015 Households, 2020 In work, 2010 In work, 2015 In work, 2020
Main cuts to welfare benefits and tax credits, 2010-11 to 2014-15 Child-related benefits Non-means-tested child benefit removed from richest Tax credits more closely focused on the poorest Disability and sickness benefits Tougher medical tests, more means-testing Rental subsidies (housing benefits) Less generous, especially for large families and/or central London Change in inflation measure used to index benefits each year CPI usually lower than RPI as excludes most housing costs, and through formula effect Meanwhile: basic state pension to be linked to earnings and pensioners spared impact of most cuts
Main cuts to welfare benefits and tax credits, 2010-11 to 2014-15 bn/yr saving in 2014-15 20,000 17,500 15,000 12,500 10,000 7,500 5,000 2,500 0-2,500 Not broken down (uprating change) Council Tax Benefit Housing Benefit Disability Living Allowance Employment and Support Allowance Other benefits for families with children Tax credits (mostly for children) Child benefit State pension and pension credit
Problems with the current system of welfare benefits Receive three different means-tested benefits/tcs Benefit inco ome, /wk 500 450 400 350 300 250 200 150 100 50 Rapid withdrawal; weak incentives Different inand out-of work benefits Multiple (simultaneous) withdrawal; weak incentives and horrible interactions Jobseekers Allowance Working tax credit Housing benefit Child tax credit 0 0 5 10 15 20 25 30 35 40 45 50 Hours/wk @ 6.50/hr Assumes: couple with 2 children, 1 earner @ 6.50/hr, 80/wk LHA or eligible rent
Proposed reform Same entitlement to benefits if do not work Benefit inco ome, /wk 500 450 400 350 300 250 200 150 Earnings disregard Slower withdrawal No notch at 24 hrs/wk Single system: no horrible interactions, less churn between programmes, and less chance of non-take-up Faster withdrawal, so weaker incentives to earn more Jobseekers allowance Working tax credit Housing benefit Child tax credit 100 50 Universal Credit 0 0 5 10 15 20 25 30 35 40 45 50 Hours/wk @ 6.50/hr Assumes: couple with 2 children, 1 earner @ 6.50/hr, 80/wk LHA or eligible rent. Ignores child benefit.