IFS Press Releases

Universal Credit not enough to prevent a decade of rising poverty

Date: 11 October 2011
Authors: Mike Brewer , James Browne and Robert Joyce

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.