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Today’s figures show that the previous government’s relative child poverty target for 2010-11 was missed, despite large reductions in that measure of child poverty since 1998-99. And in the latest year of data, relative child poverty fell, but not because low-income households with children got any better off in absolute terms.
The government has re-stated its commitment to the 2020-21 income-based child poverty targets that it inherited (and had voted for). As we argue below, this leaves the government in the position of having a target looming in just eight years, without policies which are likely to transform the distribution of income anywhere near radically enough over that kind of timescale. The government has also re-iterated its view that income-based child poverty targets have important limitations, and that relative poverty measures are problematic. It has announced it will be consulting on defining broader measures in the Autumn.
There are bound to be reasonable disagreements over what child poverty means and how to measure it (as well as how to address it). All sorts of things - income, spending, health, education, access to services - matter to the well-being of the poorest children, and there is obviously scope for debate about the relative importance of each. And the argument over whether poverty should be thought of in “relative” or “absolute” terms has been going on for centuries.
So what are the issues, and what can we say about them?
Absolute versus relative poverty
The fact that relative poverty can fall without absolute living standards increasing (as happened in 2010-11) is not a new discovery: it follows straightforwardly from defining poverty in relative terms. And in the short run we probably do care most about how the poorest children are faring in absolute terms on the chosen measures - are their incomes, educational attainment and so on higher or lower this year than last? Year-to-year movements in relative income poverty which simply reflect volatility in middle incomes - and hence in the relative poverty line - would lead one to perverse conclusions if such measures were the only ones being considered.
But what about the long run? Society’s intuitions about what constitutes a minimum acceptable standard of living do seem to be rooted in time and place to at least some extent. The real income levels that society is willing to tolerate at the bottom of the income distribution are rather higher now than they were in the Victorian era. So we probably do want to think about the poor in the context of the living standards of their contemporaries and the resources available to the society in which they live.
Absolute living standards matter and, over longer periods, so do relative living standards. Each measure provides different information. Each is relevant, and each is clearly incomplete. A single number cannot be expected to capture all of the concerns that someone might have about the distribution of living standards. Reasonable people will disagree about the relative importance of each, and it is probably sensible to keep an eye on both (as the previous and current governments have done, at least in terms of the poverty indicators that they officially track(ed)).
Poverty with respect to what?
Whether absolute or relative, a poverty measure needs to specify the object of concern. The previous government clearly believed that material living standards are at the core of what poverty is about: it chose to track three income-based indicators of child poverty, and included them (plus one more) in its 2010 Child Poverty Act which set ambitious targets for 2020-21.
But income does not perfectly capture even material living standards. For example, it does not account for the availability and quality of public services, or for the ability of people to spend more than their income by drawing on savings or in anticipation of higher income later. Many students have low incomes, but we might want to think about them quite differently from the long term sick and disabled who have little prospect of higher incomes in future.
And one might see poverty as about much more than material living standards. Broader indicators of children’s well-being, such as their physical and/or mental health, matter. In the context of child poverty one could go even further, viewing it as about not only current outcomes but about lack of opportunity or ‘life chances’. The current government seems to have both of these in mind when talking about child poverty, and included health-based indicators and measures of educational participation and outcomes in its Child Poverty Strategy.. One can certainly quibble about which things are taken to be constitutive of poverty, rather than causes or symptoms of it, or indeed which measures simply represent other things that we care about that have nothing to do with poverty per se. But there are without doubt a variety of dimensions of well-being that we should care about, each with multiple causes and multiple consequences, and it is sensible to be interested in all of them (whilst thinking carefully about what causes what, and how patterns of deprivation can be broken).
The 2020-21 income-based targets
Whilst supplementing them with a broad range of other indicators - which is sensible - the government is retaining the 2020-21 income-based child poverty targets that it inherited (and which both governing parties voted for in 2010). But the role of those targets is increasingly unclear, given other aspects of government policy.
IFS researchers have shown that the large reductions in income poverty among children under Labour relied very heavily on fiscal redistribution towards low-income households with children. For example, in 2010-11 about £18 billion more was being spent on benefits and tax credits aimed at families with children than if Labour had just applied default indexation rules since coming to power (see here). This is not surprising, given that the government was pursuing quite short run income-based targets, first for 2004-05 and then for 2010-11: tax and benefit changes tend to have rapid and relatively predictable impacts on incomes.
But fiscal redistribution is not costless. There is an inescapable trade-off between increasing redistribution and strengthening financial work incentives. And a pound spent on benefits is a pound not spent on other things which might improve children’s lives more cost-effectively in the long run, such as education, health or social services (or indeed a pound spent on completely different objectives).
The government has made clear that it does not view further large increases in fiscal redistribution as appropriate, at least in the current fiscal climate. Some people will agree with that judgement, and some will not: the extent to which the costs of increased fiscal redistribution are worth incurring is of course a subjective question. But there does seem to be a tension between this judgement and the retention of the income-based 2020-21 child poverty targets. Why? Because the targets loom in just eight years. Over short periods - and anything less than a generation is probably short term when it comes to making radical and politically feasible changes to the income distribution - it is difficult to think of tools beyond fiscal redistribution which would achieve a transformation of the large scale required.
View all Observations in the series
Does offering higher teacher salaries improve pupil attainment?
In new work published today, IFS researchers analyse the impact of offering higher teacher salaries on pupil attainment. We examine salary scales and pupil attainment in primary schools in and around London. For these schools, and for the salary differences of just under 5% that we observe, we do not find evidence that higher salary scales for teachers have much impact on pupil attainment. This suggests that if individual schools offered salary differentials on this scale across-the-board, they would not necessarily attract more effective teachers.
The next five years look better but tough fiscal choices remain for Scotland
The latest public finance forecasts published by the Office for Budget Responsibility (OBR) in December presented a better outlook for the UK than had been suggested by their March forecast. This is good news for the UK and Scotland in the short-term but much of the improved short-term outlook comes at the expense of reduced scope for economic recovery after 2018–19. Also the one area of greater weakness in the OBR’s latest forecast – revenues from oil and gas production – has substantially more adverse consequences for Scotland’s fiscal position than for the UK as a whole. In short, the new forecasts do little to diminish the tough choices that will face Scotland (and, to a lesser extent, the UK) if it is to achieve long-run fiscal sustainability.
50p tax – strolling across the summit of the Laffer curve?
Ed Balls and Ed Milliband have cited recent HMRC statistics which show those paying the 50% income tax rate are estimated to have paid some £10 billion more in tax over the three years 2010-11 to 2012-13 than was projected to be the case back in 2012 when HMRC analysed how much the tax was raising. Is that an indication that the 50p rate was more successful in raising revenue than HMRC concluded in their analysis?