Understanding Child Poverty Reduction: Drivers and Challenges

1. Child poverty: why did it fall? And why didn’t it fall far enough? Mike Brewer Institute for Fiscal Studies 13th March 2006

2. Headlines • Child poverty fell by 700,000 since 1998/99 BHC and AHC • Represents fall of 21.3% BHC and 17.2% AHC: target was for fall of 25% • Key drivers: • fewer children in workless families • reduced risk of poverty for lone parents working part-time • reduced risk of poverty for single-earner couples • Several studies thought 50:50 chance of hitting 2004 target AHC. Why were these wrong? • 2010 target very challenging • child poverty must fall by half as much again over next 6 years

3. Child poverty: 1998/99 – 2004/05 Decline: 21.3% BHC, 17.2% AHC

4. Child poverty AHC at lowest for 15 years (17 years BHC)

5. Why did child poverty fall? • Use a simple decomposition to distinguish between: • Compositional changes • Incidence changes • Population changes • Define 9 family types on basis of how many adults and their work patterns

6. Compositional changes in lone parent families, 1998/99 – 2004/05

7. Changes in risk of AHC poverty in lone parent families, 1998/99 – 2004/05

8. Compositional changes in couple families with children, 1998/99 – 2004/05

9. Changes in risk of AHC poverty in couple families, 1998/99 – 2004/05

10. Put it all together...

11. So why did child poverty fall? • Fewer children in workless families facing a reduced risk of poverty • Reduced risk of poverty for children in part-time lone parent families, and in single-earner couple families • Similar for poverty BHC

12. Why didn’t poverty fall far enough? • Studies thought 50:50 chance of meeting target AHC (and better chance BHC) • Forecast poverty from 2001/2 to 2004/5, given tax credits and benefit rates, and economic & demographic forecasts • Over-stated fall in poverty: • No single obvious cause (eg median income, work patterns, tax credit take-up) • Uncertainty: 6% of children within 5% of poverty line (AHC) • Probably not due to factors highlighted by IFS last year • FRS capturing declining proportion of income from tax credits.

13. Comparing FRS with HMRC’s data on tax credits

14. What prospects for 2010? • Child poverty in 2010/11 to be half its 1998/99 level. • Three measures, but relative measure likely to be most challenging • Incomes measured BHC using different equivalence scale. This: • Increases level of child poverty • Reduces decline in child poverty since 1998/99 • On new measure, child poverty fell by 600,000 since 1998/99, and has to fall by 1 million more by 2010/11

15. What factors will affect child poverty in 2010? • On-going JRF-funded project examining prospects in 2010 and 2020 • Socio-economic and demographic changes • Tax and benefit policies implicit in Government’s public finance forecasts • Tax and benefit reform options: • Changes in work patterns • Increase in parents’ (mothers ?) earnings • On current policies, child poverty set to rise

16. Prospects for 2010

17. Conclusions • Child poverty fell by 700,000 since 1998/99 BHC and AHC • Represents fall of 21.3% BHC and 17.2% AHC: target was for fall of 25% • Key drivers: • fewer children in workless families • reduced risk of poverty for lone parents working part-time • reduced risk of poverty for single-earner couples • Too early to say why forecasts of child poverty were wrong, but some worries about the way FRS records tax credit receipt • 2010 target very challenging, and less than four years to find the money