We won't sweep away poverty just by giving somebody a brush

The government’s 2005 child poverty target was set using the most widely accepted definition of poverty, namely a household income that is 60% or less of the average (median) household income in that year. The latest year for which data is available is 2004/05; the 60% threshold was worth £183 per week for a two adult household, £100 per week for a single adult, £268 per week for two adults living with two children, and £186 per week for a single adult living with two children.

This sum of money is after income tax and national insurance have been deducted from earnings and after council tax, rent, mortgage and water charges have been paid. It is therefore what a household has available to spend on everything else it needs.

As Figure 1 shows, the number of people in poverty is — at 11½ million — now lower than at any other time since 1987. It is, however, still much higher than in the early 1980s. This is because the rate of decline during the 1990s and 2000s has been much slower than the rate of increase during the 1980s.

As well as being higher than in the 1980s, our poverty rates are also higher than in many other EU countries. As illustrated in Figure 2, our poverty rate is somewhat below that in the Mediterranean countries, but somewhat above that in Germany and France, and around 1½ times the rate in the best performing countries.

One of the most noticeable features of recent years is the differential rates of progress for different groups within the population. More specifically, as shown in Figure 3, poverty rates since the mid-1990s have come down significantly for both pensioners (27% to 17%) and families with children (child poverty down from 32% to 27%). By contrast, the poverty rate for working-age adults without dependent children (17%) is, at best, unchanged. Similarly, the poverty rate for disabled working-age adults is also unchanged at 30%, almost double the rate for non-disabled working-age adults.

These differential trends reflect the focus of government policy. For pensioners, the guaranteed part of Pension Credit is now around 40% higher in real terms than its equivalent in 1998 and takes many of its recipients above the poverty line. For children, benefit levels have been raised for families both out-of-work (40% higher in real terms than its equivalent in 1998) and in-work (via the tax credits system). By contrast, working-age adults without dependent children have seen their out-of-work benefit levels frozen and relatively few are eligible for tax credits.

Government targets for income poverty

The only government targets specifically relating to income poverty are child poverty targets — in other words, there are no targets for adult poverty. Taking 1998/99 as their base, these targets envisage a reduction in child poverty by a quarter by 2005, by half by 2010, and its complete eradication by 2020.

Given that 4.1 million children were in poverty in 1998/99, these targets implied a maximum of 3.1 million children in poverty by 2005. In practice, the actual 2005 figure was 3.4 million, a substantial reduction of 700,000 but less than the one million required by the target.

Whilst the 2005 target was explicitly set in terms of a household income threshold that is 60% or less of the average (median) contemporary household income, the government is considering using a more complex set of definitions to monitor future progress. This comprises three indicators, broadly speaking:

‘Relative poverty’: as for 2005, a household income threshold that is 60% or less of the average (median) contemporary household income — this is a threshold which rises as the country overall becomes richer.

‘Absolute poverty’: a household income threshold that remains fixed in real terms.

‘Material deprivation’: children who ‘do not have because their parent(s) cannot afford’ selected goods, services and activities which are deemed to be necessities.

It is not at all clear how they intend to use these three indicators in combination to judge whether or not they are on track to meeting their 2010 child poverty target. For example, are they on track if one of the indicators is on track but another one is not?

This is an issue of particular concern because the ‘absolute poverty’ measure always follows a much more favourable trend than the ‘relative poverty’ measure. For example, using an ‘absolute poverty’ measure, the number of children in poverty fell from 4.1 million in 1998/99 to 2.1 million in 2005, a reduction substantially in excess of the target.

Furthermore, using an ‘absolute poverty’ measure, levels of poverty remained roughly stable during the 1980s, rather than sharp rises using the ‘relative poverty’ measure. A clear danger here is that the government may effectively change the definition of poverty so that it can claim that its targets are being met.

The relationship between income poverty and work

Even though state benefits for families have increased since 1997, it is actually the increase in employment, rather than the increase in benefit levels, which has been primarily responsible for the fall in the rates of child poverty.

So, for example, the risks of poverty for households with any particular work status (all working, some working, none working, etc) have, if anything, increased slightly since 1997. What has changed is that more people are working. This demonstrates that, for many, work is a route out of poverty. There are, however, two problems with the ‘work as a route out of poverty’ paradigm. The first problem is that, for the foreseeable future, a substantial proportion of both disabled people and lone parents will inevitably remain out of work, and thus likely to be in poverty.

Around 45% of lone parents currently do not work. Whilst this proportion is noticeably less than a decade ago — when it was 55% — it will obviously remain well above the government’s overall 20% target for years to come. For disabled people, the situation is worse: at 60%, the proportion of working-age disabled people who are not working is only a few percentage points higher than a decade ago.

The second problem is that employment, even with the help of tax credits, does not guarantee an income above the poverty line — half of all children in poverty are living in households where someone is doing paid work.

All ‘working’ households, where at least one person works full-time and any other adult does at least some work, face only a small risk of poverty. The working households most at risk of poverty, though, are those where the only work that is being done is part-time work or where one adult is not working at all.

Low pay is, of course, one of the main reasons why there is so much ‘in work’ poverty. Around six million employees are paid less than £6.50 per hour. Part-time work is especially likely to be low paid: almost half of part-time workers earn less than £6.50 an hour, three-quarters of them women.

The importance of education

From a poverty perspective, the importance of education comes from the observation that, not surprisingly, people with poor educational qualifications are both less likely to be working and more likely to be in low pay if in work than their counterparts with better qualifications.

For example, 20% of 25/29-year-olds with no educational qualifications lack but want paid work compared to only 5% of those with university qualifications or equivalent. Even more strikingly, 50% of all working 25/29-year-olds with no educational qualifications are low paid compared with only 10% of those with university qualifications or equivalent. For both lack of work and low pay, the overall picture is that every additional level of educational qualification helps to reduce the risk.

The headline indicator that the government tends to use when looking at trends in education is the proportion of pupils who fail to obtain five or more GCSEs at grade C or above. This shows a favourable trend, having fallen from 51% of pupils in 1998/99 to 45% in 2004/05. Taking a lower threshold, however, the picture is less favourable: 11% of pupils obtained fewer than five GCSEs in 2004/05, a similar proportion to that in 1998/99.

Conclusion

There is no doubt that substantial progress has been made since 1997. There is equally no doubt, however, that levels of poverty remain very high, that new initiatives will be required if the government’s 2010 child poverty target is to be achieved, and that there has not been much progress on poverty among working-age adults without dependent children.

Education and work are clearly central to reducing poverty, but attention also needs to be directed to the increasingly important subject of in-work poverty and to the substantial numbers of disabled people and lone parents who inevitably will remain out of work for the foreseeable future.

Guy Palmer is a Director of the New Policy Institute. All the statistics in the article can be found on the www.poverty.org.uk website, together with precise definitions and sources.