IFS Recent trends in poverty Luke Sibieta Institute for Fiscal Studies 28 th March 2006

IFS

Recent trends in poverty

Luke Sibieta

Institute for Fiscal Studies

28th March 2006

© Institute for Fiscal Studies, 2007

What’s coming up?

• Poverty fell during Labour’s first two terms– Most for pensioners and children– Longest sustained fall in poverty of recent times

• Relative poverty rose in 2005/06– For all groups except pensioners– New high amongst working-age non-parents

• Absolute poverty also rose• Low growth in benefit and tax credit rates

© Institute for Fiscal Studies, 2007

Defining Poverty for HBAI

• GB up to 2001/02, UK from 2002/03– Focus on rates rather than numbers

• Relative notion of poverty– Proportion of individuals in households below 60%

of the contemporary BHC and AHC median

• Income-based • Sensitive to choice of threshold• Snapshot: no account of length

© Institute for Fiscal Studies, 2007

Poverty fell in Labour’s first two terms

0%

5%

10%

15%

20%

25%

30%

1979 1984 1989 1994 1999 2004

60% AHC Median 60% BHC Median

© Institute for Fiscal Studies, 2007

Poverty rose in 2005/06

0%

5%

10%

15%

20%

25%

30%

1979 1984 1989 1994 1999 2005

60% AHC Median 60% BHC Median

© Institute for Fiscal Studies, 2007

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

© Institute for Fiscal Studies, 2007

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

© Institute for Fiscal Studies, 2007

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

© Institute for Fiscal Studies, 2007

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

Change in 2005/06 +0.8 +1.1 +1.0 (+0.4)

© Institute for Fiscal Studies, 2007

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

Change in 2005/06 +0.8 +1.1 +1.0 (+0.4)

2005-06 Rate 29.1 21.6 14.4 8.7

© Institute for Fiscal Studies, 2007

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

Change in 2005/06 +0.8 +1.1 +1.0 (+0.4)

2005-06 Rate 29.1 21.6 14.4 8.7

Labour to date -2.8 -3.6 -2.5 (-0.1)

© Institute for Fiscal Studies, 2007

What about children?

• 2004/05 Target– Cut number of children in poverty by ¼ compared

with 1998/99– Narrowly missed– Used slightly different measure of child poverty

• 2010 Target– Cut child poverty by ½ compared with 1998/99

• 2020 Target– “Eradicate” child poverty

© Institute for Fiscal Studies, 2007

Further adrift from 2004/05 target

1.5

2

2.5

3

3.5

4

4.5

1998 1999 2000 2001 2002 2003 2004 2005

mill

ion

Required path, AHC Required path,BHC

Child poverty, AHC Child poverty, BHC

© Institute for Fiscal Studies, 2007

Further adrift from 2004/05 target

1.5

2

2.5

3

3.5

4

4.5

1998 1999 2000 2001 2002 2003 2004 2005

mill

ion

Required path, AHC Required path,BHC

Child poverty, AHC Child poverty, BHC

© Institute for Fiscal Studies, 2007

2010 target looks very challenging

1.5

2

2.5

3

3.5

1998 2000 2002 2004 2006 2008 2010Child poverty Progress to date

Required path Projected path under current policies

© Institute for Fiscal Studies, 2007

How much might 2010 target cost?

• Child poverty needs to fall by 1.1 million more to meet target

• Before Budget we estimated they were 1 million short in 2010/11 under current policies

• Measures announced in Budget estimated to lift a further 200,000 out of poverty– Still 800,000 left

• Our estimates suggest that to have a 50/50 chance of doing will require £4 billion of new public expenditure

© Institute for Fiscal Studies, 2007

For whom has child poverty risen?

• Focus on number of children in poverty (BHC)• Look at 100,000 rise in 2005/06• Can decompose the rise in child poverty into:

– A changing risk for specific family types – The changing composition of families with children

© Institute for Fiscal Studies, 2007

Decomposing the 100,000 rise in child poverty

-75000 -50000 -25000 0 25000 50000 75000 100000 125000 150000 175000

Full-time

Part-time

Workless

All Lone Parents

Self-employed

Two FT

One FT, One PT

One FT

One or Two PT

Workless

All couples with children

Composition Effect Incidence Effects Total Change

Lone Parents

Couples with children

All children

© Institute for Fiscal Studies, 2007

For whom has child poverty risen?

• Focus on number of children in poverty (BHC)• Can decompose the rise in child poverty into:

– A changing risk for specific family types – The changing composition of families with children

• Increased incidence of poverty amongst couples with children

• Lower incidence of poverty amongst lone parents offset this

• Few compositional effects

© Institute for Fiscal Studies, 2007

What about “severe” child poverty?

40% of AHC Median

40% of BHC Median

1996-97 11.0% 4.9%

© Institute for Fiscal Studies, 2007

What about “severe” child poverty?

40% of AHC Median

40% of BHC Median

1996-97 11.0% 4.9%

2004-05 9.9% 5.3%

© Institute for Fiscal Studies, 2007

What about “severe” child poverty?

40% of AHC Median

40% of BHC Median

1996-97 11.0% 4.9%

2004-05 9.9% 5.3%

2005-06 10.4% 5.5%

© Institute for Fiscal Studies, 2007

Pensioner poverty continues to fall

0%5%

10%15%20%25%30%35%40%45%

1979 1984 1989 1994 1999 2005

Pensioners Non-Pensioners

© Institute for Fiscal Studies, 2007

Working-age non-parents

0%

5%

10%

15%

20%

1979 1984 1989 1994 1999 2005

60% of AHC Median 60% of BHC Median

© Institute for Fiscal Studies, 2007

Absolute poverty

• Does relative poverty matter if absolute incomes are rising in real terms?

• Lets look at a measure of absolute poverty

• Absolute notion of poverty– Proportion of individuals in households below 60%

of the 1996/97 BHC and AHC median

© Institute for Fiscal Studies, 2007

Absolute poverty falls up to 2004/05

0%5%

10%15%20%25%30%35%40%

1979 1984 1989 1994 1999 2004

60% AHC Median 60% BHC Median

© Institute for Fiscal Studies, 2007

Rises in 2005/06, but not by much

0%5%

10%15%20%25%30%35%40%

1979 1984 1989 1994 1999 2005

60% AHC Median 60% BHC Median

© Institute for Fiscal Studies, 2007

Why have we seen these patterns?

• Low or negative income growth in lower part of income distribution

• Sampling error?– Rise in absolute (AHC) and relative poverty (BHC

or AHC) are statistically significant

• Slow growth in earnings and self-employment income?

• Low growth in benefit and tax credit rates?

© Institute for Fiscal Studies, 2007

Benefit and Tax Credits in 2005/06

• Child element of child tax credit uprated with earnings, BUT…

• Family element frozen in nominal terms• Working Tax Credit and Child Benefit only

went up with RPI• Very small changes in other benefit rates

© Institute for Fiscal Studies, 2007

Summing up

• Relative and absolute poverty rise• Ends longest fall in poverty of recent times• Still much lower then its 1996-97 level • Poverty amongst working-age non-parents at

increased by the most• Need to find new money to achieve 2010 target

– Difficult in a tight CSR