IFS : Child & Working Age Poverty to rise in the next three years

The Institute of Fiscal Studies has produced new analysis commissioned by the Joseph Rowntree Foundation this week that shows the negative of impact of the UK Government’s Tax and Benefit changes will have on family incomes over the coming three years.

The report states ‘The IFS researchers forecast absolute and relative income poverty amongst children and working-age adults for each year to 2013–14, using a static tax and benefit micro-simulation model combined with official macroeconomic and demographic forecasts, taking into account current government policy.

They also forecast poverty under a scenario where the coalition Government simply implemented the plans for the tax and benefit system it inherited from the previous administration. Poverty beyond 2013–14 is likely to be affected by the Universal Credit, and future work will forecast poverty to the end of this Parliament when the Government publishes its Welfare Reform Bill.'

Robert Joyce, a research economist and an author of the report, said “Among all children and working-age individuals, we forecast a rise in relative poverty of about 800,000 and a rise in absolute poverty of about 900,000 between 2010–11 and 2013–14. We find that the coalition Government’s measures act to increase poverty among these groups slightly in 2012–13, and more clearly in 2013–14. Meeting the legally-binding child poverty targets in 2020 would require the biggest fall in relative child poverty after 2013–14 since at least1961”.

The report’s detailed findings are as follows:

Between 2008–09 (the latest year of actual data available) and 2010–11 the forecasts suggest that:

• Median income, and therefore the relative poverty line, will fall in real terms, driven by the fall in real earnings;

• Absolute poverty amongst children will be roughly constant and that amongst working-age parents will fall by around 100,000, but absolute poverty among working-age adults without children will rise by about 400,000;

• Relative poverty amongst children and working-age parents will both fall by about 300,000, but relative poverty amongst working-age adults without children will rise by about 100,000.

The difference in projected poverty trends between families with and without children over this period is partly driven by above-indexation increases in the Child Tax Credit in April 2009 and April 2010.

Between 2010–11 and 2012–13 the forecasts suggest that:

• Median income, and therefore the relative poverty line, will fall slightly in real-terms;

• Absolute and relative poverty amongst children and working-age parents will remain roughly constant;

• Poverty among working-age adults without children will continue rising, by about 300,000 and 200,000 for absolute and relative poverty respectively.

• The Government’s tax and benefit reforms act to increase relative poverty in 2012–13 amongst each of children, working-age parents and working age adults without children by about 100,000, and increase absolute poverty in 2012-13 by about 200,000 children, about 100,000 working age parents and about 100,000 working-age adults without children. This finding is at odds with the Government’s claim in the 2010 Spending Review that its reforms will have no measurable impact on child poverty in 2012–13. However, the impact estimated by the researchers (a rise of 100,000)is the smallest that would be captured by the official poverty figures. The discrepancy is entirely accounted for by the fact that IFS researchers have considered the impact of the Government’s planned reforms to Local Housing Allowance on poverty rates, whereas the Treasury did not.

Between 2012–13 and 2013–14 the forecasts suggest that:

• Median income, and therefore the relative poverty line, will rise slightly in real-terms;

• Absolute child poverty will rise by about 100,000, and relative child poverty will rise by about 200,000;

• Absolute poverty amongst working-age adults without children will rise by about 100,000, and relative poverty amongst this group will rise by about 200,000.

• The Government’s tax and benefit reforms act to increase absolute poverty in 2013–14 by about 300,000 children, about 200,000 working age parents and about 300,000 working-age adults without children, and increase relative poverty in 2013–14 by about 200,000 children, about 200,000 working-age parents and about 200,000 working age adults without children. The reforms increase relative poverty by less than absolute poverty in 2013-14 because the reforms lower median income, and hence the relative poverty line, in that year.

The full analysis is HERE

Head of UK Civil Service urges Treasury to draw up a Plan B

With today’s unemployment figures showing an increase for the first time in six months, Sir Gus O Donnell’s paper currently circulating in Whitehall suggesting the Treasury needs a plan B in the event of a jobless recovery is timely.

According to the Guardian ‘Britain's top civil servant has urged the Treasury to prepare contingency economic stimulus plans, including fresh capital spending on infrastructure, in case economic growth falters in the new year.

The paper drawn up by Sir Gus O'Donnell, head of the home civil service was prepared in the last few weeks and is circulating inside Downing Street.

It came as it was confirmed that the business secretary, Vince Cable is concerned by the direction of Treasury policy, describing officials as "thirties fiscal fundamentalists". The Liberal Democrat's remarks suggest there may be an economic dispute developing inside the coalition.

The existence of O'Donnell's paper is embarrassing to a government that has repeatedly said the economy is "out of the danger zone" and on course to pull out of recession.

A No 10 spokesman insisted no paper had been commissioned by ministers, suggesting the Treasury and the prime minister want to distance themselves from any hint that the coalition's public spending cuts might push the economy back towards recession.

Labour last night revealed details of a government document suggesting Britain will experience a doubling in youth unemployment among those out of work for almost a year as the public spending cuts bite next April.

The expected spike is highlighted in a prospectus, issued by the Department for Work and Pensions (DWP), for companies and voluntary groups bidding to take part in the Work Programme to find jobs for the long-term unemployed.

An annex to the prospectus estimates that between 140,000 and 200,000 young people aged from 18 to 24 will be registered as having been unemployed for at least nine months or more between 2011-12. This is at least a doubling of the number of young long-term unemployed.

Latest figures from the Office for National Statistics showed that in October there were 77,700 people aged 18-24 who had been unemployed for at least six months . It is not possible to make an exact comparisons between the two sets of statistics because the ONS measures long-term unemployment from six months, in contrast to the nine months recorded in the DWP's Work Programme. The forecast by the DWP suggests that the government is bracing itself for young people to suffer disproportionately from public sector job cuts and from the slow level of overall economic growth forecast by the Office for Budget Responsibility.

Douglas Alexander, the shadow work and pensions secretary, said last night: "The government needs to come clean and say why they are warning the employment industry that the number of young people unemployed for almost a year will double next year.

It's worrying figures like these that show why the country's top civil servant thinks George Osborne needs a Plan B on the economy."It also looks at different scenarios such as weaker than expected growth in turn weakened the economy's productive potential.

What a pity Vince Cable and Nick Clegg weren’t more vocal on these matters when the Coalition agreement was being drawn up because jobseekers and the wider economy need all the help it can get right now not empty words.