Child and working-age poverty from 2010 to 2020 · The paper • Aim: forecast relative & absolute...

Child and working-age poverty from 2010 to 2020

© Institute for Fiscal Studies

Child and working-age poverty from 2010 to 2020 Mike Brewer, Professor of Economics, ISER, University of Essex and Research Fellow, Institute for Fiscal Studies

(drawing on work by James Browne, Rowena Crawford, Carl Emmerson, Wenchao Jin, Robert Joyce and Gemma Tetlow, Institute for Fiscal Studies. For originals, see www.ifs.org.uk)

What’s coming up

• Background

– Poverty

– Fiscal crisis and changes to welfare benefits

• How we produce our forecasts• How we produce our forecasts

• Poverty in 2010 to 2015, and 2020

– Impact of coalition government’s tax and benefit changes

• Conclusion


Relative child poverty, 1961–1998

15%

20%

25%

30%


0%

5%

10%

15%

1960 1970 1980 1990 2000 2010

Notes: Years refer to calendar years until 1993, financial years thereafter. Incomes measured before housing costs have been deducted.

12 years to half child poverty

Relative child poverty, 1961–2009

15%

20%

25%

30%

Spent lots of money, and poverty fell by a quarter from 1998 to 2009


0%

5%

10%

15%

1960 1970 1980 1990 2000 2010


Child Poverty Act (2010)

• Requires (???) government to achieve specific levels of poverty in 2020

– Relative child poverty must be less than 10%

– Absolute child poverty (< 60% of 2010 median income) must be less than 5%

– Less than 5% of children must be suffering material deprivation and relative

low income (<70% of median income)

– Persistent poverty target yet to be defined– Persistent poverty target yet to be defined


Relative poverty working-age adults without children, 1961–2009

15%

20%

25%

30%


0%

5%

10%

15%

1960 1970 1980 1990 2000 2010


The fiscal crisis in the UK

45

50

55

% of GDP

All spending: no action Current receipts: no action

Northern Rock nationalised: Feb 2008Lehman Bros collapse: Sep 2008


30

35

40

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

% of GDP

Sources: Office for Budget Responsibility; IFS calculations.

Sep 2008

The fiscal crisis in the UK

45

50

55

Percentage of national income

All spending: no action Current receipts: no action

All spending: March 2011 Current receipts: March 2011


30

35

40

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

Percentage of national income

Sources: OBR; IFS calculations.

Composition of fiscal tightening (% GDP)

1.7%1.0%

0.5%

Tax

Investment spend

1.0%

2.0%

Investment spend

Public services

Benefit spend

Debt interest


The paper

• Aim: forecast relative & absolute poverty amongst children & working-

age adults

• Method

– Start with ‘base data’ on distribution of private income and household

characteristics: 2008–09 Family Resources Survey

– Up-rate financial variables using official forecasts (to 2015) or own

assumptions (to 2020)


– Re-weight data to reflect socio-demographic change, including employment

changes, using (mostly) official forecasts

– Simulate tax liabilities, and benefit entitlements, given stated government

policy and usual rules for indexing tax and benefit system

– Adjust incomes for non-take-up / non-reporting of means-tested benefits and

to align with official statistics

Issues

1. Aligning simulated income distribution with actual income distribution

2. Simulating future changes to benefit system

3. Use of re-weighting to reflect employment and demographic changes


1. Aligning simulated income distribution with actual income distribution (2008-9 FRS)

300,000

400,000

500,000

600,000

Number of ch

ildren

Simulated

0

100,000

200,000

300,000

£0 £50 £100 £150 £200 £250 £300 £350 £400 £450 £500

Number of ch

ildren

£/week

Simulated

Take-up

Actual


2. Simulating future changes to benefit system

• Lots of changes have been announced, and some are not easy to reflect in microsimulation model

– Making medical tests “tougher”

– Savings affecting families whose incomes change

– Savings that vary by local area


– Increase in female state pension age (behavioural response)

– “Universal Credit”

3. Re-weighting to reflect employment and demographic changes

• Control for

– Population by region

– Population by age and sex

– Population who are Asian

– Population who are in work

– Number of 1-person and 2+ person households

– Number of households in London and Scotland

– Number of families with children in England, Scotland, Wales, NI

– Number of lone parent families

• Uses algorithm in Gomulka (1992) implemented in Stata


3. Re-weighting to reflect employment and demographic changes (simulated 2015)

250,000

300,000

350,000

400,000

0

50,000

100,000

150,000

200,000

£0 £50 £100£150£200£250£300£350£400£450£500£550£600

No reweighting

Actual


Results coming up ...

• 2010–11 to 2013–14

– Large fall in living standards

• 2014–15 and 2015–16

– Universal Credit introduced– Universal Credit introduced

• 2015–16 to 2020–21

– Economy growing, employment rising


Poverty, 2009-2015

20%

22%

24%

26%

Poverty rate

Children (relative)

Children (absolute)

Working-age without children (relative)

Working-age without children (absolute)


12%

14%

16%

18%

2008 2009 2010 2011 2012 2013 2014 2015

Poverty rate

Notes: 2008 and 2009 figures are actual. Years refer to financial years. Incomes measured before housing costs have been deducted.

Poverty forecasts to 2020 under current policies

20%

22%

24%

26%

Poverty rate

Children (relative)

Children (absolute)

Working-age without children (relative)

Working-age without children (absolute)


12%

14%

16%

18%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Poverty rate

Notes: 2008 and 2009 figures are actual. Figures for 2016 to 2019 interpolations between forecasts for 2015 and 2020.Years refer to financial years. Incomes measured before housing costs have been deducted.

Relative poverty: impact of reforms since 2010

20%

22%

24%

26%

Poverty rate

Children (on stated policies)

Children (no reforms)

Working-age adults without children (on stated policies)

Working-age adults without children (no reforms)

…but impact of indexation change grows


Notes: 2008 and 2009 figures are actual. Figures for 2016 to 2019 interpolations between forecasts for 2015 and 2020.Years refer to financial years. Incomes measured before housing costs have been deducted

12%

14%

16%

18%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Poverty rate

change grows

Universal Credit helps reduce poverty…

More cuts take effect in 2013

Variants and sensitivities

Child Working-agenon-parents

2015 baseline 22.2 15.9

Lower employment and earnings

21.5 15.8

earnings

Progressive earnings growth

22.4 15.6

Average annual growth in median

2020 baseline 24.4 17.5 +0.5

Higher earnings 25.9 17.5 +1.2

Fall in workless households

24.4 17.1 +0.6

Full take-up 22.8 16.3 +0.6© Institute for Fiscal Studies

Prospects for child poverty targets

15%

20%

25%

30%

Relative poverty rate


0%

5%

10%

15%

1960 1970 1980 1990 2000 2010 2020

Relative poverty rate

Relative poverty

Absolute poverty

Notes: Years refer to calendar years until 1993, financial years thereafter. Forecasts for 2016 to 2019 interpolations between forecasts for 2015 and 2020. Incomes measured before housing costs have been deducted.

Summary

• GDP fell considerably in 2008 - 2009, but impact on living standards delayed until 2010 - 2012

– Earnings falling in real terms

– Large welfare cuts and tax rises

• Poverty forecast

– Expect absolute and relative poverty to rise in next 3 years

– From 2014, Universal Credit slows rise in poverty, but overall effect of post-2010 changes outweighed by other welfare cuts

– Poverty in 2020 highest for 20 years

– Poverty fairly insensitive to general changes in employment/earnings


Spare slides



20,000

25,000

30,000

35,000

60+

45-59

30-44

25-29

0

5,000

10,000

15,000

Men, 2010 Men, 2015 Men, 2020 Women, 2010

Women, 2015

Women, 2020

25-29

20-24

16-19

16-19

10-15

0-9



20,000

25,000

30,000

35,000

0

5,000

10,000

15,000

Households, 2010

Households, 2015

Households, 2020

In work, 2010

In work, 2015

In work, 2020

All

1 person


Main cuts to welfare benefits and tax credits, 2010-11 to 2014-15

• Child-related benefits

– Non-means-tested child benefit removed from richest

– Tax credits more closely focused on the poorest

• Disability and sickness benefits

– Tougher medical tests, more means-testing– Tougher medical tests, more means-testing

• Rental subsidies (housing benefits)

– Less generous, especially for large families and/or central London

• Change in inflation measure used to index benefits each year

– CPI usually lower than RPI as excludes most housing costs, and through “formula effect”

• Meanwhile: basic state pension to be linked to earnings and pensioners spared impact of most cuts


Main cuts to welfare benefits and tax credits, 2010-11 to 2014-15

£12,500

£15,000

£17,500

£20,000

/yr saving in 2014-15

Not broken down (uprating change)

Council Tax Benefit

Housing Benefit

Disability Living Allowance

-£2,500

£0

£2,500

£5,000

£7,500

£10,000

£bn/yr saving in 2014

Disability Living Allowance

Employment and Support Allowance

Other benefits for families with children

Tax credits (mostly for children)

Child benefit

State pension and pension credit


Problems with the current system of welfare benefits

£250

£300

£350

£400

£450

£500

Benefit inco

me, £/w

k

Jobseekers Allowance

Rapid withdrawal; weak incentives

Receive three different means-tested benefits/TCs

Multiple (simultaneous) withdrawal; weak incentives and horrible interactions

Different in-and out-of work benefits

£0

£50

£100

£150

£200

£250

0 5 10 15 20 25 30 35 40 45 50

Benefit inco

me, £/w

k

Hours/wk @ £6.50/hr

Working tax credit

Housing benefit

Child tax credit


Assumes: couple with 2 children, 1 earner @ £6.50/hr, £80/wk LHA or eligible rent

Proposed reform

£250

£300

£350

£400

£450

£500

Benefit inco

me, £/w

k

Jobseekers allowance

Working tax

Earnings disregard

Slower withdrawal

Same entitlement to benefits if do not work

Single system: no horrible interactions, less churn between programmes, and less chance of non-take-up

Faster withdrawal, so weaker incentives to earn more

No “notch” at 24 hrs/wk

£0

£50

£100

£150

£200

£250

0 5 10 15 20 25 30 35 40 45 50

Benefit inco

me, £/w

k

Hours/wk @ £6.50/hr

Working tax credit

Housing benefit

Child tax credit

Universal Credit


Assumes: couple with 2 children, 1 earner @ £6.50/hr, £80/wk LHA or eligible rent. Ignores child benefit.

Child and working-age poverty from 2010 to 2020 · The paper • Aim: forecast relative & absolute...

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