Falling incomes poverty warning

10 October 2011 Last updated at 20:13 ET

By Sean Coughlan BBC News education and family correspondent

Child poverty will rise until 2013, says a forecast

Falling incomes will mean the biggest drop for middle-income families since the 1970s – and will push 600,000 more children into poverty, says a report from the Institute for Fiscal Studies.

The IFS forecasts two years “dominated by a large decline” in incomes.

By 2013 there will be 3.1 million children in poverty in the UK, according to the IFS projections.

A Department for Work and Pensions spokesman said benefits changes would tackle poverty by “making work pay”.

Squeezed middle

The report from the IFS independent financial research organisation forecasts the levels of poverty in the years up to 2015-16 and then in 2020.

It warns that in the next two years there will be deepening levels of adult and child poverty.

But there are stark warning signs of tough times for people in the so-called “squeezed middle” – with median incomes falling by 7%, after inflation has been taken into account, the sharpest drop in 35 years.

“This would be the largest three-year fall in median income since 1974-77,” said report co-author, Robert Joyce.

These were the years following the oil crisis and included a sterling crisis, IMF bail-out and industrial unrest.

The IFS forecast says that “absolute” child poverty will peak at 3.1 million in 2013, an increase of 600,000 compared with 2010.

There will also be 2.5m working-age parents and four million working-age adults without children in absolute poverty, says the report.

In this survey, “absolute” poverty is defined as being less than 60% of the 2010-11 median household income and then adjusted for inflation in subsequent years.

It also confirms previous suggestions that targets set in 2010 to cut absolute child poverty by 2020 to 5% are likely to be missed by a wide margin – with the IFS forecasting it will be 23%.

Universal Credit

After 2013 and the planned introduction of the Universal Credit scheme, the IFS is forecasting that absolute child poverty will fall by 100,000 to three million in 2014 and 2015.

The median income is also forecast to begin slowly rising after 2013 – although it is not projected to have recovered its losses by 2015.

The IFS also suggests that the number of working-age adults in absolute poverty will remain at 2.5m for parents and will rise to 4.1m for working-age adults without children.

By 2020, the IFS is projecting there will be 4.7m working-age adults without children in absolute poverty.

The Universal Credit being proposed by the government is designed to replace six income-related, work-based benefits.

The government wants a system where people are better off in work than they would be on benefits.

Missed targets

Report co-author James Browne warned that the targets adopted on cutting child poverty by 2020 could not be achieved with the current trends.

“The previous government significantly increased spending on benefits and tax credits for families with children, and child poverty fell by nearly a quarter between 1998 and 2009, but this was still not enough for the government to hit its child poverty targets,” said Mr Browne.

“The Child Poverty Act imposes even more stringent targets in a much more constrained fiscal environment. Even if there were an immense increase in the resources made available, it is hard to see how child poverty could fall by enough to hit this supposedly legally binding target in just nine years.”

Responding to the IFS forecast, Barnardo’s chief executive Anne Marie Carrie said: “The projected figures for child poverty revealed today are a tragedy.

“This isn’t just about statistics as every day thousands of families are being forced into making choices between heating or eating.”

Alison Garnham, Chief Executive of Child Poverty Action Group, said: “Ministers seem to be in denial that, under current policies, their legacy threatens to be the worst poverty record of any government for a generation.

“They risk damaging childhoods and children’s life chances, as well as our national economic wellbeing from wasted potential and social costs spiral. It would be a catastrophic failure in public policy and political leadership.”

Poverty trap

A spokesman for the Department for Work and Pensions argued that the Universal Credit would bring more families into work – and that it would break the cycle of poverty.

“The IFS acknowledge that Universal Credit will substantially reduce child poverty. It will make work pay for the first time, tackling in-work poverty and lift over one million people, including 450,000 children, out of poverty.

“Our wide-ranging reforms will have a dynamic impact on some of the poorest families, encouraging people into work, many for the first time, and improving the life chances of children at an early age.

“Over the last decade billions of pounds have been moved around the tax and benefit system in an attempt to address poverty. This has had the perverse effect of trapping thousands of families on benefits while income inequality increased to its highest ever level.

“It is clear that sticking with the status quo, which has had no meaningful long-term effect on poverty projections, is not an option.”

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