By Anna Henry, Research Economist at the IFS
Today, 4.3 million children in the UK, or 30%, are living in relative poverty. This marks a 3 percentage point increase since 2010, equivalent to 730,000 more children living in relative poverty. Addressing this pressing issue is high on the government’s agenda, with a promise of a comprehensive child poverty strategy in the coming year.
Recent research from the IFS takes a look at trends in child poverty over the past decade and a half, and analyses potential policies which the government can implement in order to alleviate child poverty.
The increase in the overall child poverty rate since 2010 hasn’t been felt equally across all families. Almost all of the rise in child poverty over the 2010s was driven by increasing poverty rates amongst families with three or more children. Similarly, children of lone parents, those living in rented accommodation, and those living in workless households are all also more likely to be in poverty.
Part of this increase in child poverty has been driven by the fact that the benefits system is less generous for low-income households with children now than it did in 2010. Although, rates of support for families with children are still much higher in real terms than in 1997, the below-inflation uprating of many benefits from 2011 to 2019 has reduced the real value of benefit payments. Other high profile reforms have also had a big effect, such as the two-child limit, which limits the amount of extra benefit families receive for their third and subsequent children, or the benefit cap, capping overall benefit payments to a given family (with some exemptions).
As an illustration of the effect of these reforms, the two-child limit, removal of the family premium, and the household benefit cap have meant a typical social renting out-of-work lone parent with three young children has seen their disposable annual income cut by £4,000, or a fifth, relative to what it would have been had these reforms not been implemented.
To tackle child poverty, the government has a number of levers it can pull, particularly through the benefits system. Among the policies we consider in the report, the single most cost-effective policy for reducing the number of children living below the poverty line is removing the two-child limit. This would cost £2.5 billion a year but would reduce child poverty by 540,000 (4 percentage points) in the long run, equating to an annual cost of around £4,500 per child lifted out of poverty.
The government might see helping parents out of poverty through work as a more attractive option, given this would result in extra tax revenues rather than benefit payments. But this is easier said than done. Previous efforts to incentivise poorer parents to start working saw them starting low paid and insecure jobs, which won’t help them over the poverty line in the longer term. And increases in the minimum wage often help households with middling disposable incomes rather than the poorest – in part because poorer beneficiaries from the minimum wage often see more clawed back through not only extra taxes, but also lower benefit payments.
When evaluating policies to target child poverty, it is important to keep in mind that the poverty rate is not the be all and end all. Whilst it is a useful summary measure of how those on low incomes are faring, it is based on an arbitrarily drawn poverty line and so it does not tell us everything about the impact of reforms on the living standards of children in low-income families. For example, whilst removing the two-child limit would lift large numbers out of poverty, many of the children deepest in poverty would benefit less if the household benefit cap remained in place, and households already capped would not gain at all. Therefore, when designing its child poverty strategy, the government should consider effects of policies across the distribution of incomes, not just around the poverty line.
It’s clear that the government has an appetite to tackle child poverty, and there are good reasons to do so. The government has many policy options in front of them. In the shorter term, the only way to move the dial quickly is likely through the benefits system, but a longer term approach should also consider high housing costs, low-quality work, and the various other factors which push families into poverty in the first place, as well as the long-term benefits to individuals and society of bringing child poverty down.
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This article is featured in our 13 November newsletter.
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