Monday, December 04, 2006

Poverty: Labour’s record and the Tory analysis

One of the Conservative Party’s policy groups recently published a paper [DOC] about Labour’s record on reducing relative poverty. The paper, by Greg Clark MP and Peter Franklin (C&F), omits to say that this record is much, much better than that of the last Tory Government, and also compares well internationally. (A 2005 Unicef report [PDF] said: “Until the late 1990s, the United Kingdom had one of the highest child poverty rates in the OECD. … But over the last six years, the UK government has pioneered an approach to the monitoring and reduction of child poverty that seems to be working.”)

It makes interesting reading, and it is nice to see the Tories finally talking about this area. They still have a long way to go, but if they’re really serious about it (which is debatable, given the key role that redistribution must play and David Cameron’s aim of shrinking the state relative to the private sector), then joy in heaven, etc. etc. I have, though, found a few points of contention.

C&F do not specify whether they are discussing income before housing costs have been taken into account (BHC) or after housing costs (AHC), which is a pity. But by comparing their graphs with the official statistics, you can see that they’re using BHC measures. However, it’s generally thought that for people towards the bottom of the income scale, AHC measures are a more meaningful indicator of their financial well-being (I’ll put some remarks on this in the comments box below).

They also, in judging Labour’s record, compare the years 1994/95 with 2003/04 – which is an odd choice, given that the 1996/97 figures would be a more salient starting point and that figures for 2004/05 have been available since this March.

C&F dismiss the recent fall in the child poverty rate (those living in households below 60% median income BHC) as “little”: there has been “a 2% fall in the poverty rate… barely above the… margin of error”. Strictly speaking, this is two percentage points, from 23% to 21% of children – a fall of 8.7%. But even so, this is the change between 1994/95 and 2003/04. These observations, based on this deeply spurious choice of dates, are made under the heading “Exaggerating progress since 1997” (my italics). Oh dear.

If we compare 1996/97 with 2004/05, we see a fall [PDF; table 3.1] from 25% to 19% – six percentage points or 24% BHC. (The AHC figures show a fall from 33% to 27% – six percentage points or 18%.)

These figures relate to the Government’s targets to reduce child poverty levels based on the 60% of median income threshold. C&F suggest that this has meant targeting resources to move those just below this line to just above it, in order to get a good headline change in the short term, but having far less real effect on poverty. I agree that any such threshold is arbitrary and that targeting it could in theory lead to such an outcome.

Between 1996/97 and 2004/05, the proportion of children (and people generally) in households below the 60% line has indeed fallen [PDF; tables 2.1 and 3.1]. But so have the proportions below 70% and below 50% (whether we count incomes BHC or AHC). This is a broader enrichment of poorer families than one would expect if such narrow, single-threshold targeting were taking place.

C&F do say, however, that there are more people below the 40% line than there were. This is the result of their own calculations based on figures that are not publicly available, so it’s impossible for me to evaluate this (although they clearly get good marks for research enthusiasm). But a few brief points are in order.

First, presumably they are again talking about incomes BHC rather than AHC, and both would be worth seeing. Second, they are talking about numbers of individuals rather than percentages of the population; at least some of any increase in numbers may be due to population growth. Third, it is not clear whether they have controlled for different types of household composition, which have appropriately different thresholds and whose prevalence in the population changes over time.

Fourth, C&F are again comparing 1994/95 with 2003/04. We know [PDF; tables 2.1 and 3.1] that between the earlier date and Labour’s coming to power there were increases in the poverty rates at the 50% and 60% thresholds, both BHC and AHC, both for children and for the whole population (eight separate measures). It would hardly be surprising if the rate measured at the 40% threshold had worsened in this time as well. Thus, at least some of the increase they claim as part of “Labour’s record” may be attributable to the fag-end of the Major Government.

Likewise, between C&F’s end date and the latest, 2004/05 figures, there were continued falls in the poverty rates, again on all eight of these counts (children: table 3.1; adults: table 3.2 [PDFs]), and so recent improvements at the 40% level may have been missed as a result of their choice of dates.

Now, looking more broadly than at the numbers below any one income threshold, we can see [PDF; table 6] that the poorest 20% of the population have enjoyed faster income growth (BHC and AHC) than the middle or top quintiles under Labour. By contrast [PDF; figure 2.8], real annual income growth between 1979 and 1996/97 was biased entirely in favour of the richer: the richer you were, the faster your income grew; the poorer you were, the slower. That was the Tory record of increasing relative poverty.

But there is a further question as to whether the changes in recent years are specifically due to Labour’s policies, or despite them, or something that might have happened anyway. On this count, a simulation by the Institute for Fiscal Studies has found that changes to tax and benefits policy under Labour have reduced inequality by redistributing in the poor’s favour, relative to what would have happened had the system stayed the same. And calculations [PDF] by John Hills, Director of the LSE’s Centre for Analysis of Social Exclusion, show that:

“Comparing the 2004-05 tax and benefit system with the 1997 system adjusted for price inflation, the poorest tenth are on average 24 per cent better off than they would have been, and the top tenth slightly worse off. Against an alternative comparator of the 1997 system indexed by earnings growth but without reform, the structural changes of the last seven years are more clearly redistributive: the bottom tenth is 11 per cent better off than it would have been with this alternative, but the top four tenths are worse off.”

Cameron recently said that poverty is “not just a lack of money”. He seemed to think that this was news. But the Government doesn’t just focus on income levels, and the number below some given headline figure. Its annual Opportunity For All report looks at 59 different indicators of deprivation, covering areas such as teenage pregnancies, educational achievement, housing quality, employment among disadvantaged groups, rough sleeping, drug use, crime and fear of crime, and road accident casualties in deprived areas. Since 1997, 40 of these show improvement and seven a worsening.

There is a real and persistent (but hopefully not intractable) problem about the bottom 5% or so of the income scale: they have experienced less improvement than the 5% above them, or the 10% above that. The progress on poverty so far has been good, but bolder and smarter policies will be needed for these people to benefit more.

Looking at the Government’s aim of abolishing child poverty by 2020, a recent report by child poverty expert Lisa Harker for the Department for Work and Pensions argued that “a combination of a higher employment rate and enhanced benefit/tax credit support will be necessary”, and that we must “break the link between disadvantage in early childhood and poor life chances”.

Similarly, a Joseph Rowntree Foundation report by Donald Hirsh concluded that “even though substantial increases [in tax credits and benefits] will undoubtedly be needed, they will have to be combined with other measures. Only by improving the opportunities of tomorrow’s parents to provide for themselves, in particular by improving educational outcomes for today’s disadvantaged young people, is there a chance that this bold mission will succeed.”

This mammoth task demands a Government with the enduring passion, and the breadth and depth of thinking, to take it on. On current form, I can’t see that the Tories would be anything other than a step backwards.


Tom Freeman said...

Note on income before and after housing costs

An IFS report [PDF] discusses this issue:

“When deciding whether or not to measure living standards on an AHC basis as well as BHC, the main issues are whether people face genuine choices over their housing and whether housing cost differentials accurately reflect differences in housing quality.
“It is often argued that some individuals do not have much choice over the type or cost of housing services that they consume, whereas they have considerably more choice over the purchase of other consumption goods (such as food or clothing). For these individuals, it could be argued that an AHC measure is a more suitable measure of their well-being. However, for individuals who do exercise a considerable degree of choice over cost and quality, housing can be seen more like a consumption good like any other, and a BHC income measure may therefore be preferable. …
“Lack of choice over housing cost and quality is particularly important in the social rented sector, where individuals tend to have little choice over their housing and where rents have often been set with little reference to housing quality or the prevailing market rents. For this reason, commentators have often focused on AHC incomes when considering the living standards of individuals at the lower end of the income scale or when measuring poverty.
“Pensioners are another group for whom an AHC measure has often been considered appropriate. This is because around two-thirds of pensioners own their homes outright (most of the remainder are social renters). People who own their homes outright will be able to attain a higher standard of living than individuals with the same income level but who have mortgage or rental payments. On a BHC measure, an individual who owns their own house will be treated as being as well off as an otherwise-identical individual who is still paying off a mortgage; an AHC measure, though, would indicate that the former was better off.”

And a report [PDF] for the Joseph Rowntree Foundation notes “the large role that means-tested housing allowances (Housing Benefits [HB]) play in the incomes of the poorest. The British benefits system provides full coverage of rent costs for those on social assistance (Income Support [IS] and income-based Jobseekers’ Allowance [i-bJSA]).” As a result, “housing costs are essential to consistent measurement of poverty and work incentives”.

donpaskini said...

Excellent post.

Only thing I would add is that whereas the Tory record was universally bad on poverty, the reductions in poverty under Labour have been overwhelmingly amongst families and pensioners. This is good, but means that people generally regarded as less 'deserving', such as single adults on benefits or asylum-seekers have not generally benefited to anything like the same degree. 'Bolder and smarter' policies to cut poverty will need to expand from families and pensioners to all people living in poverty.

Tom Freeman said...

Thanks! And yes, you're quite right. What we need is not just a 'redoubling of efforts' but an extra range of focus, covering those groups who've done the least well so far.

(NB Yesterday the JRF released its latest annual 'Tackling Poverty and Social Exclusion' report, covering progess and future prospects, but I'm a bit too povertied out to read and analyse it... Summary here.)