Friday, June 13, 2008

This week’s poverty news

On Tuesday, the Households Below Average Income survey for 2006/07 was released. As ever, the Institute for Fiscal Studies went over the small print with a magnifying glass, a hefty dollop of brainpower and astonishing speed, producing on Wednesday morning a thorough report.

Later on Wednesday, Gordon Brown took PMQs in the Commons, where nobody mentioned the poverty figures. On Thursday, Brown held his monthly press conference, where nobody mentioned the poverty figures. I feel lonely sometimes. Oh well.

The headlines, you may have noticed, reported a small rise in child poverty as well as overall poverty from 2005/06, which makes the second year in a row we’ve had some bad news from these figures. Also there was a surprising (to the IFS) rise in pensioner poverty, which it puts down largely to the removal of age-related payments for pensioners in that year, as well as partly because of increased under-reporting of pension credits by recipients in the HBAI survey.

Something really did go wrong
On the rise in the number of children below the poverty line, Cassilis says that “we're looking at relatively small movements around an entirely arbitrary point used to define poverty”, and that “this sort of micro-management based on arbitrary poverty definition isn't really about impacting peoples lives - certainly not on any significant scale”. I almost wish this were right.

Yes, the Government’s headline 60% median income target is an arbitrary line, and when you have a target based on such a threshold, it can distort what you do. But Labour’s progress in reducing poverty – and then the setbacks in the most recent two years’ figures – are much broader than that. You can look at eight different ‘poverty lines’ (here I’m talking about the whole population) and see that the numbers below rose between 2004/05 and 2006/07 – these lines are 40%, 50%, 60% and 70% of median income, each measured either before or after housing costs (BHC or AHC).

If lines, however many, aren’t your thing, then look at it this way: dividing the population into income quintiles, from 1996/97 to 2004/05, the poorest fifth experienced (slightly) faster income growth than either the middle or the richest fifths; but from 04/05 to 06/07, the fastest gainers have been the top fifth and the real incomes of the bottom fifth have actually dropped.

This is a broader phenomenon than precision-targeting followed by target-missing. Alas.

Why have things gone awry over these two years? Unfortunately the IFS gives less detail than I’d like to corroborate this, but it does appear to be largely to do with benefit levels:

given that the majority of net income of individuals in the second and third deciles (roughly those just below and just above the poverty line) comes from state benefits and tax credits, this is a key determinant of what happens to relative poverty.

it is notable that child poverty has risen in the two years with particularly small rises in entitlements to benefits and tax credits.

If so, then redistribution works. And less redistribution works less well.

Things can only get better
Yes, my tongue was in the vicinity of my cheek as I typed this heading. But only in the vicinity. Given that rises in benefits and tax credits have been reducing poverty, and that slowing these rises had the opposite effect for two years, we can consider what’s to come given policies that have come into place since 2006/07 and those that will start in the next year or two:

IFS researchers predict a fall in the numbers of children in poverty [from 2.9 million in 2006/07] to 2.2 million (using incomes measured BHC) in 2010–11

That’s not far off double the average rate of fall over the preceding eight years. And yes, this is looking at that arbitrary poverty line, but I say again that it’s just not possible to get that many families across a line without having significant real improvements to their living standards and those of many others. Labour’s campaign against child poverty stumbled, needlessly, but it hasn’t collapsed; in fact, it looks like it’s already back up and running again. However, we won’t know for sure what progress is made until the figures come out in late spring 2012. That may not be much political use to Gordon…

It’s also worth mentioning that the Government isn’t simply trying to chuck ever-increasing amounts of taxpayers’ money at poor people. Just as the Tories aren’t really going to cut all the poor off without a penny, so Labour hasn’t exactly been avoiding more punitive and pro-active measures to get people into work. There are big differences in emphasis, of course, but more solid comparisons are hampered by the facts that the Government supertanker turns slowly, and that the Tory polices are still often elusively vague.

One contrast: in 2006/07 a workless lone-parent household had a 57.5% risk of being below the 60% BHC poverty line. Moving into part-time work takes that risk down to 19.4% and full-time work down to 7.4%. Becoming a two-parent household, though, takes the risk down to only 46.6% if either or both parents work part-time, and 20.2% if one works full-time and one not at all. It seems that promoting employment is a better way to cut poverty than promoting marriage.

Some are more unequal than others
‘Inequality’ is a tricky beast to define, and the IFS looks at a number of different measures of it. It finds that the ’90:10 ratio’ – the income of the 10th richest percentile to the 10th poorest – has varied a bit but is basically unchaged under Labour. Likewise the 90:50 and 50:10 ratios. So income inequality for the middle 80% has remained pretty constant. It’s actually quite an achievement for Labour to have engineered continuing economic growth where the bulk of the population participate equally – under the Conservatives, periods of growth involved a general rise in inequality right across the spectrum.

On other measures of inequality, such as the Gini coefficient, there have been slight rises under Labour. What this means, in combination with the steady 90:10 ratio, is that the very richest are speeding away from the rest of us, and the very poorest aren’t keeping pace (although in absolute terms they’re mostly better off).

The IFS recently published a study (noted here) of the super-rich and how they get their income; a future paper, looking at the ‘super-poor’, was hinted at. Soon, I hope. It’s important to know what’s going on in these people’s lives that prevents them from getting more income – indeed, whether they’re even the same people years after year (see below) – and how things could be improved for them.

Poverty is becoming less of a trap
One other silver lining from the figures [PDF, table 7.1] is that regardless of the number of children in poverty in any given year, there’s more ‘churn’ than there was under the Tories – that is, fewer of those who are poor are staying poor for long periods. One might think that as the proportion of people below a given poverty line falls, you’re left with a ‘core’ who are harder to shift at all. That’s not supported by this data.

This graph (using my calculations from table 7.1 here and table 4.1tr here [PDFs]) shows the percentage of children in households below 60% of median income who have been in that same position for at least three out of the preceding four years, starting with the period 1998-2001 and running to 2002-05 (BHC in blue, AHC in red):

Child poverty (at least on this measure) has not only fallen, but those who still below the threshold are spending less time stuck there.

1 comment:

donpaskini said...

Good post. Just one thing:

"It seems that promoting employment is a better way to cut poverty than promoting marriage."

Well, yes. But what the stats don't show is how the risk of poverty is affected when someone who has been out of work gets a job. Obviously when you compare levels of poverty amongst everyone out of work to everyone who is in work (including doctors, teachers, hedge fund managers and so on), the latter comes out better.

But a lot of the jobs which people who are out of work could realistically get won't lift them or their families out of poverty, and may well leave them worse off, suffering greater levels of stress, less able to spend time with their kids and so on.

So it's not just about getting people into any sort of employment, it's about making sure that all jobs pay people enough to lift them out of poverty and allow them to progress on to higher earnings rather than being stuck on the same wages, and that people can combine work and family life. This doesn't really describe the bottom end of the labour market at the moment.