Tuesday, May 12, 2009

Poverty: a tale of two and a half terms

The latest figures on poverty and inequality are out, covering 2007/08, and the Institute for Fiscal Studies has crunched the numbers.

Let’s be completely clear about the bad news. For the third year running, a Labour government – a Labour government – has allowed child poverty to rise. Now, these rises haven’t been big, and things are still better than in 1997, but even so – what the hell? This is not what they promised, this is not what we voted for, this is not nearly bloody good enough.

Percentage of children in households below 60% of median income (before housing costs):

And looking at the overall population, the income distribution has also recently shifted in the wrong direction. The IFS helpfully divides Labour’s time in power into its three terms, which have been very different. The first term saw pretty even income growth across the range from rich to poor; the second term was strongly redistributive; and the three years of the third term that we have data for have seen the sort of rich-get-richer-poor-get-poorer that we associate with the Tories.

Annual real income growth by quintile group, poorest to richest:

Across the whole two and a half terms:

Taking the period 1996–97 to 2007–08 as a whole, incomes have grown relatively evenly across the bulk of the income… However, income growth at the very top and very bottom of the distribution looks more similar to the pattern seen under the Conservatives – with the lowest growth at the very bottom of the income distribution over this period and the fastest growth at the very top.

broadly, the income distribution became more equal between around the 20th and 85th percentiles, but it has grown more unequal at the very top and the very bottom.

Not nearly bloody good enough.

So what happens next? We have a recession on – what might that do?

There are two main effects to bear in mind when thinking about relative poverty during recessions. First, increasing levels of unemployment seem likely to lead to falls in household incomes, thus leading to greater numbers of individuals being classed as living in relative poverty. Second, these falls in income will also lead to falls in median income, which on its own would tend to reduce relative poverty, as the threshold for classifying people as living in relative poverty will also fall. Therefore, in principle, the likely effects of the recession on relative poverty are uncertain.

But there’s also a third factor affecting the years beyond 2007/08: government policies that have been announced but were not implemented in time for the latest figures.

Another IFS study has calculated that child poverty would fall by 600,000 by 2010/11 as a result of such policies, “even after accounting for likely falls in earnings and employment”. That would make the first chart look like this:

Percentage of children in households below 60% of median income (before housing costs):

The government’s record – particularly their more recent record – is, as I think I may have mentioned, not nearly bloody good enough. They did pretty well for a while, then took their eye off the ball. But stronger redistribution – even given how politically spent the Cabinet seems, even given the recession – seems to be in the pipeline.

Two big caveats. First, these are just predictions. We won’t know the results this side of the general election. Second, with the explosion of the budget deficit, it’s hard to see how much any government will be able to do after that.

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