The briefing below was prepared for the media by the coalition to End Child Poverty (ECP) prior to the Comprehensive Spending Review (CSR). It has been attached here in full as it lays out the arguments and facts clearly and succinctly.
What is ECP calling for in the CSR?
- A fair balance of benefit and service cuts with progressive tax rises
- More help for parents to get jobs and stay in work on decent pay
- A robust Fairness Test for the Spending Review
- Action on tax evasion to help pay fund security benefits for poor families
Who is ECP?
End Child Poverty (ECP) is a coalition campaign of over 150 organisations, including children’s charities, child welfare organisations, social justice groups, faith groups, trade unions and others, united in our vision of a UK free of child poverty.
What is the current situation for children living in poverty?
Recent research commissioned by the Campaign to End Child Poverty from the Institute of Fiscal Studies showed that the Coalition’s emergency budget hit families with children hardest, and that the poorest families are set to lose most.
The research contradicted the Chancellor’s claim that the budget measures were progressive and called into question commitments to ‘fairness’. Unlike the Treasury’s own modelling, the IFS analysis took into account the impact of all the budget’s changes up to 2014, analysed the June 2010 Budget changes separately from those announced previously and included changes to tax credits, Housing Benefit and Disability Living Allowance.
It’s not fair that children should have to pay for the cuts and shocking that the poorest families are bearing the brunt of them. The coalition must re-consider its cuts, including changes to Housing Benefit and uprating benefits. The spending review will need to show clearly how the Government will deliver on the commitment to ending child poverty, ensuring that cuts fall on those most able to pay.
Why is investment in the fight against child poverty so important?
The Coalition Government is firmly committed to ending child poverty by 2020 but the IFS analysis shows its cuts are hitting the poorest families hardest. With nearly 4 million children below the poverty line, it is the most important element of the Government’s “commitments to fairness and social mobility” for the Spending Review. Even in our difficult economic circumstances, ending child poverty can be fair, affordable, and achievable; and will bring benefits to us all.
The Joseph Rowntree Foundation estimates the annual cost to the nation of child poverty is around £25 billion. We cannot afford for this to continue - we pay a much higher price than many neighbouring countries with much lower child poverty. It’s important to reduce the deficit, but it would be short-sighted to undermine progress towards eradicating child poverty through the choice of approach.
Spending Review decisions must support progress towards the child poverty targets, laying the ground and leaving scope for next spring’s Child Poverty Strategy announcement.
We need to reduce the deficit though. How can we still fight child poverty?
When deficit reduction took place under the Conservative Government of the 1990s, the Chancellor Kenneth Clarke used a 50/50 ratio of tax rises to spending cuts. The Coalition Government has stated its aim for a 20/80 ratio of tax rises to public spending cuts. This ratio is arbitrary, without sufficient evidence or consensus and it lets the wealthy financial elite, some of whom were directly responsible for the crisis, off the hook while ordinary people - low income families in particular - carry the greatest burden.
If cuts are made to income transfers through benefits and tax credits to the poorest households - those who spend immediately in their local businesses with the strongest multiplier effect - it will have a strong fiscal hindrance impact that may help tip the country towards recession again.
ECP is calling for:
- A ratio much closer to 50/50 for tax rises and spending cuts.
- The most progressive forms of taxation to be used instead of direct taxes like VAT.
- A Robin Hood Tax of 0.05% on finance activities so the bankers pay their way.
How can we make work pay for poor families?
Employment can offer a vital route out of poverty for some low income parents. However, more than half of families below the poverty line have jobs, so work is not the guaranteed route out of poverty it should be. Work incentives must increase in the benefits system. Although the Department for Work and Pensions plans to improve work incentives under the proposed Universal Credit, this will take years to put in place. In order to ‘make work pay’ for more families sooner, we call on the Government to urgently implement a series of reforms to the current benefits and tax credit systems:
- ‘Mini jobs’ for lone parents. Raising benefit disregards for single parents from £20 to £50 would allow them to work a few hours a week in ‘mini jobs’ without losing their benefits. Having a ‘mini job’ makes it more likely they can move towards full-time hours and off benefits as their children grow older. The Government should also consider extending to other parents such as carers for disabled children.
- Make tax credits encourage part-time work. Reducing the 16 hours tax credit rule to 8 hours for couples would make it easier for parents to change the number of hours worked without having to change from one system to another (as long as hours worked remain above eight), bring more people into one system, apply some of the benefits of the tax credit system to low-income parents and help make the financial incentives of moving into employment clear to out-of-work parents.
- Free school meals (FSM) for families on low pay. Losing FSM when moving off benefits is recognised as a very strong disincentive to work. School meals cost over £300 a year per child. The Coalition Government cut a planned extension of FSM to 500,000 primary school children with parents on low wages. But the Secretary of State, Michael Gove, said he supports free school meals and that it could be looked at again in the Spending Review.
- Increase childcare support in Working Tax Credit. Working Tax Credit currently covers 80% of childcare costs. Meeting the other 20% will help ensure parents are better off in work. With many families forced to cut working hours during the recent recession, and more restrictions on working hours expected with public sector cuts, this could make the difference that keeps many parents in employment. A more sustained solution will need to be found when the government consults on its Universal Credit proposals, but this change could improve things immediately.
How can the Government keep their promise to not aggravate inequality in the UK?
The Government promised that the emergency budgets cuts were progressive and would not hit the poorest hardest. The IFS research proved this claim wrong. The Government must have a much higher standard of assessing the impact on the poorest when it finalises decisions on the Spending Review.
We have therefore called on the Government to make public its Fairness Test. The Fairness Test must be used to block measures in the Spending Review that would worsen inequality of incomes, assets and access to services.
How can we protect the poorest and most vulnerable in the CSR?
The Treasury believes that tax evasion is costing us at least £40 billion a year. Other estimates say it could be closer to £100 billion a year. Better investigation and enforcement has helped reduce benefit fraud to its lowest ever recorded level. The lessons learned should be rigorously applied to tax evasion too. By investing in investigation and enforcement, tens of billions could be saved that could prevent benefit cuts to the poorest and allow these family security protections:
- Don’t cut benefits for families who have lost work in the recession. Losing pay and moving onto out of work benefits can put a family a long way below the poverty line. We need a benefits system that puts enough money in parents’ pockets to protect their family security and their children’s wellbeing, or they will be trapped by problems like debt and depression with their chances of finding a new job dwindling over time.
- Protect the incomes of families outside of the labour market. Some families face a particular risk of poverty combined with lack of chances to work - for example, parents who care full-time for disabled children, or who are disabled themselves. The benefits they rely on already keep them well below the poverty line and they cannot afford to have their benefits cut further.
- Don’t cut children’s benefits. Current proposals to make savings by cutting all child benefit above the higher rate tax threshold are full of anomalies and hit middle families the hardest while leaving most of the wealthiest households untouched. This is equivalent to a 5p basic tax rise for single earner families just above the threshold, so a fairer alternative properly targeted to high earners must be found.
- Increase Social Fund support to keep families out of debt. The recession and benefit cuts mean that the Social Fund needs to help even more families stay out of debt and meet emergency expenditures through Social Fund loans and the Crisis Fund. The Government must increase resources to meet this extra demand and extend eligibility to help more families like those facing in-work poverty.
How do we measure child poverty?
The Government uses four measures for child poverty, set by the Child Poverty Act 2010:
- Relative income poverty: Less than 60% median income. This means that after housing costs a family typically has less than (sometimes substantially below) £10 per family member per day to pay for everything (food, bills, clothes, toiletries, transport, birthday presents, school trips etc.).
- Absolute income poverty: Less than 60% median income held at 2010/11 levels in real terms.
- Persistent poverty: Being in relative income poverty for more than 3 successive years.
- Combined low income and material deprivation: Less than 70% median income combined with material deprivation as prescribed by government (the current measure is annual material deprivation survey in the Households Below Average Income series).
The official targets track progress using ‘before housing costs’ (BHC) data, because international comparisons are available. However, it is the ‘after housing costs’ (AHC) figures that give the accurate representation of the number of children actually living in poverty. Unless specifically referring to the targets, the correct figure for journalists to use for children living in poverty is AHC.
Currently there are 2.8 million children in poverty BHC and 3.9 million children in poverty AHC.