Recent trends in poverty

David Phillips

Institute for Fiscal Studies

11th June 2008

What’s coming up?

• Poverty fell during Labour’s first two terms• Most for pensioners and children• Longest sustained fall in poverty of recent times

• Poverty rose between 2005-06 and 2006-07.• Pensioner poverty increased most (by 300,000). • Child poverty needs to fall by 300,000 a year for 4

years to meet 2010-11 targets.

Defining Poverty for HBAI

• GB up to 2001-02, UK from 2002-03• Focus on rates rather than numbers

• Relative notion of poverty• Individuals in households below 60% of the

contemporary BHC and AHC median • No account of depth of poverty

Poverty fell in Labour’s first two terms

0%

5%

10%

15%

20%

25%

30%

1979 1984 1989 1994 1999 2004

60% AHC Median 60% BHC Median

Source: HBAI Data (FES and FRS)

Poverty rose in 2005-06..

0%

5%

10%

15%

20%

25%

30%

1979 1984 1989 1994 1999 2005

60% AHC Median 60% BHC Median

Source: HBAI Data (FES and FRS)

..And again in 2006-07

0%

5%

10%

15%

20%

25%

30%

1979 1984 1989 1994 1999 2006

60% AHC Median 60% BHC Median

Source: HBAI Data (FES and FRS)

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Source: HBAI Data (FRS)

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Source: HBAI Data (FRS)

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

Source: HBAI Data (FRS)

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

Change in 2005-06 +0.8 +1.1 +1.0 (+0.4)

Source: HBAI Data (FRS)

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

Change in 2005-06 +0.8 +1.1 +1.0 (+0.4)

Change in 2006-07 +0.4 +0.6 +0.7 +0.7

Source: HBAI Data (FRS)

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

Change in 2005-06 +0.8 +1.1 +1.1 (+0.5)

Change in 2006-07 (+0.4) (+0.6) (+0.7) +0.6

2006-07 Rate 29.5 22.2 15.2 9.4

Source: HBAI Data (FRS)

Across all thresholds?

70% of AHC

Median

60% of AHC

Median

50% of AHC

Median

40% of AHC

Median

1996-97 Rate 31.9 25.3 16.9 8.8

Labour 1 Change -1.8 -2.1 -1.6 (-0.3)

Labour 2 Change -1.8 -2.6 -1.9 (-0.2)

Change in 2005-06 +0.8 +1.1 +1.0 (+0.4)

Change in 2006-07 +0.4 +0.6 +0.7 +0.7

2006-07 Rate 29.5 22.3 15.3 9.5

Labour-to-Date -2.4 -3.0 -1.7 +0.6

Source: HBAI Data (FRS)

Growth in Benefit EntitlementsNon-working Couple, 3 kids 3.1%

Non-working Lone Parent, 1 kid 2.7%

Part-time working Lone Parent, 1 kid 3.0%

Single Adult on Job Seekers Allowance 2.2%

Single Adult on Incapacity Benefit 2.7%

Single Pensioner on Pension Credit 4.2%

Basic State Pension 2.7%

Poverty Line (AHC) 3.6%

RPI Inflation 3.7%

Composition of Poverty (AHC)

0%

5%

10%

15%

20%

25%

30%

1979 1984 1989 1994 1999 2006

Children Working Age (with Children)

Working Age (without Children) Pensioners

Source: HBAI Data (FES and FRS) and authors’ analysis

Child Poverty• 2004-05 Target

• Cut number of children in poverty by ¼ compared with 1998-99

• Narrowly missed• 2010 Target

• Cut child poverty by ½ compared with 1998-99

• Looks very challenging.

2010 target looks very challenging

1.5

2

2.5

3

3.5

1998 2000 2002 2004 2006 2008 2010

Ch

ild

ren

(M

illi

on

s)

1998-99 2010-11 Target Child poverty

Progress to date Required path

Source: HBAI Data (FRS) and authors’ analysis

2010 target looks very challenging

1.5

2

2.5

3

3.5

1998 2000 2002 2004 2006 2008 2010

Ch

ild

ren

(M

illi

on

s)

Child poverty Progress to date

Required path Projected poverty in 2010

Source: HBAI Data (FRS) and authors’ analysis

For whom has child poverty risen?

• Focus on number of children in poverty (BHC)• Look at 125,000 rise between 2004-05 and 2006-07

• Can decompose the rise in child poverty into: • A changing risk for specific family types • The changing composition of families with children

Decomposing the 125,000 rise in child poverty since 2004-05

-75000 -50000 -25000 0 25000 50000 75000 100000 125000 150000 175000 200000

Full-time

Part-time

Workless

All Lone Parents

Self-employed

Two FT

One FT, One PT

One FT

One or Two PT

Workless

All couples with children

Composition Effect Risk Effects Total Change

Lone Parents

Couples with children

All children

Source: HBAI Data (FRS) and authors’ analysis

Pensioner poverty

0%5%

10%15%20%25%30%35%40%45%

1980 1985 1990 1995 2000 2006

Pensioners AHC Pensioners BHC

Source: HBAI Data (FES and FRS)

Pensioner poverty

0%5%

10%15%20%25%30%35%40%45%

1980 1985 1990 1995 2000 2006

Pensioners AHC Pensioners BHC

rises

Source: HBAI Data (FES and FRS)

Pensioner Poverty

• Pensioner Poverty up by 200,000 AHC and 300,000 BHC. • First time it has risen AHC since 1996-97 • First time it has risen BHC since 2001-02

• The rise is statistically significant and sizeable.• Undoes about 1/6 of AHC fall since 1996-97• About 2/3 of the BHC fall.

• Poverty risk up for all age groups (particularly older). • IFS researchers predicted a rise but not this big.• Supporting evidence from other surveys.

Factors underlying the rise

• Abolition of additional age-related payments

• Rising inflation eroded the value of benefits.

• Fall in benefit receipts captured in survey.

• But there was a rise in the private incomes of pensioners in 2006-07

Factors underlying the rise

• Abolition of additional age-related payments • Payments of £50 or £200 in Winter 2005 not

repeated. • Added 100,000 to pensioner poverty.

• Rising inflation eroded the value of benefits.

• Fall in benefit receipts captured in survey.

• There was a rise in the private incomes of pensioners in 2006-07

Factors underlying the rise

• Abolition of additional age-related payments

• Rising inflation eroded the value of benefits.• The State Pension fell in real terms in 2006-07.

• Fall in benefit receipts captured in survey.

• There was a rise in the private incomes of pensioners in 2006-07

Factors underlying the rise

• Abolition of additional age-related payments

• Rising inflation eroded the value of benefits.

• Fall in benefit receipts captured in survey.

• Could be partly under-recording of certain benefits (e.g. the Pension Credit).

• There was a rise in the private incomes of pensioners in 2006-07

Factors underlying the rise

• Abolition of additional age-related payments

• Rising inflation eroded the value of benefits.

• Fall in benefit receipts captured in survey.

• But there was a rise in the private incomes of pensioners in 2006-07

• Mostly private pensions, with some investment income and employment income.

Working-age adults without dependent children

0%

5%

10%

15%

20%

1980 1985 1990 1995 2000 2006

60% of AHC Median 60% of BHC Median

Source: HBAI Data (FES and FRS)

Absolute poverty falls up to 2004-05

0%5%

10%15%20%25%30%35%40%

1979 1984 1989 1994 1999 2004

60% AHC Median 60% BHC Median

Source: HBAI Data (FES and FRS)

Rises in 2005-06 and 2006-07

0%5%

10%15%20%25%30%35%40%

1980 1985 1990 1995 2000 2006

60% AHC Median 60% BHC Median

Source: HBAI Data (FES and FRS)

Summing up

• Relative poverty rise• Second year in a row for poverty rise. • Still lower than its 1996-97 level • Pensioner poverty rose the most

• 100,000 due to the abolition of age-related payments • Need to find new money to achieve 2010 target

• Difficult with tight government finances.