A 7% drop in average real incomes over the next three years combined with the Coalition Government’s decision to peg welfare payments to consumer rather than retail price inflation will result in absolute and relative child poverty jumping by 23% and 24% respectively within a decade.
According to the Institute for Fiscal Studies, the Government’s plans for a new Universal Credit should directly cut the number of children in poverty by 450,000 and adults by 600,000 by 2020-21 if the scheme comes in on time and meets the target of replacing replace six income-related, work-based benefits.
But the poverty-increasing effect of other changes to personal taxes and state benefits will more than offset this scenario, the think tank argued, a situation not helped over the coming 36 months by what is expected to be the biggest drop in UK household incomes for 35 years.
As a result, the IFS forecast that the number of children in absolute poverty would jump by 500,000 to three million by 2015/16, while real median household income would remain below 2009/10 levels. By 2020, 3.3 million – almost one in four children – would live in a household experiencing relative poverty.
Absolute poverty is defined as being when a child lives in a household with a real-terms income that is 60% below the average the 2010/11 average – a period set as a benchmark in this year’s Child Poverty Act. Relative poverty is when household income is 60% below the average for that year.
As a result, the IFS said that the Government would struggle to meet its targets for reducing child poverty, with both absolute and relative levels forecast to rise to 23% and 24% respectively by the year 2020-21 – the highest level of child poverty since 1999-2000 – instead of the 5% and 10% outlined in the Child Poverty Act (2010).
Even if the Universal Credit came in as planned, the think tank predicted that there would still be 4.7m working-age adults without children who live in absolute poverty by 2020.
A spokesman for the Department for Work and Pensions refuted the findings, telling the BBC that the Universal Credit would bring more families into work and “break the cycle of poverty”.
"Our wide-ranging reforms will have a dynamic impact on some of the poorest families, encouraging people into work, many for the first time, and improving the life chances of children at an early age," the spokesperson said. "Over the last decade billions of pounds have been moved around the tax and benefit system in an attempt to address poverty. This has had the perverse effect of trapping thousands of families on benefits while income inequality increased to its highest ever level.
Sticking with the status quo, "which has had no meaningful long-term effect on poverty projections", was not an option, the spokesperson added.
