Benefits erosion could double child poverty

10 Apr 08
The number of children living in poverty could dramatically increase over the next 20 years as a result of the way the Treasury adjusts benefits each year, a study by the Joseph Rowntree Foundation has found.

11 April 2008

The number of children living in poverty could dramatically increase over the next 20 years as a result of the way the Treasury adjusts benefits each year, a study by the Joseph Rowntree Foundation has found.

The report, The impact of benefit and tax uprating on incomes and poverty, says children in poor families will be the most disadvantaged under the current welfare system.

It states that raising the majority of benefits in line with inflation – rather than with increases in average incomes – worsens inequality. As the basic state pension is to be aligned to earnings from 2012, the poorer non-pensioner population will suffer the most from uprating over the next two decades. The report, compiled by academics from four universities, estimates that the child poverty rate could increase from 18% to 33%.

Lead researcher Professor Holly Sutherland, from the Institute of Social and Economic Research at the University of Essex, told Public Finance that it was not in any government's interest to have the issue – described as a 'hidden area of policy-making' – aired.

'They make use of fiscal drag and what we've called benefit erosion to raise resources for new spending or tax cuts, and so to be transparent means they have to justify what they are doing,' she said.

A Treasury spokeswoman said the report reinforced the impact investment through the tax and benefit system had on reducing child poverty. She added that government measures had halved the number of children in absolute poverty and measures announced in the past two Budgets would continue this progress.

'It's also important to keep in mind that the tax system is just one of the mechanisms helping us to tackle child poverty, alongside the national minimum wage, efforts to get more people into work, and making work pay,' she said.

Sutherland said that the current system did slightly increase work incentives, but uprating benefits would not greatly discourage people from seeking employment.

A spokesman for the Child Poverty Action Group said that benefit levels should rise at least in line with rising living standards.

The government hopes to eliminate child poverty by 2020, using the measure that a poor household is one with an income that is less than 60% of the average before housing costs.

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