IFS warns on rise in poverty following welfare caps

24 Nov 14

The Institute for Fiscal Studies has today warned that number of people in poverty is likely to start increasing due to caps in the uprating of benefits coupled with an increase in wage rates.

Publishing an evaluation of child and working-age poverty, the economic think-tank highlighted that, during the recession, income inequality fell as state benefits broadly retained their real value due to price indexation. This occurred as the value of workers’ earnings failed to keep pace with CPI inflation.

However, in a report funded by the Office of the First Minister and Deputy First Minister in Northern Ireland, the IFS found that as median incomes were projected to begin rising in 2014/15, inequality could increase.

Cuts to working-age benefits were accelerated in 2013/14, when a 1% cap on annual benefit uprating was introduced for three years, would also increase poverty measures.

The IFS said that reductions in the real-terms value of benefits were likely to continue until at least 2015/16, with Chancellor George Osborne proposing a further freeze in value for two years from April 2016.

Both absolute and relative poverty measures were therefore likely to increase to 2020/21, the report found.

In addition, researchers found the increase in poverty will be particularly large for Northern Ireland, mainly because employment growth is forecast to be considerably slower in Northern Ireland than elsewhere in the UK.

Working-age non-parent poverty in Northern Ireland will increase by 7.8 percentage points between 2012/12 and 2020/21 on the government’s absolute measure of poverty, and 7.6 points in relative terms.

The absolute measure is defined a those with a household income of less than 60% of the 2010/11 median household income, with relative poverty being set a 60% of the median level that year.

The equivalent figures for the UK are significantly smaller, with growth of 2.4 percentage points for absolute poverty and 1.7 percentage points in relative terms.

Meanwhile, the Joseph Rowntree Foundation said poverty among working-age adults has now risen to its highest ever level. In a report published today, the charity said more people in poverty are now living in working families, with the numbers in poverty in both in- and out-of-work households now similar.

However, the report also found that pensioner poverty is now at a record low level.

JRF chief executive Julia Unwin said the findings showed real change in UK society over a relatively short period of time.

‘We are concerned that the economic recovery we face will still have so many people living in poverty,’ she added.

‘A comprehensive strategy is needed to tackle poverty in the UK. It must tackle the root causes of poverty, such as low pay and the high cost of essentials. This research in particular demonstrates that affordable housing has to be part of the answer to tackling poverty: all main political parties need to focus now on providing more decent, affordable homes for people on low incomes.’

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