Ruth Porter is Communications Director at the Institute of Economic Affairs.
The fact that the government will almost certainly miss its child poverty targets was the cheery news from Alan Milburn this week. What has been missed in the discussion though is that the current measures of poverty are so absurd as to be almost irrelevant.
The government is bound by a system of measurement set out in the Child Poverty Act 2010. The headline measure defines child poverty rates based on the number of children living in households whose income falls below 60% of the median income. This bears little relationship to what poverty actually looks like.
People are poor when they cannot participate in society. This means not being able to afford the basics, like housing, clothing and food etc., but it also means not being able to play a meaningful part in what is happening around them – probably in 2011, this means things like not being able to pay for the internet. The way we currently measure poverty for the child poverty targets completely fails to take this into account.
The current recession provides the most striking illustration of this. In recessions, median incomes typically fall, and since the poverty line is pegged to median incomes, it falls alongside. So statistically, an economic crisis can actually ‘reduce’ poverty (by lowering the poverty line). This is exactly what is happening at the moment. Thus far, the recession has ‘lifted’ 300,000 children and 200,000 working-age parents out of poverty. In fact, statistically, the easiest way to meet the main child poverty target would be to make sure the economy does not recover until 2020.
The other poverty measures set out in the Child Poverty Act are only marginally better. Clearly if a family lives in Leeds as opposed to London the rate at which it becomes meaningful to say they are poor should be set much lower. Similarly if the price of housing halves overnight we should see a massive reduction in the poverty rate. But by the current poverty measures rates are not affected by these factors.
The government is doing some wonderful things to try and address poverty in the UK. They are reducing the disincentive to work in the benefits system, focusing on early intervention, improving standards in education through free schools and academies and more. They have also talked about other ideas like getting rid of the penalty against couples in the benefits system, but there is a missing element – they need to also address how poverty is measured.
Proper measurement with proper targets would almost certainly show a very different pattern of poverty. In turn this would help the government look more practically at poverty reduction.
Under Labour poverty strategies were focused on redistribution and provision of public services. Rightly the current government has shifted this to trying to tackle some of the underlying issues that trap families in poverty such as worklessness and disincentives in the benefits system, but there is another missing element though and that is the cost of goods and services.
For families struggling to make ends meet reducing the price of things like fuel, housing and food is key. Yet this area of practical help for people is not being addressed and in many areas current policy is pushing up prices. The Common Agricultural Policy is pushing up food prices, while environmental regulations and ‘green’ taxes are increasing the price of fuel and other goods, for example. Cameron should bear this in mind as our relationship with the EU changes. Domestically, the government should review where else they can use supply side reforms such as planning liberalisation to make life easier for those facing financial hardship.
Compassion must be practical and there are things the coalition can do to make life easier for those in Britain who struggle financially. Whether the government hits the current targets is neither here nor there in terms of the lives of real people. If we want figures that actually mean something we need to change the way we define poverty in the first place.