Welfare Reform and Work Bill — House of Lords, 2016-01-25
Topic: Social Welfare
David Freud (Conservative, Centre-right): My Lords, Amendment 2 seeks to insert a new clause that would expand the annual report to include data on children living in households with low relative income, combined low income and material deprivation, absolute low income, and persistent poverty. It would effectively reintroduce the same income-based poverty measures as set out in Sections 3 to 6 of the Child Poverty Act 2010—measures that fail to tackle the root causes of child poverty. I know that the amendment is well intentioned, but as it is drafted, it is technically faulty and cannot achieve what the right reverend Prelate, the noble Baroness and the noble Earl want it to achieve. For example, the amendment refers to how equivalised net household income is to be adjusted by regulations, but there is no regulation-making power in relation to the life-chances clauses in the Bill However, this is not the foundation of my disagreement with the amendment. I firmly believe that the existing statutory framework, set around the four income-related targets, simply does not drive the right actions to transform children’s lives. That is what we are all aiming for, so I think it is important for me to spend some time explaining why income measures are not the way to achieve what we all want to see. There will always be natural variations in income levels in society. However, having less money than someone else does not necessarily mean that an individual is in poverty. Income measures do not take this into account effectively Income measures focus on the economics of poverty and ignore the human dimensions: the social causes and the reasons people can get stuck in poverty. But even as economic indicators they are flawed. They are an indirect and imperfect indicator of poverty. They do not account for the full needs of the family or other financial deductions that reflect a family’s true financial situation, such as the amount of debt a family has, or even their non-income based resources, such as the benefits from education, such as the pupil premium. Households that have large savings or capital can still count as being in income poverty. This means that income measures can provide only a partial reflection of a family’s economic well-being There are other weaknesses, too. For example, the measures are based on current parental income and do not incentivise action to prevent poor children becoming poor adults. They do not reflect government action on raising attainment and improving life chances for disadvantaged children. These are some of the general weaknesses of income measures. I would now like to speak briefly in turn about why specific measures of relative low income—including persistent poverty, absolute low income and material deprivation—are unhelpful in tackling poverty If we first consider measures of relative poverty, the problem is that a household can be moved into or out of relative low income without any change in its circumstances. For example, in a recession, as median income falls, so does the relative poverty line. This means that many households that were previously in poverty will now be above the new, lower poverty line, even though their income and life chances have not changed. This incentive of "poverty plus a pound" does not drive transformative change in the lives of family members who still face multiple barriers to lift themselves out of disadvantage Conversely, policies such as raising the personal tax allowance and introducing the higher national living wage that give poor families a higher income could lead to increased average household incomes. This in turn raises the poverty line and brings more children into low income, punishing Governments for doing the right thing. As an example, while the economy grew from 2003 to 2009, income measures incentivised the previous Government to tackle the symptoms of poverty through expensive income transfers, such as spending £300 billion on working-age welfare and tax credits. This strategy did not tackle the root causes of child poverty or make a long-term difference to children’s prospects as the number of children in relative poverty remained broadly unchanged. Given that the proposed persistent poverty measure is based on families being stuck below the relative low-income line, it, too, will suffer from these same weaknesses I turn now to the disadvantages of absolute low-income measures. By definition, absolute poverty measures the proportion of children below a fixed income line, which is only adjusted each year to account for changes in prices. The current measure of absolute poverty uses the relative poverty line for 2010-11. However, the decision to use this as the absolute low-income line is essentially arbitrary, in the sense that there is no logic to why this is better than any other reference threshold that could be chosen as the absolute standard of what households should be able to count on in order to meet their needs Notwithstanding the clear criticism that this measure is subject to some of the same flaws as the relative poverty measure, it also leads to illogical changes in the level of children in absolute poverty. When the absolute poverty line was rebased to the 2010-11 relative poverty line, the number of children in absolute poverty under this measure went from 1.4 million children under the old baseline to 2.3 million children under the new one. These children saw no material difference in their lives or changes in their circumstances, yet just because the line was being drawn somewhere else they were all brought into poverty Finally, measures of material deprivation simply do not capture real material living standards robustly. The material deprivation measure asks subjective questions around whether families think that they can afford a certain set of items. We have looked into the accuracy of what it is trying to measure. Analysis from the IFS shows that almost 50% of children who live in a household that is deemed to be materially deprived have incomes well above the most commonly used relative low-income line. This brings up questions around whether material deprivation measures accurately reflect the true living standards of families. I hope that I have been able to show why the existing income measures are a poor test of whether children’s lives are really improving and a distraction from the aim of tackling the key drivers of child poverty.