A new report by IFS researchers, produced with funding from the Joseph Rowntree Foundation, combines official economic forecasts with planned tax and benefit reforms to project incomes and poverty rates among UK households between 2015-16 (the latest data available) and 2021-22.
If the latest forecasts from the Office for Budget Responsibility (OBR) were to prove correct, and the government were to stick to current plans for changes to benefits (including the roll-out of universal credit), we estimate that between 2015-16 and 2021-22:
- Absolute child poverty would increase by around 4 percentage points (on the government’s official measure, measured after housing costs have been deducted from income). Of that increase, around three-quarters (equivalent to 400,000 children) is attributable to benefit changes. The freeze to most working-age benefits means that around 7.5 million low income households will see their benefit entitlements cut by over £500 per year in real terms. The limiting of tax credits and universal credit to two children means that some low income families will receive over £2,500 less in benefits than they otherwise would have.
- Absolute child poverty is projected to increase the most in Wales, the North East, East Midlands and Northern Ireland. These are areas where poor households get more income from benefits and less from earnings, or where there are more low income households with at least three children who will be affected by the limiting of means-tested benefits to two children. Low-income working-age households in the North East get around a third of their income from earnings, and those in Northern Ireland and Wales less than half, compared to 60% in the South East.
The report also finds that:
- Median income is projected to grow by just 4% in real terms over the next four years - slow by historical standards. Things could well be even worse – this projection is highly sensitive to the OBR forecast for real earnings. The OBR have already indicated that they will downgrade their forecast for productivity growth at the Budget later this month. Such a downgrade would depress forecast earnings growth and leave this projection for median income (based on the OBR’s March forecast) looking optimistic.
- Across the whole of the UK, absolute poverty (on the government’s official measure, measured after deducting housing costs) is projected to remain roughly unchanged between 2015–16 and 2021–22. In the absence of planned reforms, we would have projected absolute poverty to fall slightly: reforms add about 1 ppt (or 700,000 people) to the absolute poverty rate.
- Different areas face different prospects, with absolute poverty projected to rise overall in the North East, the North West, the Midlands, Wales, and Northern Ireland; and fall in Yorkshire & the Humber, East England, the South, and Scotland. Among children, however, absolute poverty is projected to increase in each English region and nation of the UK. As indicated above, these patterns could differ from our projections if trends in earnings and rent growth differ across regions.
Tom Waters, an author of the report and a Research Economist at IFS said:
“If the government sticks to planned benefit cuts, it should not be surprised if, according to the official measure, absolute child poverty rises. Every region and nation is projected to see an increase in child poverty, with the largest increases in the North East, East Midlands, Wales, and Northern Ireland, and the smallest in London, the South East, and South West. The larger projected rises occur in areas where families with children are more reliant on benefits than earnings for their income, and where more families are likely to be adversely affected by the new two-child limit on means-tested benefits.”
Andrew Hood, an author of the report and a Senior Research Economist at IFS said:
“Growth in average household incomes over the next few years is likely to be sluggish at best. If workers’ earnings grow as the OBR expected back at the March Budget, median income is projected to rise by just 4% over the next four years – about half as fast as was normal before the financial crisis. But given that the OBR have already indicated they now think that forecast was too optimistic, the true picture could be even worse.”
Notes to Editors:
1. The IFS report Living standards, poverty and inequality in the UK: 2015–16 to 2021–22 by Andrew Hood and Tom Waters, was published on the IFS website at 00.01 Thursday 2 November 2017. An online appendix, including all data for charts and tables, together with number of people in poverty and further analysis, will also be available.
2. Absolute poverty lines (£ per week) in 2017-18 prices for example families (assuming any children are under 14), measuring household income net of direct taxes, including benefits and after housing costs have been deducted:
3. This report was produced with funding from the Joseph Rowntree Foundation (JRF). The Joseph Rowntree Foundation is an independent organisation working to inspire social change through research, policy and practice. For more information visit www.jrf.org.uk.