Poverty in Britain: the impact of government policy since 1997, by Holly Sutherland, Tom Sefton and David Piachaud

Joseph Rowntree Foundation, 2003, pb 1 85935 151 4, 80 pp, £14.95 Order this book

The report assesses the progress made in the reduction of poverty during the six years since 1997 and asks whether the same reduction would have occurred if the policy changes made during those years had not been made. Using a definition of poverty of ‘income below 60% of the median income’, the authors model policy changes and conclude that if there had been no changes to direct tax or benefits then poverty would have been higher for children by 62% if income means ‘income before housing costs’ but only by 38% if income means ‘income after housing costs’. For pensions poverty would have been higher by 53% based on income before housing costs and by 129% based on income after housing costs. The Government’s tax and benefit policy changes are calculated to have removed 1.3m children from poverty.

One problem is that household expenditure data is only available about two years after the event, and because a variety of labour market, earned income, family com-position and other factors can change considerably over six years, the actual change in poverty levels cannot easily be estimated. The researchers estimate that the actual number of children taken out of poverty will be about 1m and that the Government will therefore have met its target of reducing child poverty by 25% by 2004.

Looking to the future, the authors conclude that, if employment levels are maintained, and if benefits and tax credits keep up with median income, then poverty levels will not rise – but the fact that Income Support rates remain well below the Government’s own definition of poverty will mean that some sections of the population cannot be lifted out of poverty.

A problem with the Government’s definition of poverty is that if earned incomes rise then the median (and mean) income rises and the poverty line rises, meaning that tax and benefit changes are needed simply to stop poverty levels rising. Thus “more redistribution will be needed each year simply to maintain the progress which has been made.” This means that “further reductions in child poverty are likely to be increasingly difficult to achieve” (p.63).

During the period under review, Tax Credits entered the landscape. These have not only affected income calculations but will also have had labour market behavioural effects which in turn will have had an effect on incomes. If it proves possible to use household expenditure data to isolate these effects then it will be interesting to see how significant they are. Equally interesting would be predictions of future poverty levels based on further changes to the structure of tax and benefits rather than simply on changes in rates within the current system.