Child Poverty: Progress and Measurement

Published in Bottomline, Summer 2004

Is the government on track for meeting its ambition to eradicate child poverty? Latest statistics show progress is being made. However, there is doubt about the long term and concern about the government’s redefinition of poverty. 

It has already been well documented in this publication and elsewhere that one of the Labour government’s key commitments was to eradicate child poverty by 2020. To monitor progress towards this ambitious aim two interim targets were set by the government:

• Reduce by a quarter the number of children living in households with income below 60% of the national average (median) by 2005.
• Halve the number of children living in households with income below 60% of the national average (median) by 2010.

The first target was written into the Public Service Agreement between the Department for Work and Pensions and the Treasury. As the deadline for this target is now approaching this article uses the latest statistics from the annual publication Households Below Average Income to provide an update on the government’s progress. The article also discusses some of the concerns about the recently announced changes to the measurement of child poverty.

Progress

Table 1 shows the number and proportion of children living below the poverty line since 1996/97.

These statistics show that the government has made significant inroads into reducing the number of children living below the poverty line. Looking at the current measure of child poverty (60% of median income after housing costs) shows that the level of child poverty in 1996/97 in Britain was extremely high with one in three children living in poverty and this had increased from about one in ten in 1979. In 2002/03 there were 3.6 million children living in poverty, a reduction of 16% meaning that since 1996/97 700,000 children have been taken out of poverty.

These improvements mean that Britain has moved up the European league table. Britain is now only the fifth worst of the EU15 countries in terms of rates of child poverty whereas in 1998 Britain was ranked the worst in the EU15 behind countries such as Portugal, Spain and Ireland.

In December 2003 the Institute for Fiscal Studies (IFS) calculated that if the government was to meet the 2005 target of reducing by a quarter the number of children living in poverty then the government would have to make above inflation increases to benefits for children. Specifically the IFS calculated that the child element of Child Tax Credit would have to increase by at least £3. The government heeded this warning and in fact increased, from April 2004, the child element of child tax credit by £3.50 a week. Although this increase fell short of the campaign led by Child Poverty Action Group (CPAG) for an increase of £5 a week it is widely accepted amongst anti-poverty campaigners that the April 2005 target will be achieved.

However there remains concern about achieving the long term 2010 and 2020 targets. There is speculation that the 2010 target may only be achieved because the government is now changing its measurement of child poverty.

Measuring poverty

The Department for Work and Pensions has undertaken a review of how child poverty is measured. From 1998/99 the government used a single relative measure of poverty which defined children as poor if they lived in a household with an income below 60% of contemporary median income both before and after housing costs. The statistics for this were gathered from the Family Resources Survey and published in the Households Below Average Income annual series. Statistics will still be gathered from this source but from 2004/05 the government will adopt three separate measures of poverty as detailed below.

Redefinition of Child Poverty: Three Measures

Absolute poverty. The poverty line will be set at 60% of median income in 1998/99, uprated for inflation and before housing costs. This will measure whether the very poorest families are seeing their incomes rise in real terms.
Relative poverty. The poverty line will be set at 60% of contemporary median income before housing costs. This will measure whether the poorest families are keeping pace with the growth of income in the economy as a whole.
Material deprivation and low income combined. To provide a wider measure of people’s living standards the government will monitor the number of children living in households that are both materially deprived and which have an income below 70% of contemporary median income. Material deprivation is defined as both lacking material necessities and not being able to afford them. Material necessities will include things such as attending school trips, going for a monthly swim and so on.

Following the announcement of these new measures two main concerns were raised by anti-poverty campaigners. Firstly, the government has not specified how these measures will be monitored and no specific targets have been written into a public service agreement. The second main concern is with changing the relative measure of poverty to looking exclusively at income before housing costs rather than after housing costs. This change could make it seem as though progress is better than it actually is.

Studies of income have always distinguished between income before and after housing costs because housing is usually the largest item of spending and is one which does not tend to vary. Therefore to gain a more accurate understanding of someone’s disposable income it is necessary to look at income after housing costs.

The table in this article shows that less children are counted as being in poverty when measured on a before housing costs basis rather than on an after housing costs basis. For example, in 2002/03 2.6 million children lived below the poverty line using the before housing costs measure whereas using the after housing costs measure shows that 3.6 million were living below the poverty line in 2002/03. This is because housing costs bear particularly heavy on families with children.

In concrete terms the changes to the relative poverty measure mean that:

• About one million children (8% of all children) who are defined as poor on the current relative measure of poverty (income after housing costs) would not be counted under the new measure.
• To reach the 2010 target of halving the number of children living in poverty using the new relative measure of poverty would require 1.5 million children to be lifted out of poverty. In comparison if the current relative measure of poverty was maintained then meeting the 2010 target would require lifting 1.8 million children out of poverty.

A further change in measuring poverty was also announced in the review. The government previously stated that it aimed to eradicate poverty by 2020 the government, this now means being amongst the best in Europe in terms of poverty rates. The review of measuring poverty stated that there were three ways to define being among the best in Europe:

• A relative child poverty rate no higher than the average of the best three countries in Europe.
• A relative child poverty rate no higher than the average of the best four countries in Europe.
• A relative child poverty rate that was within two percentage points of the average of the best three countries.

These three definitions translate into the following proportions and numbers (2):

• An average of the best three countries in Europe would mean having a child poverty rate of 7% (900,00 children).
• An average of the best four countries in Europe would mean having a child poverty rate of 8.5% (1.1 million children).
• The third measure (within 2 percentage points of the average of the best three) would mean having a child poverty rate of 9% (1.2 million children).

Therefore it now appears that the goal of eradicating child poverty does not in fact mean removing every child from poverty but means reducing the relative rate of child poverty to between 7% and 9%. This change means that there could be 1.2 million children living in poverty and this would be claimed by the government as eradicating child poverty.

Conclusions

This article shows that there has undoubtedly been considerable progress towards reducing the number of children living in poverty from the extremely high levels that the government inherited in 1996/97.

However it appears that the government is making changes to the measurement of poverty in order to be seen to still meet its 2010 and 2020 targets.

There are two ways in which the government is doing this. Firstly, looking at income before rather than after housing costs has the effect of substantially reducing the number of children currently measured as being in poverty. This makes the 2010 target easier to attain. Secondly, the government has changed the meaning of the word eradication from what most would think it to mean to the vague notion of being among the best in Europe. This will mean the 2020 target is easier to meet.

The commitment to end child poverty was a commendable one. However, the changes to the measurement of poverty suggest that the government is now most concerned with manipulating the statistics to show that targets have been met.

1 Households Below Average Income 1994/95-2002/03 is available from www.dwp.gov.uk.
2 Calculations made by Child Poverty Action Group and published in Poverty 117.