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Government must rescue ‘forgotten million children’ in poverty

03 January 2008

More than a million children in Britain are living in poverty despite the fact that at least one of their parents is in work, according to new research from the Institute for Public Policy Research (ippr), published today (Thursday).

The research shows that, although 600,000 children have been lifted out of poverty in the last ten years, the total number of poor children in working households has stayed the same at 1.4 million. Half of all poor children now live in a working household. 

The report argues that lifting these ‘forgotten million’ children out of poverty requires action to tackle high numbers of poor children in working couple families and improve wages at the very bottom of the labour market. Specifically ippr recommends a package of measures to improve work incentives for low income couples and increase financial support through tax credits, along with action to boost the effectiveness of the minimum wage:

• Introduce a Personal Tax Credit Allowance (PTCA) – to boost the financial incentive for second adults in couple families to move into work. The risk of poverty declines significantly where couples have two or one-and-a-half earners, but Working Tax Credits fails to incentivise potential second earners to move into work. Individualising the Working Tax Credit threshold would allow each adult in eligible families to earn up to £100 a week before their entitlement to tax credits started to be withdrawn. Under the PTCA, a family earning minimum wage would be £36 a week (or £1,872 a year) better off from a second adult moving into part-time work than under the current system.
  
• Increase the value of Working Tax Credit for couple families – by one third to £91.31 a week (or £4,748 a year) from April 2008, reflecting the fact that couple families need more income to lift them out of poverty than lone parent households. This would benefit 1.6 million families, lifting 200,000 children out of poverty at a cost of £1.6 billion. This could be paid for by removing entitlement to Child Tax Credit from around two million higher income families.
  
• Boost the effectiveness of the minimum wage – through maintaining the value of the minimum wage at least in line with average earnings growth over an economic cycle, ensuring tougher enforcement of the minimum wage, and extending the adult rate to 21-year-olds while retaining lower rates for younger workers.

Kate Stanley, ippr Head of Social Policy, said:

“Significant progress has been made in the last 10 years in lifting nearly 600,000 children out of poverty. However, half of all poor children now live in households where someone is at work and the challenge is to ensure that work really is a route out of poverty. Tax credits and the minimum wage have ‘made work pay’ relative to being on benefits but these don't yet go far enough to ensure more children are lifted out of poverty. More action is needed to combine financial support and measures to boost parental employment with action to deliver fairness on pay and opportunities for progression at work.”

ippr also recommends:

• Building ‘fair wage’ commitments into public sector employment contracts and the £125 billion spent each year by the Government on public procurement
• The development of a ‘gold standard’ accreditation for employers paying decent wages, linked to wider employment standards
• Ensuring that the new Local Employment Partnerships deliver sustainable, decently paid jobs, with training prospects
• Offering skills and career advice to all low-paid workers in receipt of Working Tax Credit, improving their pay and prospects at work
• Extending the right to request flexible working to all employees, to help families avoid a negative trade-off between ‘income poverty’ and ‘time poverty’.

Notes to Editors:

Working out of Poverty: A study of the low paid and the working poor by Graeme Cooke and Kayte Lawton is available to download.

More than five million people – over a fifth (23 per cent) of all employees in this country – were paid less than £6.67 an hour in April 2006. This is based on a low pay rate of 60 per cent of full-time median earnings, equivalent to a little over £12,000 a year for a 35-hour working week. In April 2006, a 35 hour week would have earned someone £9,191 a year (before tax or National Insurance).

There are now 1.4 million poor children living in working households, the same number as in 1997. Since that year the number of poor children in workless households has fallen from two million to 1.4 million.

Half of all poor children now live in a household in which someone is working, up from around four in ten a decade ago.

Over the last decade the proportion of households in which someone is at work but that remain poor has gone up – now amounting to over one in seven working households. Almost six in ten poor households (57 per cent) are working households, up from under a half (47 per cent) ten years ago.

Overall, families with children face twice the risk of working poverty as those without. However, rates of working poverty vary considerably between different family types with different working patterns. Almost eight in ten working-poor families with children are headed by couples, though such families are twice as likely to have someone in work as lone-parent families. Nearly six in ten working-poor families with children contain single-earner couples. Overall, the risk of poverty is twice as high for children in a lone-parent as for a couple family. However, while worklessness is a more significant factor underpinning poverty in lone-parent families, working poverty is the key factor for couple families.

The risk of working poverty is very low among couples with either two full-time earners or one full- and one part-time, but rises substantially where there is just one earner (to over 50 per cent if the single earner is only working part-time).

The risk of working poverty is twice as high for lone-parent families working part-time than for those working full-time. Full-time working lone parents face three times the risk of poverty as dual-earner couple households.

More than four in ten working-poor family units are those without children, over seven in ten of whom are single people. Working households headed by younger people, those from ethnic minorities and those that include a disabled adult face higher risks of poverty.

While the minimum wage has substantially boosted pay for the lowest earners, a single-earner couple with two children would have to work almost 80 hours a week at the minimum wage to avoid poverty through their wages alone (without any other benefits or tax credits).

Contact:

Matt Jackson, ippr senior media officer, 020 7339 0007 / 07753 719 289 / m.jackson@ippr.org

 

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