Welfare rights: Poverty progress in reverse as tax-credit ladder proves shaky

Gary Vaux reveals the creative statistics behind the apparent early success of the government’s child poverty strategy

The news that the government is likely to miss its targets on reducing child poverty probably couldn’t have come at a worse time for Gordon Brown. Tax credits were his “big idea” – the ladder to lift working and non-working parents alike out of relative and absolute poverty. So the fact that the size of both groups has increased in the past year, after nine years of steady improvement, is a body-blow.

Part of the problem is statistical. Tax credits, assisted by the number of lone parents going from benefits into work, succeeded in moving relatively large numbers of families from just below the poverty line to just above it. These were often the families who were easiest to “reach” – possibly already in work, or close to finding it, and with an income low enough to get a boost from tax credits. It wasn’t a sleight of hand to say that those families were no longer in poverty, but it was a creative use of statistics.

All it took was slight slowdowns in tax credit take-up and lone parent moves into employment, plus a small increase in unemployment, for the whole strategy to begin to go into reverse.

Coming a couple of days before the child poverty figures were announced, another Department for Work and Pensions press release attracted far less attention.

But this other release perfectly illustrates the dilemma that the government has in dealing with the more intractable families – those who are a long way below the poverty line and who have little chance of moving above it without obtaining regular, well-paid work. The DWP’s research into work-focused interviews for partners and the enhanced New Deal for Partners showed that there was little evidence of them helping to change behaviour by increasing the numbers in work or looking for work. It concluded that “the programme is not currently cost-effective”.

None of this is a surprise to the government. Only a few weeks previously, yet more DWP research showed that the main achievement of the various Welfare to Work pilots has been to make better off those lone parents who would have left benefits for work anyway, rather than encouraging substantially more lone parents to do just that.

It becomes clearer that the success of the child poverty strategy in the past few years can at least in part be explained by the “low-hanging fruit” analogy. Such fruit is the easiest to pick – it’s only when you need to climb the tree to get the stuff that is hard to reach that you find out if your tax-credit ladder is good enough.

And at the moment it isn’t. This is partly because of the complex design of tax credits. Because they are based on the previous year’s income, and lack the flexibility to cope with rapid changes in income and personal circumstances, many potential claimants don’t see them as responsive enough when they move into and out of work. The culture shock that Revenue and Customs experienced when handling this type of claim compounded the problem – it is more comfortable dealing with the relatively static tax affairs of middle-income earners.

Until tax credits are reformed and simplified, this element of the anti-poverty strategy will continue to fail to play its supposedly major role.

Gary Vaux is head of money advice, Hertfordshire Council. He is unable to answer queries by post or telephone. If you have a question e-mail ­grahamhopkins@rbi.co.uk  

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