Does cash or services have the biggest impact on child poverty?

We need to invest more money in eradicating child poverty, not simply shift current expenditure around.

There is a view being expressed in influential circles that the money spent on cash benefits (and tax credits) as part of the Labour government's child poverty strategy was wasted and that now it is much better to invest in services. The dominant rhetoric of the coalition government (supported by the Field and Allen Reviews and, to some extent, by Alan Milburn) is that very little was achieved despite billions of pounds being spent between 2000 and 2010, and the child poverty targets were not met. The Child Poverty Strategy (pdf) argued: “This government is committed to eradicating child poverty but recognises that income measures and targets do not tell the full story about the causes and consequences of childhood disadvantage. The previous government’s focus on narrow income targets meant they poured resources into short-term fixes to the symptoms of poverty instead of focusing on the causes. We plan to tackle head-on the causes of poverty which underpin low achievement, aspiration and opportunity across generations”. The Field Review (pdf) actually argued that investments in services should be funded by cutting child and family benefits. The chancellor immediately responded by reneging on his commitment to uprate child tax credits above the rate of inflation and instead to invest in early years for some deprived two-year-olds. James Purnell has joined the chorus and wants to freeze child benefit for 10 years in order to fund child care. Nick Pearce of IPPR has also blogged on the subject .

We need to recognise that the reduction in poverty achieved by the Labour child poverty strategy was mainly achieved by substantially increased and highly redistributive spending on cash benefits – tax credits including childcare tax credits, child benefits and educational maintenance allowances. Child poverty fell by a million. Without this extra cash it would have increased by a million. This evidence is rehearsed in Ending child poverty by 2020: progress made and lessons learned (pdf). Of course the state of the labour market, the minimum wage, and welfare to work played a part. Also extra spending on health, education and childcare helped. But the heavy lifting was done by cash transfers. The UK had the largest reduction in child poverty of any country in the OECD between the mid 1990s and 2008 - see here (pdf).

The claim that spending on services is better than spending on cash benefits may be influenced by the OECD, which publishes rather old (2007) data on spending on families with children as a proportion of GDP and break it down into spending on cash benefits, services and tax benefits. It is certainly true that this data shows that the Nordic countries have high levels of spending on services and low child poverty rates. But this is an association, not a cause. These countries have an egalitarian income distribution, high levels of parental labour market participation, high wages and, yes, heavy investment in good quality childcare. They also start with comparatively low pre transfer child poverty rates. Spending on cash benefits fell in all the Nordic countries in the 2000s and their child poverty rates increased.

The association between spending on services and child poverty is shown in Figure 1. There is a fairly weak association – thanks mainly to the Nordic countries. However there is no association between the proportion of family spending spent on services and child poverty rates or gaps.

Figure 1: Child poverty rate by spending on family services as % GDP

There is a much stronger association between spending on cash benefits and tax breaks and child poverty rates than there is with spending on services (see Figure 2).

Figure 2: Child poverty rate by spending on family cash benefits and tax breaks as % GDP

In EU countries there is a stronger association between child poverty gaps than child poverty rates and spending on cash benefits and tax breaks.  There is an even stronger association between spending on cash benefits and tax breaks and the reduction in child poverty achieved by transfers. See Figure 3.

Figure 3: % reduction in child poverty by % GDP spent on cash benefits and tax breaks in EU countries

Actually, it is the level of total spending on families - cash benefits plus services plus tax breaks – that is most closely associated with child poverty. The lesson is that we need to invest in children in all sorts of different ways. Spending on childcare probably helps to increase maternal employment, enhances gender equality, and possibly also has beneficial child development outcomes. But it is probably not the best way to tackle child poverty and income inequalities. Indeed, recent analysis of EU SILC data suggests that the UK is one of the countries where childcare for children aged two or less reaches the rich better than the poor. It does not tackle the poverty of older children – except possibly in the long term. To end child poverty – and to make long term savings - we need to accept that we are going to invest more money in children; not simply shift current expenditure around. This is politically difficult – but in policy terms, and for anyone who cares about child wellbeing, necessary. To shift spending from cash benefits to services now is going to result in increased child poverty.

Jonathan Bradshaw is Professor of Social Policy at University of York and trustee of Child Poverty Action Group.

 

Ending child poverty could also mean long-term savings. Photograph: Getty Images
Photo: Getty Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.