The coalition's cap on benefit increases will mean a surge in child poverty

Raising benefits by less than the rate of inflation is a poverty-producing policy.

Internal Treasury documents do not make for a thrilling bedtime read but a flick last night through the government’s Impact Assessment (IA) toolkit proved quite instructive. It tells us, for example, that an IA should be prepared when a proposal "involves some kind of redistribution affecting the public, private or third sector", and that an IA "must be published when a Government Bill… is introduced into either House of Parliament".

Yet on the day the Welfare Benefits Uprating Bill 2012 receives its second reading in Parliament, we still have not seen a formal assessment of the government’s decision to cut an estimated 4 per cent from the real value of key benefits over the next three years.  So, in the absence of any official statement as to how this policy will affect child poverty, we decided to work it out for ourselves.

Our starting point is the study produced by the Institute for Fiscal Studies (IFS) in October 2011 projecting child poverty rates for the UK over the next five to ten years. The picture, according to this report, looked bleak: an estimated 400,000 more children would be living in relative poverty by the end of the current parliament, while the number living in absolute poverty looked set to increase by 500,000 over the same period.  

Critically, the IFS singled out the decision to index most working-age benefits to the consumer price index (CPI) as opposed to the more generous retail price index (RPI) from 2011 onwards as the most significant policy driving child poverty upwards in the next five to ten years. But these projections do not now tell the full story. Since they were produced, the government has made other adjustments to the way it indexes benefits and tax credits, and now plans to add into this already potent brew the decision to uprate most in- and out-of work benefits, and going forward key elements of Universal Credit (UC), at a sub-inflation 1 per cent for three years.

As our new report published yesterday shows, the simple truth is that a sub-inflation uprating will be a poverty-producing policy. Delinking benefits from prices will result in a fall in the real standard of living for anyone who is reliant on the state for all or part of their income over the next three years. As a consequence, in the absence of any compensatory changes, the number of children living in absolute poverty will rise, while those children in families reliant on out-of-work benefits who already live below this threshold will see their poverty deepen further.

And alongside worsening absolute poverty rates, the relative fortunes of low income families can only deteriorate too. The government is presenting the 1 per cent uprating as ‘fair’ in light of the average earnings levels observed during the recession, as well as future public sector pay agreements. But what is conveniently obscured in this debate is that for many years prior to 2008, benefits rose at a significantly lower level than wages. In fact, the above-average earnings upratings of the last five years have had limited effect on the relative value of benefits eroded over a long period of time, showing how difficult it is to correct the damage done by year after year of under-indexation.

Nor is it clear where the equity is in pegging benefits to public sector pay rises going forward. With the Office for Budget Responsibility anticipating average earnings growth for the whole economy of between 2.2 per cent and 3.9 per cent over the next three years, the Uprating Bill will open up a gap between the poorest and the rest of the population. As a result, the minority will become further disconnected from the majority, and under these conditions, relative child poverty can but rise.

Looking at the historical picture should make us all pause for thought. Decoupling benefit levels from wages is widely recognised as the most significant policy that drove the dramatic increases in child poverty through the 1980s and 1990s, and the decision now to delink benefits from prices looks set to propel child poverty back up to levels we haven’t observed since the Thatcher years.

Given this, the Uprating Bill risks history repeating itself, with one significant difference: this time round we are likely to witness significant rises in child poverty against the backdrop of the Child Poverty Act (CPA) 2010, a law which requires the government take action to improve both the absolute and the comparative fortunes of children growing up in the UK today.

Yet three years of benefit uprating that is linked to neither prices nor average earnings will deliberately lock in both real and relative losses for low-income families, at the same time as locking them out of the mainstream.

Small wonder, then, that the required impact assessment has yet to materialise, but when it does, it will be interesting to see how the government squares the child poverty circle.

A young girl spends the half term school holiday playing in an an alleyway in the Gorton area of Manchester. Photograph: Getty Images.

Alison Garnham is chief executive of the Child Poverty Action Group

Getty
Show Hide image

The tale of Battersea power station shows how affordable housing is lost

Initially, the developers promised 636 affordable homes. Now, they have reduced the number to 386. 

It’s the most predictable trick in the big book of property development. A developer signs an agreement with a local council promising to provide a barely acceptable level of barely affordable housing, then slashes these commitments at the first, second and third signs of trouble. It’s happened all over the country, from Hastings to Cumbria. But it happens most often in London, and most recently of all at Battersea power station, the Thames landmark and long-time London ruin which I wrote about in my 2016 book, Up In Smoke: The Failed Dreams of Battersea Power Station. For decades, the power station was one of London’s most popular buildings but now it represents some of the most depressing aspects of the capital’s attempts at regeneration. Almost in shame, the building itself has started to disappear from view behind a curtain of ugly gold-and-glass apartments aimed squarely at the international rich. The Battersea power station development is costing around £9bn. There will be around 4,200 flats, an office for Apple and a new Tube station. But only 386 of the new flats will be considered affordable

What makes the Battersea power station development worse is the developer’s argument for why there are so few affordable homes, which runs something like this. The bottom is falling out of the luxury homes market because too many are being built, which means developers can no longer afford to build the sort of homes that people actually want. It’s yet another sign of the failure of the housing market to provide what is most needed. But it also highlights the delusion of politicians who still seem to believe that property developers are going to provide the answers to one of the most pressing problems in politics.

A Malaysian consortium acquired the power station in 2012 and initially promised to build 517 affordable units, which then rose to 636. This was pretty meagre, but with four developers having already failed to develop the site, it was enough to satisfy Wandsworth council. By the time I wrote Up In Smoke, this had been reduced back to 565 units – around 15 per cent of the total number of new flats. Now the developers want to build only 386 affordable homes – around 9 per cent of the final residential offering, which includes expensive flats bought by the likes of Sting and Bear Grylls. 

The developers say this is because of escalating costs and the technical challenges of restoring the power station – but it’s also the case that the entire Nine Elms area between Battersea and Vauxhall is experiencing a glut of similar property, which is driving down prices. They want to focus instead on paying for the new Northern Line extension that joins the power station to Kennington. The slashing of affordable housing can be done without need for a new planning application or public consultation by using a “deed of variation”. It also means Mayor Sadiq Khan can’t do much more than write to Wandsworth urging the council to reject the new scheme. There’s little chance of that. Conservative Wandsworth has been committed to a developer-led solution to the power station for three decades and in that time has perfected the art of rolling over, despite several excruciating, and occasionally hilarious, disappointments.

The Battersea power station situation also highlights the sophistry developers will use to excuse any decision. When I interviewed Rob Tincknell, the developer’s chief executive, in 2014, he boasted it was the developer’s commitment to paying for the Northern Line extension (NLE) that was allowing the already limited amount of affordable housing to be built in the first place. Without the NLE, he insisted, they would never be able to build this number of affordable units. “The important point to note is that the NLE project allows the development density in the district of Nine Elms to nearly double,” he said. “Therefore, without the NLE the density at Battersea would be about half and even if there was a higher level of affordable, say 30 per cent, it would be a percentage of a lower figure and therefore the city wouldn’t get any more affordable than they do now.”

Now the argument is reversed. Because the developer has to pay for the transport infrastructure, they can’t afford to build as much affordable housing. Smart hey?

It’s not entirely hopeless. Wandsworth may yet reject the plan, while the developers say they hope to restore the missing 250 units at the end of the build.

But I wouldn’t hold your breath.

This is a version of a blog post which originally appeared here.

0800 7318496