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Could Universal Credit hold the key to tackling child poverty?

The troubled programme, if done right, could hold the keys to tackling child poverty. 

We discovered this morning that the proportion of children living in relative poverty is at its lowest level since the 1980s. Great news of course, but this headline masks a much more complicated – and worrying – picture.

Falls in this headline poverty measure – which captures those children living in households with incomes less than 60 per cent of the median – can be divided into two phases. Before the financial crisis, reductions owed much to a concerted policy focus and some sizeable spending on family policies. Tax credits in particular both incentivised single parents into work and provided a boost to incomes for low earners. At the same time an ever greater proportion of children in poverty were from working families.

 

Long term falls in relative child poverty and rise of in-work poverty

Notes: Estimates presented are on a Before Housing Cost basis

 

Once the crisis hit, relative poverty fell sharply. But this was only because the incomes at the median – the benchmark for this relative measure – were falling more quickly than those at the bottom. Absolute poverty – which is measured against a fixed income benchmark – rose in this period. The implication is that more of us were struggling, even as the headline poverty rate continued to fall. 

 

Since 2011 declines in the child poverty rate have slowed significantly. Rates may now be lower than at any time since the 1980s, but the long downward drift appears to have ended.

With a further £12 billion of cuts to working-age welfare planned over the next two years, the medium-term outlook for child poverty looks starker still. For example, our research has shown that a family could lose up to £1,700 a year as a result of the mooted £5 billion cut in child tax credits – two-thirds of the cut would be drawn from the incomes of the poorest 30 per cent of households.

So, if the government wants to be in a position to repeat its claim about falling child poverty rates over the rest of the parliament, what might it do?  Much of its emphasis has been on ‘taking the low paid out of tax’. Indeed, it is legislating to explicitly link the personal allowance (the point at which individuals start to pay income tax) to the earnings achieved when working 30 hours at the minimum wage. But this is a mis-sold policy if the focus is meant to be on low earners. Gains are overwhelmingly skewed towards better-off households, with roughly three-quarters going to those in the top half of the income distribution. The five million lowest paid earn too little to pay tax and will gain nothing from further tax cuts.

Increasingly the rhetoric from the government has focused on the need for employers to pay their staff more – reducing the burden on the state to pick up the pieces via in-work tax credits. This is certainly a useful approach. Action on the minimum wage and living wage would be welcome and could bring some modest fiscal savings. But the government appears to have its approach the wrong way round – floating the idea of cutting the generosity of tax credits on the assumption that this will somehow force employers’ hands. Yet our research found no evidence that tax credits act as a subsidy to employers. Simply cutting support is almost certain to do little more than take money away from those on the lowest incomes.

But there is one government programme which does have the potential to help in the fight against poverty: Universal Credit (UC). This flagship welfare reform programme is designed to make sure that work pays by boosting incentives and encouraging progression at work. The ambition has much to admire, but our recent review has shown that its current design is flawed and needs a major reboot if it is to fulfil its potential to raise living standards.

New work allowances – a key feature of UC that allow people to start working without having their benefits reduced – are expected to encourage more people into work. But weak incentives to earn more (workers can keep as little as 24 pence of each additional pound they earn) could lead to more parents becoming trapped at low levels of pay and a greater dependence on in-work support – the very outcome the government wants to prevent.

And while UC is very good at getting at least one person in a household into work, it is less effective at boosting employment within households – an important way to tackle in-work poverty. Our review has called for more support for second earners in couples with children to tackle this problem.

With some simple changes to the design of UC, significant strides could be taken in boosting employment and the earnings of low income families. The current dichotomy, with cuts to both tax and benefits, risks creating a two-tier system, in which the low paid are left ever further behind, stuck in poverty and held back from sharing in future growth. A rebalancing of the incentives UC creates – to better support single parents and second earners in couples with children – would provide a clear route to improved living standards.

David Finch is senior economic analyst at the Resolution Foundation. 

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Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.