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25 February 2015

Over a million children will fall into poverty in the next five years: here’s how to stop that happening

Poverty and inequality will rise to unacceptable levels without government action, argues Andrew Harrop

By Andrew Harrop

Rising inequality will see 1.2 million children fall into poverty between 2015 and 2030, unless dramatic action is taken after the General Election. A new Fabian Society report Inequality 2030 projects that, in all, an extra 3.6 million people will be living in poverty by 2030, with the number of children in poverty set to rise by almost a half.

Other groups to suffer huge increases in poverty include disabled adults below pension age (with 1.3 million more falling into poverty) and lone parents (the number in poverty will double to over one million).

The research applies the Office for Budget Responsibility’s economic and demographic assumptions and is based on current government policies. Under these conditions we found that GDP and top earnings would rise rapidly, but low incomes would stagnate. Social security and tax credit policies are the principle cause of the rising poverty.

Worse still, these projections only take account of announced government policy. Poverty will rise even faster if there are further cuts to benefits after the General Election, such as the £12 billion package proposed by the Conservatives.

The picture painted by these projections hardly bears thinking about. Low income Britain will not share in the proceeds of growth. Instead many more families will find themselves unable to make ends meet and emergency food banks will shift from being a temporary phenomenon of the economic crisis to an entrenched feature of British life.

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But this catastrophic rise in poverty is not an inevitability. Political choices not unstoppable economic forces will determine how much poverty there is in 2030 so the search for alternatives should be at the heart of the General Election campaign.

Our report concludes that to avoid this huge increase in poverty the next government should raise the minimum wage to 60 per cent of median earnings and set an ambitious target of an 80 per cent employment rate. We then propose that a Prosperity Fund is established, so that the proceeds of so-called ‘predistribution’ can be used to fund redistribution, while avoiding any new burden on the public finances.

The fund could be used to pay for a big rise in Child Benefit or to increase benefits and tax credits in line with earnings – two measures which would significantly reduce the numbers in poverty.

Although our projections are chilling, we also show that affordable government interventions can make a huge difference. So we should feel hope not despair. Full employment, action on low pay and a new Prosperity Fund to increase the generosity of benefits and tax credits, can together prevent the divide between the ‘haves’ and the ‘have-nots’ from becoming even deeper.

Inequality 2030, a new report by the Fabian Society, can be read here.

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