Written evidence the Department for Work and Pensions
The Department for Work and Pensions (DWP) is responsible for welfare, pensions and child maintenance policy, and as part of this role, looks at understanding and dealing with the causes of poverty. This government made a clear commitment in our 2019 manifesto to deliver longer-term, sustainable solutions to tackling poverty, including child poverty. We produce the UK’s four statutory poverty measurements as part of our annual National Statistics publication, Households Below Average Income (HBAI), and our Official Statistics publication, Income Dynamics.
Poverty is a complex subject and there are different ways to measure it. The Government estimates levels of poverty as measured by different thresholds while also assessing and addressing its root causes and long-term impacts.
DWP publishes four statutory estimates of child poverty:
• Relative income: household income less than 60% of current median income (published in Households Below Average Income, before and after housing costs);
• Absolute income: household income less than 60% of 2010/11 median income adjusted for prices (published in Households Below Average Income before and after housing costs);
• Combined low income and material deprivation: children who experience material deprivation and live in households with incomes less than 70% of current median income (published in Households Below Average Income);
• Persistent poverty: household income less than 60% of current median income for at least three out of the previous four years (published in Income Dynamics).
Context to existing measures
This government believes, and has always believed, that absolute poverty is a better measure of living standards than relative poverty which can provide counter-intuitive results.
Relative poverty tends to fall when median income shrinks, such as during economic downturns, which is particularly relevant in the current circumstances.
The absolute poverty line moves with inflation, so provides a better measure of how the incomes of the lowest earners compares with the cost of living. Absolute poverty will only increase if low-income households are worse-off financially, whereas relative poverty can increase even if low-income households’ incomes are rising (but just not keeping pace with the median).
For children, another method to accurately reflect those experiencing the greatest financial hardship is to combine a measure of low income with a measure of material deprivation, reducing the reliance on income alone.
Table: Numbers of children under different low income measures in 2018/19, compared to 2009/10
Source: HBAI 2018/19
Table: Numbers of children under a combined low income and material deprivation measure in 2018/19, compared to 2010/11
NB: Questions were revised in 2010/11 leading to a break in the time series before this point
Combined low income and Material Deprivation
Source: HBAI, 2018/19
We remain open to routinely assessing and evaluating the way in which we measure poverty to ensure our metrics best capture those in need.
The committee may also be interested in the United Nations Economic Commission for Europe (UNECE) Guide on Poverty Measurement, which is extensive in its analysis of the different international approaches to measuring poverty (although some countries’ official measures may have changed since publication). There are quite different treatments, for example Canada’s official poverty line measures whether families can afford a modest, basic ‘basket of goods’ (such as food, shelter, clothing, transportation, personal care and school supplies). The Organisation for Economic Co-operation and Development (OECD) suggests a relative measure of 50% median income; but other countries use quite different approaches.
About Households Below Average Income
HBAI is an annual publication that has provided information on living standards in the UK since 1994/95. It provides estimates on the numbers and percentages of people living in low income households based on disposable income, meeting the legal requirement to publish headline child low income statistics under the Welfare Reform and Work Act 2016, by 31st March of the year after the survey year.
The data comes from the Family Resources Survey (FRS), a representative survey of around 19,000 households in the UK. The published HBAI analysis presents sample estimates from the FRS extrapolated to apply to the whole population.
HBAI is a National Statistics publication meaning the statistics meet high standards of quality, trustworthiness and public value.
While the National Statistics featured in Households Below Average Income are considered the most comprehensive available measures of low income in the UK, we recognise there are limitations.
Firstly, the sample size of the Family Resources Survey (FRS) is too small to enable accurate estimates of poverty for some smaller sub groups in a single year, such as regions. Instead these must be analysed using three years’ worth of data.
To tackle this, we are working with the Office for National Statistics to increase the sample to 45,000 households as soon as possible during 2021/22. This boost will improve the precision of regional child low income rate estimates, still based on the latest three years of data, to approximately the same level of precision as UK-wide estimates. This increased sample will also allow more robust analysis of those groups, such as those using preschool childcare or disability by region.
Measuring and analysing data on incomes is multifaceted. It takes a year from the end of the fieldwork period to clean, analyse and quality assure the data before publication. This lag prevents us from accurately understanding levels of poverty in the UK in ‘real-time’.
Decisions must be made about where a threshold is drawn and how to adjust incomes for family size and composition to compare across different households – a process called equivalisation. A threshold ought to be drawn at the point where someone exits or enters poverty, but in practice there is no clear-cut place to draw this threshold. The 60% threshold, for example, adopted by the UK, is similar to some other developed countries, but there is no clear statistical reason why someone just above 60% of the median should be classed as in ‘low income’ while someone just below that line is not.
For combined low income and material deprivation for children, a 70% relative threshold, BHC, was selected in 2003 after consultation. This was to capture families at the margins whose higher income may not be commensurate with their standard of living.
Equally, for equivalisation, there is no clear-cut analysis on how far £1 stretches in a household of six compared to a household of one. The main equivalence scales used in HBAI are modified OECD scales, with different scales for BHC and AHC incomes. However, there are other equivalence scales in existence and choosing a different equivalence scale can have impacts on levels of poverty.
About Income Dynamics
Income Dynamics is an annual statistical publication based on the Understanding Society survey run by the University of Essex. This survey gathers information on the same individuals over time. In the latest wave of data, the sample contained over 29,000 individuals.
Income Dynamics contains estimates of persistent low income, where an individual has been in low income for three out of the previous four years, and includes the fourth child low income-based measure required by section four of the Welfare Reform and Work Act 2016. Income Dynamics also includes analysis of income mobility, including movements into and out of low income.
Root causes and outcomes of poverty
The statistics show that full-time work substantially reduces the chances of poverty. The absolute poverty rate (BHC) of a child in a couple family, where both parents work full-time is only 3%, compared to 47% where one or more parent are in part-time work.
Children growing up in workless families are almost twice as likely as children in working families to fail at all stages of their education.
As a result, DWP publish nine national indicators, to track our progress in tackling the disadvantages that affect families and children’s outcomes. These are divided into two main groups:
2a) The measures of child poverty changed in 2016. What has the impact of those changes been?
2b) What were the advantages and disadvantages of having a set of targets for reducing child poverty?
2c) What has been the effect of removing from law the targets in place between 2010 and 2016?
In 2016 the Child Poverty Act (2010) was replaced by the Welfare Reform and Work Act 2016. This legislation removed Government targets for ending child poverty, however did not change the core statutory measures of child poverty, which are set out above. Two new statutory indicators were also included to track progress on parental worklessness and children’s educational attainment – the two areas which can make the biggest difference to children’s long term educational and employment outcomes. Targets were removed to encourage a focus on treating the root causes of poverty and ensure a longer-term focus on tackling child poverty.
Poverty targets can incentivise decision-makers to ignore the most vulnerable. Any choice about where to draw a line between the ‘poor’ and ‘not poor’ in a single poverty measure is, to some extent, arbitrary. By fixating on an essentially arbitrary line (e.g. 60% relative to the median), there is incentive for policy choices to be targeted at moving the ‘just in poverty’ over the line as the most efficient way to bring down targeted measures of poverty.
Work remains the best way out of poverty. Since 2010, there has been a decrease of 635,000 children in workless households. Between 2015/16 and 2018/19 rates of absolute child poverty before housing costs were flat and rates of absolute child poverty, after housing costs fell by one percentage point. Rates of combined low income (70% of relative low income, before housing costs) and material deprivation for children were at their joint lowest level in 2018/19 since 2010/11.
3a) What is the impact of child poverty and how can it best be measured?
3b) What links can be established for children between financial hardship, educational under-achievement, family breakdown and worklessness?
DWP already measures financial hardship, educational under-achievement, family breakdown and worklessness in its annual publication Improving Lives: Helping Workless Families Indicators, as well as a child’s life chances.
This sets out the impact that financial disadvantages like low income, worklessness and problem debt can have on child outcomes including educational attainment, cognitive and socio-emotional progress while low income is associated with certain child outcomes, there are a range of other factors that influence child outcomes – most notably worklessness.
Tackling poverty and levelling up opportunity will always be a priority for this government. We know that work is the best route out of poverty, which is why Universal Credit works with the labour market to encourage people to move into and progress in work.
This government has long championed work as the best route out of poverty and towards financial independence. Getting disadvantaged individuals back into employment and encouraging and helping them to progress is at the heart of our approach, with our expansive new £30 billion Plan for Jobs firmly underpinning this goal.
Additionally, there are 120,000 fewer children in low-income households as a result of child maintenance payments. This government is committed to supporting separated families to make effective child maintenance arrangements, whether that is through private, family-based arrangements, which have wider benefits for children, or through support from the statutory Child Maintenance Service.
4a) How effectively does the Department for Work and Pensions work with other Government departments, particularly the Department for Education and the Treasury, to reduce child poverty?
4b) How effectively does the Department for Work and Pensions work with local authorities and with support organisations to reduce the numbers of children living in poverty and to mitigate the impact of poverty on children?
The Department for Education (DfE) holds responsibility for children’s outcomes.
DWP continues to work closely with colleagues across government – including in the Treasury (HMT), DfE, the Department of Health and Social Care (DHSC), the Department for Business, Energy and Industrial Strategy (BEIS) and the Department for Environment, Food and Rural Affairs (Defra).
We are committed to delivering longer-term, sustainable solutions to reduce poverty, including child poverty. We recognise this requires a holistic approach that goes beyond the department’s remit and that local authorities and services are often best placed to identify and act on local needs.
Supporting people into work
The department is jointly working with DfE to deliver our Sector-based Work Academies. SWAPs is already helping people in England and Scotland to upskill, retrain and pivot towards surging sectors, including construction, infrastructure and social care to meet local labour markets and employer demand.
Supporting vulnerable households
DWP supports the Ministry of Housing, Communities and Local Government (MHCLG)-led Troubled Families Programme – administered by local authorities (LAs) in England through around 300 dedicated Troubled Families Employment Advisers – to support employment outcomes. Since 2015, the programme has achieved successful outcomes including on crime, school attendance, worklessness and domestic abuse for over 401,000 families with multiple problems, with over 32,000 adults moving into sustained employment.
We know that if unaddressed, parental conflict can damage a child’s prospects in life, including attainment and future employment outcomes. That’s why the innovative Reducing Parental Conflict (RPC) programme aims to increase local access to help limit this occurring disadvantaged families. DWP works closely with a range of stakeholders and is responsible for a cross-Whitehall group to help promote optimum implementation of the programme. The programme has been working with 148 local authorities in England, providing grants to train local practitioners who work with families to spot parental conflict and help families address the root cause of the issue.
Covid-19 response – strengthening the welfare system
Throughout the pandemic, the department has worked in partnership with Defra, DfE and DHSC to co-ordinate delivery of the Winter Support package including the Covid Winter Grant scheme, which provides an additional £170 million for local authorities in England – ensuring that the most disadvantaged families are supported through the difficult winter months. We recognise local authorities are often best placed to understand local needs and our local Jobcentre Partnership Managers meet regularly with their LA points of contact to ensure DWP supports all 151 local authorities. As part of the roadmap to cautiously lift restrictions, DWP will be extending the scheme to 16th April (2021), providing an additional over £50 million to local authorities to support vulnerable households.
As part of the wider Winter Support package, Defra delivered a £16 million grant to FareShare to ensure frontline charities and community organisations are well supported with food. DHSC is increasing the value of Healthy Start Vouchers from £3.10 to £4.25 from April, helping low-income families with the cost of milk, fruit and vegetables, while DfE has announced the extension of its Holiday Activities and Food programme, to help us give every child the best start in life.
Tackling the Cost of Living
As part of a sustainable approach to tackling poverty, it is important we also bring down the cost of living, particularly those costs that are disproportionately higher for low-income households, including those struggling financially as a result of the pandemic.
The Work and Pensions Secretary regularly convenes ministerial roundtables to look at what more government can do to tackle the cost of living pressures experienced by low-income households.