Scottish Budget Hopes

Child Poverty Action Group (CPAG) in Scotland is looking to Budget 2016 for evidence of the Prime Minister’s promised “…all-out assault on poverty.”  With relative child poverty projected to rise by 50% during this Parliament, CPAG is calling on the Chancellor to prioritise re-investment in Universal Credit to ensure work pays and a triple lock for children’s benefits  – so children have the same protection pensioners  enjoy

Speaking in advance of the budget John Dickie, Director of CPAG in Scotland, said;

“If the Prime Minister is in any way serious about an all-out assault on poverty this budget must demonstrate his commitment. This is a crucial opportunity to prioritise re-investment in Universal Credit to ensure work pays and to introduce a triple lock for children’s benefits  – so that children have the same protection pensioners  enjoy. With child poverty forecast to increase by a massive 50% by 2020 there is no time to lose.”

The outlook:

In January the Prime Minister set out his vision for “…transform[ing] the life chances of the poorest in our country and offer[ing] every child who has had a difficult start the promise of a brighter future.”

Earlier this month projections from the Institute for Fiscal Studies confirmed that we face the biggest increases in child poverty in a generation. 

 The IFS projects a 50 per cent increase in relative child poverty across the UK – from 17.0 per cent in 2014-15 to 25.7 per cent in 2020-21 – and an increase in absolute child poverty from 16.7 per cent in 2014-15 to 18.3 per cent in 2020-21. The latter will mean that over a decade, the income of families towards the bottom of the income distribution has actually gone down – something without precedent in modern times. The Resolution Foundation’s Autumn 2015 projections suggest 200,000 more children will fall into poverty in 2016/17 as a direct result of measures in the Summer Budget. The projections below are based on income before housing costs are deducted.

Universal Credit:

Universal Credit (UC) cuts which take effect next month will make it harder – not easier – for low income families to get better off by earning more, hitting the incomes of working families in much the same way as the now abandoned plans to cut the thresholds for tax credits. 

Lower personal tax allowances do little or nothing to offset the losses for the lowest paid – and are expensive.   CPAG’s research with the TUC found that much bigger reductions to child poverty could be achieved by channelling support through Universal Credit instead of raising the income tax threshold.

In a ranking of 13 options, increasing the tax threshold cost by far the most, yet came bottom of the list for its child poverty reducing potential.   Increasing the child element of Universal Credit would have the strongest impact for reducing child poverty, the research found.

The cuts to UC work allowances – the amount claimants can earn before Universal Credit starts to be withdrawn – will mean some 35,000 existing UC claimants see an overnight loss in income.  For some people, like single people without children, the work allowance – once the central plank of UC – would be removed altogether by the oncoming cut.  

For a couple with children, the work allowance (for non-renters) falls from £6400 a year to £4800. For a lone parent, it falls from £8800 to £4800 a year.  For single people, the current £1400 allowance is scrapped.  So UC starts to be withdrawn for every extra pound earned above this level, making it harder to make work pay.

Those who are migrated from a legacy benefit onto UC will receive transitional protection but this  will cease on a change of circumstances, such as stopping work or a partner leaving the household. The Resolution Foundation estimates  that the increases to the minimum wage will not directly benefit about 60 per cent of those expected to be on UC.

In January the Prime Minister described his mission as being able to tell struggling families “… “Your dreams are our dreams. We’ll support you with everything we’ve got.”  But repeated cuts to Universal Credit are undermining that vision.  Budget 2016 is the opportunity to re–invest in the Government’s  flagship benefit – to reinstate its poverty-reducing potential and ensure that low-paid working families really can work their way out of hardship.

Triple lock children’s benefits: 

Thankfully, pensioner poverty has fallen, with the poverty risk faced by pensioners halving in a decade. From 27 per cent of pensioners being in poverty (after housing costs) in 1998/99, there were 18 per cent in 2009/10, with the proportion standing at 16 per cent according to the latest figures. 

Looking forward, the IFS reports that around half of the projected fall in absolute pensioner poverty (from 14.9 per cent in 2015-16 to 10.8 per cent in 2020-21)  is accounted for by the ‘triple lock’ -  which ensures pensions either rise in line with prices, earnings, or by 2.5%, or whichever is the highest.    Relative pensioner poverty is projected to fall slightly (by 0.8%), with the triple lock clearly providing important protection.

The financial impact on families with children of below-inflation uprating  - a policy that continues into this Parliament -  has been substantial. CPAG has estimated that, over the course of the last Parliament, decisions on uprating alone caused child benefit to lose 15.5 per cent of its value (see table below).  The End Child Poverty coalition calculated that changes to uprating alone will have cost a working couple with two children earning £600 per week £513.35 in 2015 – an amount that will rise far further with the four- year benefit freeze announced in the 2015 Summer Budget. As described above, child poverty is expected to surge.