Better work incentives are the key to reducing child poverty

The UK still has a higher proportion of children living in workless households than any other member state of the EU-27. This is the result of an unfortunate combination of two circumstances: first, the UK has a high overall rate of economic inactivity; second, households with children are overrepresented among the inactive.

A governmental PR department would probably present it this way: “Ten years ago, in a benign economic climate, 2.2 million children lived in households with no member in gainful employment. Today, in a severe recession, this figure is down to 1.8 million.” But it is also true that after ten years of extensive and costly policy efforts to raise employment rates, especially among lone parents, the UK is still at the bottom of the pack.  

It is a bit strange that this fact is not really among the flagship arguments of the anti-child-poverty advocacy community. Instead, they emphasise that more than half of all children in relative poverty live in “working poor” households.  

This statement is true when looking at snapshots of relative low income, but it overlooks the dynamics. Those who are in employment exit relative low income much more frequently than those who are not – which is hardly surprising. The chances of experiencing a pay rise or finding a better-paid position are higher inside the labour market than outside. Work continues to be the most promising route out of poverty and low-pay.

Therefore, in the longer run, child poverty should be understood and approached in very different ways than is done today. But as a first-aid measure, we should consider a substantial increase in the personal tax allowance, and likewise for National Insurance contributions.

For example, Tom Clougherty at the Adam Smith Institute proposes a near-doubling of the tax-free allowance to £12,000 per person. This would decrease tax revenues by £18.9bn, but it could well be a good investment. It would make work, even in low-skilled jobs, more attractive to those currently outside the labour market. To those half-way inside, it would boost incentives to go further, by disentangling tax liability and tax credit withdrawal to some extent. Old-fashioned economic incentives could, once again, prove a more powerful force than well-intentioned government projects.

7 thoughts on “Better work incentives are the key to reducing child poverty”

  1. Posted 16/12/2009 at 11:34 | Permalink

    Forgive me for asking, but do ‘the workless’ have more children than those in work?

  2. Posted 16/12/2009 at 16:43 | Permalink

    This article assumes work to be an absolutely good thing. But the experience of work varies, depending on gender,age, disability, ethnicity and pay rates. Child poverty also varies depending on these and other variables. Indeed work can be an escape from the daily experience of a family in poverty.

    So there is no one solution, but generous maternal and paternal leave from work would be a start.

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  3. Posted 16/12/2009 at 17:12 | Permalink

    “do ‘the workless’ have more children than those in work”
    On average, yes. What I don’t know is whether there are more very large families among the workless, or whether are fewer childless households (vis-a-vis comparable households with a member in work). I am not sure either whether these households have children and then become economically inactive, or whether they decide to have children while already being in the state of inactivity. I’ll look it up.

    “This article assumes work to be an absolutely good thing.”
    No. But it does say that work is better than its reputation (gained from snapshot statistics).

  4. Posted 16/12/2009 at 17:24 | Permalink

    In answer to Brendan, surely the issue is this: either you work or somebody else has to work to keep you. In the case of the taxpayer, they are not given any choice in the matter.

  5. Posted 16/12/2009 at 17:30 | Permalink

    Brendan – I can’t see how more generous maternal and paternal leave would help the situation, particularly if it was imposed by legislation. Wouldn’t it reduce the incentives for employers to recruit people of childbearing age?

  6. Posted 06/01/2010 at 16:21 | Permalink

    It might increase the incentive; because both employer and employee would have legislated details re time off, pay when off, job securely held and for how long, possible hours working from home, effect on pension, effect on holiday entitelement, and more.

    But there is here a real test of your commitment to the employer viz: do you return after your leave. Or better, do you return before your legal maximum time off? Also, there is greater clarity about the maximum time off. This can focus discussions on the time requested.

    People of child bearing age are now greater in number than ever before. This has to do with many things; earlier puberty, increasing age of motherhood.

  7. Posted 07/01/2010 at 13:46 | Permalink

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