Markets and Morality

Seven thoughts on the child poverty target

Child poverty (measured as children living in a household below 60 per cent of median income) has remained unchanged. But in recent days, as it was expected to have risen, it has been said the Conservatives want to change the child poverty target altogether. This debate is still worth having – and should not just be abandoned because the outcomes were better than the government hoped. Seven quick thoughts:

1)       Money does matter. Most of the debates I’ve seen on this have attempted to pitch materialist leftists vs. conservative rightists who are more worried about the risk factors of poverty (family breakdown, drug abuse etc). We should all acknowledge that – shock horror – money does matter. There is good evidence that child outcomes improve the more money people have, irrespective of everything else. This comes as no surprise to people who believe in a free economy.

2)       Poverty, to a degree, is relative – over time. Another dividing line is to pitch this as those who are worried about absolute poverty vs. those who believe in relative poverty. But we all worry about relative poverty to an extent. I’d suggest it’s now pretty much essential for children to have access to a computer to succeed. This clearly wasn’t a concern in 1900. Our expectations of what we are willing to call poverty do change as society advances. This is a good thing. But the specific target used is really a measure of inequality in the lower half of the distribution. There’s no reason why our expectations of a poverty line should always rise in proportion to median incomes, for example, particularly given technological advances.

3)       Four measures of poverty, but charities bang on about one. Despite what you hear, there are four measures of poverty published by the government: the relative measure, yes, but also an absolute measure, a ‘persistent’ measure and a material deprivation measure. The media always focus on the first, probably because anti-poverty charities seeking donations like to push the biggest number. This the worst measure of the four. As Kristian Niemietz has argued, and Allister Heath explains today: this measure can fall in recessions if median incomes fall more quickly than the incomes of the poor, it ignores changes to benefits in kind, and the cost of living (including regional differences in it).

4)       What matters is real incomes, not nominal. A consequence of having a target that focuses on median nominal incomes is that campaigners focus most of their attention on calling for ever-increasing redistribution and increases to the National Minimum Wage to boost the incomes of the poor. This is not particularly helpful at a time when the public finances are tight, and evidence suggests setting minimum wages too high costs job opportunities for the most vulnerable. What really matters to people’s living standards is how far those incomes go. The target then has created a huge blind spot where the cost of living is concerned. The cost of essentials, which occupy a much larger proportion of the incomes of the poor (housing, energy, food, childcare etc), are all pushed by different government policies. Reversing some of these could increase the disposable incomes of the poor dramatically.

5)       An expenditure based poverty target would therefore be better. This could be relative, in the sense that more goods and services are added over time (for example, computers and household appliances). But it would focus more than the current target on what matters – a family having enough to have an acceptable standard of living and participate in society at a given time. Kristian Niemietz has more detail on how this could work and the JRF sort of do this through their minimum income standard (though this is far too generous to justify the ‘minimum’ tag).

6)       A ‘structural factors’ measure would be a bureaucratic nightmare potentially leading to vast interventions and a lack of clear strategy. Whilst conservatives are right to highlight the risk factors for poverty – there’s a concern that an alternative measure which seeks to include lots of social indicators becomes an unwieldy bureaucratic nightmare, justifying more and more government intervention in people’s lives. Better to keep any target simple and clear.

7)       The politics of the past week has been horrible, and Conservatives only have themselves to blame. Of course, saying you’ll change a target when you think the measure will deteriorate looks opportunistic. This is particularly true when you champion things like the fall in child poverty and inequality when the numbers improved because of median incomes (and higher) struggling in the early years of the last Parliament. Now that we know the measure has remained largely unchanged, perhaps the Tories have more moral authority to press on with changing the target anyway.

To read more on all of this in detail re-read Kristian Niemietz’s two monographs on the subject. The first forensically analyses poverty (including child poverty) measures. The second looks at a new agenda for poverty reduction (or you can read my updated precis here).

Ryan Bourne is the IEA’s Head of Public Policy.

Head of Public Policy and Director, Paragon Initiative

Ryan Bourne is Head of Public Policy at the IEA and Director of The Paragon Initiative. Ryan was educated at Magdalene College, Cambridge where he achieved a double-first in Economics at undergraduate level and later an MPhil qualification. Prior to joining the IEA, Ryan worked for a year at the economic consultancy firm Frontier Economics on competition and public policy issues. After leaving Frontier in 2010, Ryan joined the Centre for Policy Studies think tank in Westminster, first as an Economics Researcher and subsequently as Head of Economic Research. There, he was responsible for writing, editing and commissioning economic reports across a broad range of areas, as well as organisation of economic-themed events and roundtables. Ryan appears regularly in the national media, including writing for The Times, the Daily Telegraph, ConservativeHome and Spectator Coffee House, and appearing on broadcast, including BBC News, Newsnight, Sky News, Jeff Randall Live, Reuters and LBC radio. He is currently a weekly columnist for CityAM.