The death and rebirth of relative poverty figures
25 June 2015
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Regulation
Markets and Morality
25 June 2015
Tax and Fiscal Policy
19 November 2024
In a classic Beyond the Fringe sketch, Peter Cook is a cult leader sat atop a mountain awaiting the end of the world. When the predicted apocalypse fails to arrive, he turns to his followers and says ‘never mind lads, same time tomorrow.’ Those who have been predicting a sharp rise in child poverty and inequality since ‘austerity’ began may be feeling the same way this morning.
Until a few days ago, talk of relative poverty had dropped off the radar somewhat. Austerity, yes. Food banks, certainly. But the conventional measure of rich world poverty as recorded by the Office for National Statistics, not so much.
There is a reason for that. Between 2007/08 and 2012/13, during the longest economic downturn for several generations, the proportion of the population living on less than 60 per cent of median income fell from 18 per cent to 15 per cent. During the same period, the child poverty rate fell from 23 per cent to 17 per cent.
By contrast, in 2007/08, after seven years of economic growth and rising incomes, the overall poverty rate was only one percentage point lower than it had been in 2000/01 and the child poverty rate was exactly the same.
These counter-intuitive figures highlight the mild absurdity of defining poverty by reference to the median income. When median incomes fall, as they did during and after the recession, those who rely on benefits or the minimum wage tend to become relatively better off. Contrary to left-wing rhetoric, it is high and middle earners who see their incomes hit hardest during recessions. The result is falling levels of both inequality and relative poverty. Since it would be perverse to pat the government on the back for tackling relative poverty with actual poverty, the relative figures have gone largely unmentioned since they went into decline.
The re-emergence of relative poverty figures in the national debate began on Sunday when The Observer‘s front page declared: ‘Child poverty rise “halts progress made since 1990s”‘. Yvette Cooper MP said the Conservatives had ‘delivered the biggest increase in child poverty in a generation’ and a spokesperson for the Child Poverty Action Group said that child poverty is expected to rise by nearly a third by 2020. Such predictions should be taken with a pinch of salt. In 2011, the Joseph Rowntree Foundation published predictions from the Institute of Fiscal Studies about poverty which have not been borne out by reality, to put it mildly (see graphs at the bottom of this post).
After a few days of mounting anticipation, the ONS finally published its data for 2013/14 this morning and the result was… nothing. No rise in poverty or child poverty, whether measured in relative or absolute terms and whether measured before or after housing costs. Under the conventional (relative) measure, child poverty continues to be at a record low of 17 per cent. The same is true overall (15 per cent). Inequality has also failed to rise, with a Gini coefficient of 34. Never mind lads, same time tomorrow.
There has been some discussion about changing the child poverty measure. One of the problems with the current measure is that it guarantees the poor will always be with us, regardless of their incomes, unless inequality is drastically curtailed. Considering the political outlook of many ‘anti-poverty’ campaigners, this is more of a feature than a bug, but we should not forget that other measures are already available to those of us who want a clearer view of economic progress.
The ONS’s absolute poverty measure shows how many people earn less than 60 per cent of the median income in 2010/11 (the year is arbitrary, but it happens to coincide with the change of government). Under this measure, the war on poverty can be won by making the poor wealthier (a crazy idea, I know, but hear me out). In 1994/95, 31 per cent of the population lived on less than 60 per cent of 2010/11’s median income. By 2010/11, that had fallen to 16 per cent. For the last three years, it has been 17 per cent.
If you think that inequality is more important than the material living conditions of the poor, you should pay attention to the relative poverty figures. If you want to know whether the poor are getting richer, watch the absolute figures. Pick your priorities, because some day these figures are going to move, and they will not necessarily move in the same direction.
Christopher Snowdon is the IEA’s Director of Lifestyle Economics.
Until a few days ago, talk of relative poverty had dropped off the radar somewhat. Austerity, yes. Food banks, certainly. But the conventional measure of rich world poverty as recorded by the Office for National Statistics, not so much.
There is a reason for that. Between 2007/08 and 2012/13, during the longest economic downturn for several generations, the proportion of the population living on less than 60 per cent of median income fell from 18 per cent to 15 per cent. During the same period, the child poverty rate fell from 23 per cent to 17 per cent.
By contrast, in 2007/08, after seven years of economic growth and rising incomes, the overall poverty rate was only one percentage point lower than it had been in 2000/01 and the child poverty rate was exactly the same.
These counter-intuitive figures highlight the mild absurdity of defining poverty by reference to the median income. When median incomes fall, as they did during and after the recession, those who rely on benefits or the minimum wage tend to become relatively better off. Contrary to left-wing rhetoric, it is high and middle earners who see their incomes hit hardest during recessions. The result is falling levels of both inequality and relative poverty. Since it would be perverse to pat the government on the back for tackling relative poverty with actual poverty, the relative figures have gone largely unmentioned since they went into decline.
The re-emergence of relative poverty figures in the national debate began on Sunday when The Observer‘s front page declared: ‘Child poverty rise “halts progress made since 1990s”‘. Yvette Cooper MP said the Conservatives had ‘delivered the biggest increase in child poverty in a generation’ and a spokesperson for the Child Poverty Action Group said that child poverty is expected to rise by nearly a third by 2020. Such predictions should be taken with a pinch of salt. In 2011, the Joseph Rowntree Foundation published predictions from the Institute of Fiscal Studies about poverty which have not been borne out by reality, to put it mildly (see graphs at the bottom of this post).
After a few days of mounting anticipation, the ONS finally published its data for 2013/14 this morning and the result was… nothing. No rise in poverty or child poverty, whether measured in relative or absolute terms and whether measured before or after housing costs. Under the conventional (relative) measure, child poverty continues to be at a record low of 17 per cent. The same is true overall (15 per cent). Inequality has also failed to rise, with a Gini coefficient of 34. Never mind lads, same time tomorrow.
There has been some discussion about changing the child poverty measure. One of the problems with the current measure is that it guarantees the poor will always be with us, regardless of their incomes, unless inequality is drastically curtailed. Considering the political outlook of many ‘anti-poverty’ campaigners, this is more of a feature than a bug, but we should not forget that other measures are already available to those of us who want a clearer view of economic progress.
The ONS’s absolute poverty measure shows how many people earn less than 60 per cent of the median income in 2010/11 (the year is arbitrary, but it happens to coincide with the change of government). Under this measure, the war on poverty can be won by making the poor wealthier (a crazy idea, I know, but hear me out). In 1994/95, 31 per cent of the population lived on less than 60 per cent of 2010/11’s median income. By 2010/11, that had fallen to 16 per cent. For the last three years, it has been 17 per cent.
If you think that inequality is more important than the material living conditions of the poor, you should pay attention to the relative poverty figures. If you want to know whether the poor are getting richer, watch the absolute figures. Pick your priorities, because some day these figures are going to move, and they will not necessarily move in the same direction.
Christopher Snowdon is the IEA’s Director of Lifestyle Economics.
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As ever. Chris, highly readable, carefully researched and eye-opening. Keep it up.