A grim forecast for the UK’s poorest families

The IFS predicts child poverty will increase due to planned tax and benefit changes


A report released today by the Institute for Fiscal Studies (IFS) provides grim reading for the UK’s poorest families. It predicts an increase in relative poverty, an increase in child poverty and growing inequality, based on labour market trends and changes in tax and benefit policy.

The research, funded by the Joseph Rowntree Foundation (JRF), found that although strong employment growth has reduced the number of people living in households with incomes below a fixed poverty line over the last two years, planned cuts to benefits and tax credits will mean that on average there is no growth in the incomes of poorer households over the next five years.

If economic policy plans remain the same, and if the Office for Budget Responsibility’s forecasts are correct, the IFS predicts that:

  • Incomes are likely to continue growing for many households,as earnings rise faster than inflation. However the pace of growth will be relatively slow with median income increasing at an annual average of 1.5 per cent between 2015–16 and 2020–21.
  • Child poverty will increase, from 15.1 per cent in 2015–16 to 18.3 per cent in 2020–21. This increase will be driven entirely the effects planned tax and benefit reforms will have on poverty among families with three or more children.
  • Incomes towards the bottom of the distribution will fail to keep pace with median income over the course of this parliament, which means relative poverty will increase. Relative child poverty is projected to rise from 17.8 per cent in 2015–16 to 25.7 per cent in 2020–21, an increase which will undo most of the improvements seen over the last two decades.
  • Household income inequality is expected to increase between 2015–16 and 2020–21. A quarter of this projected increase is attributable to tax and benefit reforms due to be introduced over the period; the other three-quarters is due to the fact that earnings are expected to grow in real terms, and therefore outpace price-indexed benefits.
  • Although the new ‘National Living Wage’ will significantly increase the incomes of some low earners, it will have very little impact on official measures of poverty or household income inequality in 2020–21.

James Browne, one of the authors of the report, said:

“Following an historically slow recovery in living standards after the recession, stronger growth in household incomes at all income levels over the last two years will have been welcome news. For some, particularly the better off and pensioners, this is likely to continue over the next five years as earnings and state pensions grow more quickly than inflation.

“But the prospects are not so good for others, including large families with low incomes, who will bear the brunt of planned benefit cuts”.

Ruby Stockham is a staff writer at Left Foot Forward

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