Child poverty: Down "two thirds" since 1997

Labour is set to miss its target of lifting half a million children out of poverty by 2005, according to the latest figures.

Average incomes fell in the last financial year although inequality was also reduced, the Department for Work and Pensions' Households Below Average Income survey showed.

Pensioner and child poverty continued to come down between April 2003 and 2004.

But child poverty did not do so by as much as ministers and commentators expected, due in part to the botched introduction of new tax credits, while poverty among people without children actually increased.

Meanwhile, analysis of the figures by the independent Institute for Fiscal Studies (IFS) showed that mean average incomes fell in the same period as Gordon Brown's tax raising Budget of 2002 and council tax hikes took effect.

However the median average of household pay, which assesses middle incomes, and the lowest range of earnings went up due to more generous tax credits and the minimum wage.

The difference is explained by the mean average taking into account the highest incomes, which were hit hardest by the chancellor's Budget.

Poverty

The combination of higher taxes and tax credits meant that the income of the richest fifth of households fell by around one per cent in 2003/04, while those of the poorest fifth rose by around one per cent.

This narrowing of the income gap benefited pensioners and families with children the most.

Work and pensions secretary Alan Johnson claimed that the single biggest factor was the introduction of the means tested pension credit in the second half of the year.

And the IFS pointed to the introduction in 2003 of child tax credit and working tax credit, both of which are more generous than the credits and benefits they replaced.

But in part because of the botched introduction of the new payments, with many families getting their money late because of computer errors and staff shortages, child poverty did not come down by as much as government targets demanded.

The number of children living in poverty fell by 100,000 in the period to 3.5 million after housing costs are taken into account, and was unchanged at 2.6 million before housing costs.

Ministers are now "more likely than not" to miss their key target of reducing child poverty by 500,000 between 1999 and 2005, according to the research.

The IFS also complained about the small sample used in the government survey, which meant it could not be classed as "statistically significant" and left several clouds over its accuracy.

'Progress'

Nevertheless Johnson claimed the government is making "good progress" in meeting its goals.

"These figures show that the £11bn extra we are spending on pensioners is making a huge difference," the Cabinet minister said.

"Absolute poverty is down two thirds since 1997 and relative poverty, which is tougher to reduce, is now also down by a quarter. The fall in relative poverty in 2003/04 alone exceeds 10 per cent and is the largest single fall since the series began. The big reduction in poverty is concentrated in the second half of this tax year, when pension credit was in place.

"Child poverty also continues to decline, with a further 100,000 lifted out of relative poverty in 2003/04. During this year the new tax credits were introduced, and their take-up grew rapidly. Again, detailed analysis suggests that the decline is bigger in the last six months when more people were getting their credits. A big increase in child tax credit rates – combined with further increases in take-up – will show up in next year's figures, keeping us broadly on track to hit our targets, on our way to eradicating child poverty within a generation.

"So, we are making good progress both for pensioners and children – and we should shout from the rooftops about this – but I am also quite clear that there is much more to do to maintain this momentum."

However shadow work and pensions secretary David Willetts said Labour was failing to live up to its rhetoric on child poverty.

"Labour promised to reduce the number of children living in poverty by a quarter over six years," the Conservative said.

"After five of those six years, they're nowhere near meeting their own target. In fact, since the arrival of Gordon Brown's tax credits, all progress has come to a halt. 

"Only last month, Gordon Brown was claiming to have lifted one million children out of poverty. Today, we see the true figure is barely half that."

Disappointment

Report authors Andrew Shephard and Jonathan Shaw agreed that the government would be unhappy at being behind on its target.

"The government will have been disappointed by the latest child poverty figures, which do not show the big drop that we and they were expecting," Shaw said.

"To meet the government's short-term target, the number of children in poverty will now have to fall by 300,000 before housing costs and 500,000 after housing costs in 2004/05.

"The former still looks likely to be achieved, but the latter does not. Having said this, sampling error means that there is always considerable uncertainty around the data in any given year."

Shephard added that the overall record on reducing inequality was stronger but not yet permanent.

"In 2003/04, the incomes of poorer households were boosted by new and more generous tax credits, while the better off were hit by rises in income tax, national insurance and council tax," he said.

"Not surprisingly, this redistributive package has nudged inequality lower although the government cannot yet claim that it is definitely on a downward trend."