First of all, may I ask you both whether you think that the Government ought to have some target on child poverty, or whether that is not an appropriate thing for the Government to have?
Julia Unwin: I run an evidence-based organisation. I find it very hard to understand how you can receive evidence, measure things and then not establish some sort of target. Across government, we have stretch targets for a whole range of issues. Given the importance of this for our growing economy, I do not understand how the Government can receive the information without having at least a stretch target in mind.
Dr Niemietz: I think there should be a target. There is a problem if you use a bundle of measures that can move in opposite directions. That undermines the idea of using a target to strengthen accountability. With the four measures that we had, that did happen for a while—one indicator showed that poverty was rising, another showed that poverty was falling, and another showed that poverty was flatlining. So I think there should be a single measure and a single target, and that should be a sensible one, maybe close to the Joseph Rowntree Foundation’s minimum income standard. You can debate the technicalities—how exactly this basket is assembled—but a target can be built around a measure that reflects the living standards of people on low incomes .
Can you develop that idea a little bit further? The thinking in the Child Poverty Act was that you had four different indicators. As you say, sometimes they move in different directions, but that means that you end up with a rounded understanding of what is going on. You are suggesting that one could devise a single figure that told you everything you needed. Can you tell us a little bit more about how you think that should look?
Dr Niemietz: Well, I wrote a paper a while ago in which the poverty line was based on the poverty and social exclusion survey. People were asked to identify what they thought were the necessities of life in a modern developed country, and it turned out there was a fairly stable consensus on that. If you convert that list into a consumption basket, and collect the prices of those goods at a regional level, then you have a poverty line that reflects a consensual understanding of what poverty means. You can still use complementary measures—say plus or minus a few items for sensitivity analysis—but you have one central measure that is internally consistent, and you do not get these contradictions.
If you use a bundle of measures, and if they can give you contradictory information, you have to have a way of trading them off against each other. It would not be a problem if you could say, “I don’t mind an increase in relative poverty as long as it is accompanied by an x% reduction in absolute poverty, or something else”, but we did not have that kind of trade-off with the four measures that were previously used.
Julia Unwin: I am very pleased to hear Kristian talk about the minimum income standard, on which we have done some joint work in the past. I would still argue for a number of different measures, because of the complexity of what we are dealing with; and I think in our modern, more complicated, world we are dealing with poverty that looks rather different from the way it looked in the past. Clearly the disposable income of any household is a very important measure, and how we understand that and determine what that is matters; but so, too, do the other measures, and I believe that the old income measure mattered alongside the others. The fact that they are contradictory, I think, does not give you a binary response; it amplifies what the Government need to do, because the tools are not all with Government. They are with local authorities; they are within the market; they are with employers, and actually we need a public discourse about that. That is what a complex target allowed us to have.
May I ask one more question? This is really to Julia. In your written evidence to us you have commented on and welcomed both the full employment report that is proposed in the Bill and the apprenticeships reporting obligation; but you have argued for some more detailed information to be provided. Could you just tell us a little bit about what you think should be in those reports?
Julia Unwin: I think we have to understand that the world of employment has changed in the last decade. Since the global financial crisis, employment at the bottom end of the labour market, which is what we are talking about, is more precarious than it was when some of the legislation was drafted in previous decades. People are in and out of work and rarely out of poverty, and our indicators are that four out of five people who get into work are still in low-paid work 10 years on. There is very little progression; so an employment report needs to look at progression, certainty, security. Those are the measures that really matter when you are looking at the nature of employment. It is no longer simply a good thing in itself to be in work, although that may be right for all sorts of other reasons.
Julia Unwin: Apprenticeships clearly matter. We can learn from other countries about how to do them so much better, but we need to understand in fairly fine-grained detail the impact of apprenticeships and what they do for people’s life chances, as opposed to thinking that they are a process through which people go and that there are automatically positive outcomes.
I want to move on to discuss clauses 9 and 10, which put in place measures to freeze certain elements of benefits and tax credits over a four-year period. I am keen to get your knowledge and experience on how, since roughly 2008, average earnings have risen by about 11% while average benefits have risen by—depending slightly on how it is measured; I agree that there is a grey area—about 21%. Do you think that the measures in the Bill to freeze certain elements are welcome in that they would get a bit of equalisation in the system? We should bear in mind the Government’s stated intention that they are trying to bring more people closer to work, and to make work pay—to use the slogan.
Dr Niemietz: The problem with an across-the-board freeze is that you do not really incentivise work, because you freeze out-of-work incomes and also in-work incomes, or at least that part of the transfer that is supposed to top up low incomes and thereby incentivise people to enter the workforce. If you freeze both, you lose that effect because the gap remains the same. It would have made more sense to freeze only out-of-work benefits, or even to uprate them at a rate below inflation, but not to touch the work-related top-ups, especially the 30-hours element of working tax credit, which was meant to give people an incentive not only to move into some work but, once they were in work, to move further—to move from minor employment towards something closer to full-time employment.
Julia Unwin: The benefits freeze is a huge risk for the Government to be taking, and to have taken in advance in this way. The basket of goods on which poorer households spend their income has been subject to more inflation than the rest because the cost of essentials has gone up. We are currently in a period of lower inflation, but we cannot predict what will happen. I would recommend, as we did in our submission, that the Government review the rate of inflation annually. The outcome might well be a freeze, but actually, what the Government are doing is removing the one buffer that the poorest households, both in and out of work, have against inflation. That is hugely risky.
What is the panel’s view on taking the measures in the Bill alongside the wider approach of some of the measures proposed in the Finance Bill—for example, the national living wage and the uprating of income tax thresholds? If you take them all as a bundle, is there not—well, I do not want to lead you. What is your view on whether that package of measures would be welcome in moving people closer to work and making work more attractive?
Julia Unwin: There is no question but that we need to move people closer to work or that people’s best route out of poverty is work—that is, work that gives them security, confidence and some progression. We have done some analysis of the package of measures, as you described it, and some are welcome. All the measures are welcome in their own right, but their impact is different on different groups of people. As you heard in the previous session, the better impact is on couples without children who are both working. That is welcome, but for child poverty, particularly for single parents, there are some very real losses. This freeze only compounds those losses.
Dr Niemietz: I would have started from a very different angle. One of the transfers that most undermines work incentives is housing benefit, because in a lot of areas—particularly London, but other cities as well—a lot of low earners could not realistically earn an income that gets them off the housing benefit taper. That means they will always have this taper rate of 65% of net income, which is a huge disincentive against work. That cannot be addressed within the remit of the Bill, but it is always worth bearing in mind that the only reason why housing benefit dependency has risen so much is that rents have increased at a faster rate than incomes for a very long time. The reason for that is simply that we are not building enough houses to keep up with demand. Once you get that right—once you allow the construction of sufficient numbers of homes—rents will fall and housing benefit dependency will automatically fall with it, meaning that far fewer people are exposed to that 65% taper rate. You would massively increase work incentives while saving a lot of public money.
The UK has a higher proportion of its population depending on housing benefit than any other developed country. It is about one in five households. That is the highest proportion in the developed world. I would have started from that angle.
Julia, your recent report suggested that the Bill will have a major impact on lone parents. What protections should be included in the Bill to ensure that children of lone-parent families are not unfairly impacted?
Julia Unwin: All the evidence we have gathered over many decades makes it very clear that lone parents suffer a huge penalty for being widowed, divorced or single in the first place. That creates a very high incidence of women in poverty and therefore their children being raised in poverty.
Legislation argues or recommends that all parents—lone parents or two parents—go to work when their child is three. That takes you directly to the quality and quantum of childcare available. While the childcare allowance is hugely welcome, if it is also captured in the freeze, childcare in London will remain unaffordable. Investment in childcare—both the provision and purchase of it—matters enormously, but I believe there will always be a need for tax credits for people at the bottom end of the income distribution while they are raising their children, because raising children is such an important aspect of the next generation’s wellbeing.
I would like to ask you the same question that I asked the last panel. Much of the proposed legislation is borne out of an assumption that those on benefits face the same choices as those in work. Do you agree with that?
Julia Unwin: I do not agree that there is a huge distinction between those on benefits and those in work, because we know that a significant proportion of people in work are on benefits and tax credits—there was an earlier discussion about housing benefits, for example. People are moving around the labour market in a very dynamic and frequently very damaging way, but once you are on benefits and out of work, it is very hard to make the sorts of choice that better-off people are able to make. We ask people on benefits to take enormous personal risks, and I think that point is very well made.
Dr Niemietz: Ideally, they should be in a situation where they broadly make the same choices and the same trade-off. That is not the way the benefits system is currently structured, because you have ring-fenced elements for particular expenses—you get an amount for childcare, an amount for housing and an amount for something else. If that were somehow wrapped up in a single payment and it was then left to people to make their choices, their everyday lives and the trade-offs they make would become more similar to those of working people.
What are your views on—this is one of the most controversial aspects of the Bill—limiting tax credits to two children? What do you think the impact of that will be, particularly for the most disadvantaged and larger families?
Julia Unwin: One thing we know is that tax credits do not influence behaviour in the linear way that many people expect. Given my description of people coming in and out of dependency on benefits and tax credits, there is no way of knowing at what stage in someone’s life they will require those tax credits. I simply do not believe that people choose to have more children in the sure and certain knowledge that tax credits will bail them out. That is not how decision making works in most households that I have come across.
I think the impact could be very damaging for larger households. I would go back to the even more substantive issue, which is the concern about where families on benefits with more than three children will live and how they will afford to live. That strikes me as deeply problematic for families who have been on benefits for some time, and particularly those who find themselves on benefits.
Dr Niemietz: This links back to the earlier question about whether people on benefits make the same choices in the same way as people who are not on benefits. If you do not qualify for child tax credits, your income does not automatically go up because you have a third child. I do not see anything wrong with replicating that situation for people whose income mostly consists of state transfers.
Thank you both for coming today. Julia, in your recent report you said that the new legislation is, at best, a sideways step. I would argue that it is a retrograde step. In the light of what you said, which is very interesting, do you welcome the fact that Scotland and Wales will retain their own targets and will try their best under the current framework to do things in their own way? I would welcome comments from both of you on conditionality. In particular, you mentioned the years of research that you have done on parents with young children, who are not required to work not until their children are three. We know that the new legislation will suggest that parents of one-year-old children are going to have to start looking for work. What kind of impact will that have on children and, in particular, single parents with very young children, who will have to go back into the workplace?
Julia Unwin: We said it is a sideways move, and I think it is, although we debated long and hard about whether it is a sideways or backwards move. It takes away the real opportunity that the Bill presented to have a life chances strategy and look at all the different drivers across the Government. The Government do not hold the levers. For too many years we have assumed that the Government can fix the issue of poverty. Welfare and credits really matter, but so too do the nature of the labour market and what happens at a local and regional level. They are all different drivers. What matters is that we work together to improve life chances. Nobody can look at the UK at the moment without recognising that the different parts of the UK will be going in very different ways on this. As a member of a research organisation, I welcome it because it is interesting. From the point of view of children in Scotland, it is welcome that the Scottish Government have decided to keep the target and the focus on this issue. I hope the rest of the UK will take note that this is an opportunity to look at life chances and to protect something for the next generation.
Dr Niemietz: I am very much in favour of the conditionality of benefits. We have seen in places such as Wisconsin in the US that making welfare more conditional can work and can help get people back into work. It also helps to restore public confidence in the benefit system. Increasing conditionality is an alternative to simply cutting benefits. It is not about saying, “We are taking money away from you,” but saying, “We are attaching strings to those payments.” That is a way to increase public confidence. The perception that it is being overused largely comes from the fact that, so far, conditionality has not played the role that it could play.
Do you really, truly believe that if we have more people and children in poverty —let us not forget that the research suggests that we are going to have 200,000 children in poverty, versus 80,000 adults—the public are going to welcome that?
Julia Unwin: The evidence shows that conditionality can work for some people and the global evidence suggests that, for some people, it provides the spur back into work, but far more often it drives people into making the wrong work choice, accepting a job they cannot possibly fulfil and therefore falling back into benefits. In Wisconsin and other parts of the United States, there is clear evidence that people are coming off benefits completely but not going into work. We are concerned about what the implications of that will be, because you end up with people making short-term choices that keep them going in the short term but can cost the state very much more in the longer term. Conditionality applies to all public services and all people. There is a contract in place, and we need to understand how it works. But if the current method of sanctioning creates destitution by design, we have created a real, expensive problem for the long term.
The four-year freeze on working-age benefits, the limit of tax credits to two children and, in particular, the lowering of the benefit cap continue the disconnect between the amount of benefit that is paid to people because of their need and the simple sum they are given. It is not done on the basis of needing more; it seems to be that people will be given an absolute sum, and that is that. Clearly, that will have an impact on poverty and on particular groups—I wonder which groups. Is it right that the group affected most might be single parents, when it comes to child poverty?
Julia Unwin: We were talking earlier today, and certainly earlier in this session, about looking at the package changes together. I agree with the Institute for Fiscal Studies, with which we work closely, as we do with the IEA. The IFS has predicted an increase in child poverty as a result of this suite of measures, not just the ones in this Bill.
But employment within the Bill is defined as 20 minutes every three weeks, as far as I can see. That is not necessarily going to help tackle child poverty.
Julia Unwin: The way that the benefit cap is being introduced has huge implications for childcare costs, and we know that reliable childcare is the only way for parents to get back into sustainable work. It also has huge implications for housing costs, which will make some parts of the country uninhabitable for people on benefits.
Dr Niemietz: This links back to what I said earlier. It seems to me that the benefit cap is really just a clumsy way of capping housing benefit. There is actually no way in which someone could substantially exceed that cap unless they are in receipt of housing benefit, and probably in receipt of fairly large sums. This is a roundabout way of capping housing benefit, whereas, as I said before, I would have started at the other end. Build enough houses, and you will not need a cap of that kind any more, because rents will fall automatically and housing benefit rates will fall with them.
I want to ask Julia a quick question for clarification. We were talking earlier about single parents, and we have talked about the importance to tackling poverty of being in work and having access to enough hours. Obviously, a big part of that is ensuring that childcare support is there. You talked about the childcare allowance in tax credits. Can you talk us through your understanding of the full set of childcare changes to come?
Julia Unwin: As I understand it, by introducing a childcare allowance, the Government made big steps to enable people to go back into work. However, by making that part of the cap, we have reduced its value. In some parts of the country, and in London specifically, the costs of childcare have gone way above what can be covered by that allowance.
I am not trying to put words in your mouth, but it is clearly 15 hours more than 15 hours. The subsidised 70% can therefore come on top of that. Is there also a change coming, to the best of your knowledge, in terms of the proportion of reimbursement under universal credit?
Dr Niemietz: That is an issue where I would have started from a different angle by asking why childcare is so expensive in the first place. For a long time the argument has been that we have to raise childcare subsidies to Swedish or Danish levels and the problem will go away but, in terms of total tax spending on childcare subsidies, we are already at Swedish and Danish levels. The difference is in unit costs. Here, it is not just the taxpayer who spends a lot on childcare. It is also the actual user. People pay twice: first in their role as taxpayers and then again in their role as childcare consumers. I would start by looking at the structural drivers of costs in that sector—which those are, I cannot tell in detail, but there has to be something. There has to be a reason that the UK spends more on childcare subsidies than almost all of continental Europe and without having higher usage rates.
I think you were both in the room when I asked this to the previous panel. How will these changes and the removal of reporting affect us from an international perspective? Will it potentially do any damage if we are not reporting in the same way and we are not able to tell the world whether we are doing better or worse in terms of child poverty?
Julia Unwin: I only know from my own organisation that JRF research is received, viewed and analysed across the world and we get an enormous amount of international interest in that. Part of that has been because the UK Government have set the path in indicating how serious leadership and serious focus can make a difference. I believe that there is still a focus but we need to retain that international leadership because, over decades, we have learnt things that we need to be able to transmit. I fear that not having that clarity will make that more difficult.
Dr Niemietz: That has been the problem with most of those child poverty measures—they were not internationally comparable. That is not just because they set the poverty lines at different levels but because you have big differences between countries in terms of relative prices and the structure of prices. You cannot compare a country where the basics of life are very much inflated, as they are here—housing costs, childcare costs and other things are unnecessarily expensive—with countries where that is not the case, because the same amount of money can stretch a lot further in the second set of countries.
The one indicator that was fairly robust for international comparisons was the material deprivation measure because that is an outcome-based measure where you simply give people a list of goods and services, and ask them how much of that they can afford and not afford. You do not have to know exactly why that is—you are just looking at the outcome. Do people have everything on that list or most of the things on the list? If they do not, you do not have to know exactly why that is. That is what made it internationally comparable.
Thank you very much indeed. Our time has flown by. Thank you for your expertise and wisdom. We deeply appreciate it. Thank you for coming today. Committee, we will meet again at 4.30 pm this afternoon in Committee Room 12 to begin our line-by-line consideration of the Bill. I know that we are all looking forward to that.