Child Poverty Bill

My Lords, why did child poverty in the UK stop declining in 2004? It simply should not have happened. Everything was set up to see the measure continuing to improve. We were talking then about the fourth largest economy in the world; that economy was enjoying a major boom, and we had a Government who had focused on the reduction of child poverty as a major policy goal. Whatever criticisms I may have of the Government in this area, I do not doubt for a moment their sincerity in wishing to reduce the levels of child poverty. So why did those improvements go into abrupt reverse in 2004? It is the sociological whodunit of our era. Let me provide the figures to your Lordships. When this Government came into office in 1997, 4.2 million children were in households below the poverty line, defined as below 60 per cent of median income and using the figure after housing costs. In 2004-05, the best year, the figure had fallen to 3.6 million, but by 2007-08 it had risen again to 4 million. I do not use these figures to make a cheap political point. I do not accuse the Government of callous disregard. The truth is that the Government have been pouring money into the fight against child poverty. In the first year, 1997-98, transfers in the shape of credits and benefits to households with children stood at £15.5 billion. By our turning point year of 2004-05, they had nearly doubled to almost £29 billion, from which level they have continued to grow. So it is not a lack of government spending that lies behind this disturbing trend. Indeed, the OECD found that by 2003 we were spending more on our children than most other OECD countries. Let me try to explain these counterintuitive developments. Clearly, there has been an effect from the slowdown in earnings growth since early in the decade. That slowdown has been magnified by the sharp redistribution of income in favour of the richest in the country. It means that the conventional measure of income inequality, the Gini coefficient, rose to its highest level since records began in 1961. I must confess that until I studied these recent numbers closely, I had not realised that new Labour was quite so much the party of the rich. Nevertheless, these factors alone are not enough to explain the disturbing trend in child poverty that we have seen. The clue has been lying under our noses all the time. Perhaps it is not the case that child poverty has risen despite money being transferred to the poorest sections of the community, but maybe the financial transfers themselves have masked poverty and created poverty traps. At this point, let me make it quite clear that, despite Government alarmism, we will retain tax credits. They have been a financial benefit to families but we do not assume, as the Government have in the past, that they are the only answer to child poverty. There were warnings about the operation of the poverty trap in the 1970s but, as we contemplate what is forecast to be a substantial shortfall from the interim 2010 child poverty target, perhaps we should turn to examine what has more recently been dubbed the iron triangle of benefit reform. For the first time we can begin to assess its impact as a result of the analytical work of the Centre for Social Justice and Oliver Wyman in their recent publication, Dynamic Benefits—a formidable achievement by a working group chaired by Dr Stephen Brien. The triangle is the closest thing to scientific law in the social sciences and establishes a mathematical relationship between three factors: the level of benefit; the earnings break-even point; and the rate at which benefits are withdrawn. The analysis in Dynamic Benefits offers up the grim warning that, ""there are mathematical constraints on the design of the benefits system. These mean that simply pouring money in will make little difference—and indeed is massively inefficient—and that we must make a normative choice based on a societal vision: a society mostly on benefits or off benefits"." As it stands, the Bill is two-headed. It contains within it the drive towards income transfers, which has been the hallmark of Treasury strategy in this area, as Sir Nicholas Macpherson, the Permanent Secretary, explained to the Treasury Select Committee in 2007. He said that, ""financial support is the most important lever"." This is the kind of intervention that our experience since 2004 suggests has broken down—failed. However, the Bill also encourages a wide range of interventions via public services of the kind that is embodied in the Welfare Reform Act that we have just passed. It is this latter aspect of the Bill that we wish to reinforce. Our strategy will concentrate on tackling the causes rather than the symptoms of poverty. Child poverty is not a concept commonly used in European social policy. This is not surprising as children normally do not have income or wealth themselves. It sounds great; it is a compelling soundbite; and in March 1999, when Tony Blair first announced a goal to end child poverty in a generation, it captured the imagination of the country. However, there are two ideas at war with each other within the soundbite: the first concerns general poverty and minimum standards of living for citizens; the second is about child well-being. It is dangerous to put the two together in the unthinking way that new Labour has done, not least because we risk undermining the strategies that matter most for child well-being. We urgently need to get those strategies sorted out. According to UNICEF we are ranked bottom of 21 rich countries in child well-being despite spending more and being richer than most of them. Not half way; the very worst. The Child Poverty Action Group recommends a holistic approach to tackling the problem of poverty and pursues the approach now being developed in welfare to work. It states that in the same way it is already recognised that a, ""personalised, multifaceted service is required to assist jobseekers successfully into employment"," so a similar approach needs to be applied to poverty. This mirrors our strategy—perhaps not surprisingly, given our involvement in developing this policy approach in welfare. First, let me emphasise the Conservative belief in the importance of tackling poverty. This goes to the roots of one nation conservatism. Secondly, let me confirm that we believe that poverty is indeed a relative phenomenon—in other words, that we should seek to ensure that the poor are not excluded from the mainstream of society. That means a series of strategies to tackle problem areas which have been increasingly well documented in recent years. I particularly want to emphasise the importance of stable families, which has been a central Conservative policy for many years. The number of lone parent households—those most likely to be in poverty—has increased by 40,000 a year for the last quarter century. Yet the Child Poverty Action Group found that, ""the effect of separation on a couple (whether married or cohabiting) in terms of increasing the risk of poverty was much greater than for any of the other triggers that we were able to investigate, including job loss"." Let me summarise the four problem areas we will target. On family breakdown, our commitment to ending the couple penalty in the tax credits system is just one of a series of measures to tackle this critical issue. The second is addiction to drugs and alcohol. We will put rehabilitation at the forefront of efforts to tackle this problem. The third is education and skills. We will introduce a pupil premium to ensure that extra funds follow the poorest children to the school that educates them. The fourth is work strategy. We will push ahead aggressively to establish outcome-based financing to support those who are economically inactive and able to work back into the workforce. How would we amend the Bill? Our key concern is that the targets set out in the Bill are poor proxies for achieving the eradication of child poverty. We will aim to widen the agenda and build up targets, which are more likely to address the underlying causes of poverty. Let me spell out our concern about the statutory financial targets. While financial measures can be a useful guide to action, when they become targets we need to look at them with much more rigour. If they are taken seriously, they will inevitably become subject to serious manipulation and may encourage counterproductive activity by the state. There are already disturbing signs of this. According to Save the Children and the IFS, the number of children in severe poverty had been growing even before the 2004 turning-point year, as policy concentrated on pushing those just under the 60 per cent line to just over it. That is exactly opposite to the effect that most voters, appalled by child poverty, actually want to see. The targets selected for this Bill do not measure the problem accurately enough. A substantial number of families, according to the IFS, manage to remain out of hardship even during prolonged periods of poverty. We see here the distortions created by a set of targets relying in the main on surveys with all the confusion for respondents on what to report. This distortion is undoubtedly compounded by the anxiety that people operating in the black economy must feel in providing accurate information. Central to the Government's targeting is the OECD reference point of 60 per cent of median income, with a standard equivalence scale. This makes it possible to compare our performance with that of other countries. But we are, I believe, the first country to aim to adopt this figure and scale as a statutory target, and a statutory target carries with it a far higher requirement for precision. First, how genuinely comparable is the figure across countries? It does not include benefits in kind; it does not adjust for the benefits of free healthcare, for instance. There are a lot of apples and pears in the basket. Does the equivalence scale, which adjusts for different sizes of household, work? Ominously, the IFS found that the modified OECD income equivalence scale may be inappropriate. As Policy Exchange has pointed out, different equivalence scales will generate quite different poverty estimates. These discrepancies really start to matter if we have statutory targets. We will be driven to devote resources to the wrong people. The purely financial nature of the measurement is a real danger. As the OECD publication Doing Better for Children recommended: ""Interventions in early childhood need to be both in cash and in kind…. The higher the risk in the family situation, the more effective … services in kind will be"." Yet such effective interventions will be discouraged under this legislation. It could also spell the death knell for passported benefits delivered in kind and not included in the measured target. What is it with round numbers? As a comparison base, using the figure of 60 per cent is not a matter of great moment. As a statutory target, however, it takes on an altogether different significance. The laws of the iron triangle are inexorable. If we wish to reduce the numbers in poverty, we need to set strategies that work within the constraints of the three sides of the triangle, not set one side at a predetermined level that will inevitably not optimise outcomes. Such considerations will drive the amendments that we will seek. We will want the flexibility to establish financial targets that will work in the real world. We will want targets that capture the real outcomes that we have identified. We will also want a commission that will help us in this strategy. At the moment the membership is locked in. That reeks of a political subterfuge designed to trap a successor Government rather than a measure to help the poor. My noble friend Lord De Mauley will deal with the role of local authorities and the duties of the proposed new commission in his winding-up speech. We look forward to the maiden speech of the right reverend Prelate the Bishop of Hereford. I shall summarise the points that I have made. We have the lowest child well-being in a comparison of 21 rich countries. The Government’s child poverty targeting regime has failed, broken on the iron triangle. This double failure suggests that the next Government must urgently search out and establish an alternative approach. For that reason, our policy in this area will concentrate on the causes of poverty and inadequate child welfare, with particular focus on the four main drivers: family breakdown, addiction, inadequate education and skills, and work. We will seek to incentivise outcomes in these areas, and we will wish to use poverty targets as a guide and spur to performance but not as a driver towards financial manipulation. The difference between our Benches and the Government on child poverty is that we will apply policies to deal with the causes, while all they have to offer are stale and historic soundbites.