Child Poverty Bill

I am grateful to the noble Baroness for asking that question. I was about to do that. The Minister said that we are not bound by any of the financial targets, but that is not what I informed him and the Committee of two days ago. I said that we will take the four financial targets, look to improve them and add one financial target. I was pleased to accept an offer from the Minister to discuss that target, as I am sure we will do in the days ahead. We also want to balance the Bill by setting targets in relation to the causes of poverty and adding them to the Bill. Unless it was mischievous—perhaps that is a non-parliamentary word—I cannot understand how the Minister can accuse us or me of not being bound by those targets. That kind of game is beneath him. At the heart of the amendment is the question of how well we measure poverty—it picks up some of the points that we discussed in relation to the previous amendment. The specific issue that it addresses is whether many people lie when they answer the surveys and do not reveal black economy earnings. If they do, we are at risk of pushing support and help towards children and families who are perfectly well off. The IFS expressed the issue with great political correctness in its report, The living standards of families with children reporting low incomes, which was on behalf of the DWP. I shall quote the relevant paragraph in full so that we can all enjoy its delicacy: ""The second puzzle is that a substantial number of families manage to remain out of hardship even during prolonged periods of poverty ... Indeed, the length of poverty is not strongly related to the likelihood of hardship, which is contrary to the view that households can generally maintain their living standards for a short period of time after entering poverty. Of course, part of the explanation for both findings could be that some households have their income persistently mis-measured by household surveys"." Indeed. That is the point that I wish to explore. The figures may be very high. I was fascinated to come across some research by Panayiota Lyssiotou, Panos Pashardes and Thanasis Stengos, published in the Economic Journal in 2004. It found that black economy activities conducted solely by self-employed people in the UK amounted to 10.6 per cent of GDP. Their approach was to look at the under-reporting of income by the self-employed. The survey suggested that households whose heads are in blue-collar occupations on average report only 46 per cent of their income and that households whose heads are in white-collar occupations on average report only 61 per cent of their income. Both are self-employed groups. The study used the relationship between the demand for goods and the level of household income estimated from data drawn from the Family Expenditure Survey, the FES. To the extent that certain household groups such as the self-employed under-report their income, their expenditure pattern would resemble that of better-off households known to report their income correctly, such as civil servants. The findings of the research indicate that self-employment income reported by blue-collar households needs to be scaled up by a factor of 2.18 to correct for under-reporting, whereas the corresponding figure for self-employment reported by white-collar households is 1.64 per cent. Considering that reported self-employment income is around 12 per cent of GDP, and that blue-collar households account for nearly 46 per cent of reported self-employment income and white-collar households for more than 54 per cent, the estimate suggests that self-employment-related black economy activities in the UK amount to 10.6 per cent of GDP. That is the equivalent of around £140 billion washing around unaccounted for, and it relates purely to the under-reporting of self-employed incomes. I am aware that it is very difficult to lock down this information precisely. I remember writing a feature for the Financial Times in 1979, when I was an economic journalist, looking at the ways in which the underground economy might be measured. If your Lordships are enthusiastic, you can find the article: it is dated 9 April 1979—I know that some Members of the Committee are very enthusiastic about doing research. At that time, the chairman of the Inland Revenue, Sir William Pyle, offered a guesstimate of the black economy as a whole being 7.5 per cent of GDP. It is interesting that the Office of National Statistics is making significant strides in approaching the relevant datasets. I refer particularly to its fascinating report in this area from 2005, Identifying Sources on Entrepreneurship and the Informal Economy. There are suggestions that the figure may have risen recently, particularly with the recession. According to Professor Friedrich Schneider at the Johannes Kepler University, one of the world’s foremost economists on this topic, the black economy’s share of gross domestic product in the UK is set to grow from 10.1 per cent to 10.9 per cent this year alone. Interestingly, this is a very similar figure to that thrown up by the Lyssiotou study. It would seem ludicrous for the state to rush around trying to help children who are living in families who are comfortably off, but who are careful to disguise the sources of their wealth and income. It would be particularly dangerous politically if this was done through income transfers, which is the Treasury’s stated preferred strategy, at least until recently. Hard-working voters would see people whom they knew were shady operators being rewarded with additional government largesse. This amendment is designed to make sure that the Government get a realistic grip on the flows of black money when setting their anti-poverty strategy. I beg to move.