The ways in which benefits, tax credits and allowances are adjusted from year to year exacerbate rather than reduce income inequality - unless governments take additional action every year.

This is the main finding of The impact of benefit and tax uprating on incomes and poverty by a cross-institutional team of academics including Professor John Hills, professor of social policy and director of CASE at LSE, for the Joseph Rowntree Foundation. The project was led by Professor Holly Sutherland, Institute of Social and Economic Research at the University of Essex, who is also a research associate of CASE.

Most benefits and tax credits only rise, or uprate, in line with inflation and therefore fall behind increases in average incomes.

Thus the benefits of the lowest earners rise more slowly than the earnings of the average person, widening the gap between the overall income of the two groups.

This could result in child poverty rising to unprecedented levels within 20 years.

Main findings include:

People on both higher and lower incomes lose out from the slow uprating of taxes and benefits, but those on the lowest incomes bear the greatest burden
If nothing else changes in the next 20 years:
- The worst-off fifth of the population could lose about 17 per cent of their income compared to only five per cent lost by the wealthiest fifth
- There would be considerable reduction in the proportion of national income spent on benefits, despite an increase in the proportion raised in tax
- Resources available for public spending would rise but the cost would fall disproportionately on people on low incomes
- Relative poverty would rise as the income of the poorer non-pensioner population would fall behind the population as a whole
- For children, the poverty rate would rise from18 per cent to 33 per cent in two decades, assuming nothing else changed

Professor Hills, one of the report's co-authors, said: 'The amounts by which benefit rates and tax thresholds are adjusted each year is one of the largest decisions in British politics, and yet the basis of most of those adjustments is seldom debated.

'This report highlights the long-term consequences of leaving the adjustments - or in some cases lack of adjustment - on "auto-pilot". In particular, it shows how this would push against the government's ambition of reducing child poverty.'

The report concluded that although extra measures such as those announced in this year’s Budget can help counteract the effects of the system on child poverty, such ad hoc rises are not a substitute for a fair system that routinely ensures that the incomes of the least well-off people keep up with those on an average income.

Click here to download a copy of The impact of benefit and tax uprating on incomes and poverty.

Ends

Contact

Charlotte Morris, senior media relations manager, Joseph Rowntree Foundation, on 01904 615 919 or 07800 615 950 or 020 7278 9665

Esther Avery, LSE Press Office, on 020 7955 7060 or at e.avery@lse.ac.uk

Notes

The impact of benefit and tax uprating on incomes and poverty was carried out for the Joseph Rowntree Foundation by a team of academics including Dr Martin Evans, University of Oxford; Professor Ruth Hancock, University of East Anglia; Professor John Hills, professor of social policy and director of CASE at LSE; Professor Holly Sutherland, Institute for Social and Economic Research, University of Essex and research associate of CASE and Dr Francesca Zantomio, Institute for Social and Economic Research, University of Essex.

Press cuttings

Financial Times
Fears over benefits’ link to inequality
Child poverty would rise to unprecedented levels within two decades if the government left the present system of annually adjusting benefits and taxes unchanged, a study claims.
http://www.ft.com/cms/s/0/3b344dc0-05c1-11dd-a9e0-0000779fd2ac.html?nclick_check=1

Press Association
Poverty fear over benefit increases
State benefit increases are failing to keep pace with earnings, leading to a growing gap between the rich and poor, a new study shows.
http://ukpress.google.com/article/ALeqM5g6Qt_vQdo08-OZyhh_fx8hnchAwg

Mirror
Kid poverty 'will double in 20 years' if benefits system doesn't change
http://www.mirror.co.uk/news/topstories/2008/04/09/kid-poverty-will-double-in-20-
years-if-benefits-system-doesn-t-change-89520-20377290/

The Press
York charity highlights child poverty fears
http://www.yorkpress.co.uk/news/yorknews/display.var.2181013.0.york_charity_
highlights_child_poverty_fears.php

9 April 2008

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