Relative #ukpoverty does not always fall in recessions

The road ahead looks bleak for the living standards of low-income families with children. Their living standards are already in serious decline compared to what people define as an essential minimum.

For those of us who think relative income poverty is a valuable indicator of how many people are being 'left behind' by their low incomes, the latest child poverty figures may seem rather inconvenient. Child poverty has gone down, partly because benefits have remained the same in real terms, but average incomes have fallen. This improves the 'relative' position of the worst off. We like to argue that when society becomes richer, it is not good enough for the poorest to stand still. But when society becomes poorer, how can we say this is helping the worst-off, if their standard of living stays roughly the same?

Well, actually, there is some good news here. As well as the contribution made by the tail end of Labour's tax credit increases, the fall in child poverty reflects two things that did not happen:

1. In general, benefits and tax credits did not fall in real terms before April 2011 (the current poverty figures cover the preceding financial year).
2. And more surprisingly, the number of children in families without any work has barely risen in the recession. The tax credits system has helped to prop up incomes of low-income people in work and to make it worth families continuing to work, often with reduced hours.

These advantages did not exist in previous recessions, before the current tax credits system was introduced. As shown in the graph below, in the past three recessions, falling real incomes did not reduce relative child poverty, as many poorer families became worse off in absolute terms. Absolute poverty rose at some point in each of these recessions.

In short, when general incomes fall, low-income families may become worse off too, so it is positive that early in this recession, there was no increase in the number of children whose families fell below a threshold of low income measured in real terms.

It would be wrong, though, to infer that low-income families are weathering this recession unscathed: far from it. These income measures do not take account of the fact that many essentials are rising in price much faster than general inflation. In terms of buying power, benefits are really falling behind. Moreover, from 2011 onwards, the growing generosity of benefits and tax credits was reversed. Finally, our evidence on minimum income standards shows that people are not redefining their minimum needs downwards as society becomes poorer.

So, let's be thankful that child poverty had not grown by 2011. But the road ahead continues to look bleak for the living standards of low-income families with children. They are unlikely to improve much further, even against a falling average-income benchmark (and are likely to decline once average incomes start rising again). And their living standards are already in serious decline compared to what people define as an essential minimum.