Income and Poverty

Duncan Smith loses war on poverty

  • Published: Oct 11, 2011
  • Author: Peter Kenway
  • Category: Income and Poverty

Poverty forecasting is a dodgy business but if it must be done, it is best it is done by someone both reputable and competent.  None fits this bill better than the IFS.  Even so, we will go badly wrong if we mistake a forecast for a prediction.

The value in what the IFS has done does not lie in what it tells us will – or even – might happen over the next ten years.  It only takes a moment’s reflection to realise that a forecast like this depends on a series of huge assumptions about how the economy, politics and society might change over 10 years.  Since all of these assumptions are bound to be wrong to some degree, the forecast as a guess about, say, the level of child poverty, in 2020 is bound to be wrong too.

To that extent, it does not help that the results are presented with such precision.  Statements like ‘relative child poverty will rise by x00,000 by 2020/21’ is really quite misleading.  Whatever the outcome, it almost certainly won’t be that.  

Worse still, this precision obscures what is really valuable in the IFS work, which is what it tells us about the relative importance of the several different government policies that come together to influence the outcome.  In short, what the IFS shows is that Iain Duncan Smith’s best intentions have been flattened by the Treasury.

Why do we say that?

Stepping back from the detail, the IFS forecast has three important results. First, up to about 2013, both average incomes and incomes at the bottom are subject to a severe squeeze.  If the headline here is about the squeeze on the middle, the poverty point is that incomes at the bottom are being squeezed too – to roughly the same extent.  

So if there is a ‘squeezed middle’ – which there is – there is also a ‘squeezed bottom’.  ‘Relative’ poverty, which depends on the gap between the bottom and the middle, changes little over this period.

Second, after that, when the IFS assumes/believes/hopes that average incomes will have started to grow again, incomes at the bottom nevertheless continue to remain squeezed.  In other words it is at the point when economic growth resumes that poverty begins to rise again.  

This is what happened during the period of strong economic growth in the second half of the 1980s.  By contrast, this is not what happened during the period of strong economic growth in the late 1990s and early 2000s.  

Third, the reason why poverty starts to rise again after a few years is that the beneficial effect of the social security reform that is Universal Credit – something which the IFS believes will reduce poverty – is more than offset by the harm that is done by the decision to start up-rating benefits in line with the Consumer Price Index, which rises more slowly than the Retail Price Index.  

These sorts of ‘technical’ changes make little difference over a year or two, but as their effect builds up over time, so they become more and more important.  Duncan-Smith, who won his battle with the Treasury over Universal Credit, has lost the war over poverty.

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