Income and Poverty

This year's poverty numbers are interesting, but next year's matter more

  • Published: Jun 30, 2014
  • Author: Hannah Aldridge
  • Category: Income and Poverty

Tomorrow DWP publish the latest official poverty numbers, but politicians, commentators and voters take note: they will reflect the year 2012/13 – before the main benefit cuts were introduced and more recent economic improvements.

Tomorrow’s data will give us a comprehensive picture of how household income in the UK has changed. Last year’s publication (for 2011/12) showed that for two years in a row household incomes fell in real terms (prices grew faster than income). The drop meant that incomes had fallen back to the level they were a decade earlier. This year all eyes will be on whether incomes have started to increase again.

But whatever the result, politicians should be careful not to credit or blame the government’s austerity programme. The data out tomorrow will be for the year before the really big changes in the economy and policy. It’s not until April 2013 that the main benefit cuts took place (the 1% up-rating, cuts to council tax benefit, the under-occupation penalty and the overall benefit cap). April 2013 is also when the personal tax allowance went up by more than £1,000 and when the economic indicators really started to look promising. By contrast, tomorrow’s data will reflect a year when inflation was at 2.7%, earnings increased by 1.3% and benefits by 5.2%.

What do we expect the data to show?

NPI expects the data to show that median household income did not change in 2012/13. We also expect income at the bottom of the distribution to be unchanged and the poverty rate to remain at 16% (before housing costs). (For further breakdowns and information on how we reached these estimates click here).

We also expect the data to show a continuation in the long-term trend towards in-work poverty. Last year’s publication showed that for the first time there were more people in poverty in a working family than in a workless one (including pensioners). With an increase in out-of-work benefits of 5.2% compared to 1.3% for earnings and an overall increase in the number of working families, we don’t expect the new data to reverse this.

What about 2013/14?

What is much less certain though is if this shift to in-work poverty will continue beyond 2012/13 when the main benefit cuts take place. Given that in 2013/14 the personal tax allowance increased by £1,325 median incomes are likely to start to increase (but not at the same rate at which they fell). Poverty though, will almost certainly increase. The cuts to benefits will have a much greater impact on those at the bottom of the income distribution than those in the middle. Likewise increases in earnings and the tax allowance will have less of an impact on low-earner families. It’s plausible that as incomes in the middle start to increase, those at the bottom will continue to fall.

But we won’t know any of this for sure until next year, after the general election. On polling day we will only know how the first half of the Government’s term affected household income, not the second and these two halves are very different.

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