June 12, 2008 | posted by Michael Baxter in Distribution of income |

Poverty and inequality both increased for a second successive year during 2006-07 said the Institute for Fiscal Studies (IFS) earlier this week.

Actually, poverty and inequality is a bit of a tautology.  Poverty is defined by the number of people living in households with income below 60 per cent of the median income.  So by definition then, a rise in poverty means a rise in inequality.

But that is nit-picking.    However you define it, it is not good.

The IFS was commenting after the release of the latest annual Households Below Average Income report from the Department for Work and Pensions. “The biggest surprise in the data,” said the IFS, “was the increase in pensioner poverty, which rose by 200,000 after housing costs (AHC) and 300,000 before housing costs (BHC).”

In the Budget of 2008, the government announced additional one-off payments to pensioners in winter 2008 at a cost of £575m. These will reduce pensioner poverty in 2008-09. “However, if the money is not found to repeat them, pensioner poverty may then increase again in the following year as it did in 2006-07,” said the IFS

The number of people in poverty rose by 400,000 to 13.2 million after housing costs, which when added to rises seen the year before makes an increase of 1.2 million over the latest two years. But before we all march up to Number 10 demanding Gordon Brown does something about it all, bear this in mind: “Poverty remains significantly lower than when Labour came to office,” or so said the IFS.

The number of children living in poverty in the UK in 2006-07 rose by 100,000 to 3.9 million after housing costs.  Child poverty is now 300,000 higher than it was in 2004-05. The fall in child poverty under Labour came to an end in 2004–05, and it now seems to be on the increase again.

The government has a target to halve child poverty from its 1998-99 level by 2010-11. It cut child poverty by about 70,000 per year over the last eight years, but now needs to cut it by 300,000 a year over the next four to meet the target.  On existing policies, IFS researchers predict that the number of children in poverty will fall by 700,000 to 2.2 million in 2010-11, but this would still mean missing the target by 500,000. Additional spending on child tax credits of around £2.8 billion a year by 2010–11 would be needed for the government to have a 50-50 chance of meeting its target.

The IFS said that the: “increase in poverty in 2006-07 comes as little surprise, when we consider that benefits and tax credits grew less quickly than prices (let alone earnings) for people of working age. Benefits are increased in April in line with the inflation rates recorded in the previous September, so they automatically lag price increases when inflation is rising.”

And David Phillips, IFS Research Economist said: “Further increases in poverty and inequality will not be welcome news to the Government, even though they should come as no surprise. We estimate that it would need to spend a further £2.8 billion a year by 2010-11 to give itself a 50-50 chance of meeting its next child poverty target. But the Chancellor will be under pressure to spend the same amount renewing last month’s ‘one off’ income tax cut, most of which benefits families on middle incomes rather than the poor.”