Government urged to 'Pay the Price' to lift more than a million children out of poverty

With 4.3 million children in the UK now living in poverty, the Prime Minister promised during the last election that his government would introduce an ambitious plan to lift ‘millions’ out of poverty (2).

Action for Children modelled and costed different combinations of measures the government’s Child Poverty Strategy - due to report in the summer - could include to achieve the government’s ambitions.

Its ‘Paying the Price’ report looked at benefit levels and take-up, childcare, work incentives, pay and conditions, employment support, housing and child maintenance.

1. Scrapping the two-child limit and benefit cap is the single most cost-effective policy option the government could implement, lifting 600,000 children out of poverty by 2030 at a cost of £3.9 billion per year. However, if this was the only significant spending commitment in the strategy, more than a quarter (26%) of children would still be living in poverty by 2035.
2. To lift at least a million children out of poverty by 2030 would require going further – not only removing the two-child limit and benefit cap – but ensuring the child-related elements of Universal Credit rise above the rate of inflation and increasing the take-up of means-tested benefits. This would reduce child poverty by 28% (1.2m) and cost £10.4 billion a year by 2030. (3)
3. To reduce child poverty by a million by 2030 without scrapping the two-child limit and benefit cap, the government would need to implement every other policy included in the analysis. But this would be far less cost effective, costing £22 billion a year.
4. Policies focused on employment have an important part to play in the strategy. But these are less targeted, less cost-effective and more uncertain in their impact than others. A narrow focus on measures to increase parents’ income from employment would lift only 150,000 children out of poverty by 2030. (4)
5. Implementing all the measures in the model – including investment in employment support programmes, a real living wage, building 90,000 social homes a year, and reforming child maintenance – would cut the child rate by half to 15% by 2045, returning it to levels not seen since the 1970s when fewer than one in five children were in poverty.

Tackling child poverty is costly, but the long-term economic prize is significant. The report also calculated the economic gains lower hardship levels would have on particular generations of children across their lifetimes.

If the government reduces the child poverty rate by 28% (1.2 million) by 2030, the policy costs of keeping it at that level for those children would be £80 billion over their lifetime, but the benefits to society would be worth at least £164 billion through reduced public service demand, higher tax revenues, and lower welfare spending.

Jasmine from Dorset has four children aged nine, seven, five, and two. She has been struggling to make ends meet since separating from her children’s father, particularly as the two-child limit denies support to her two youngest children.

She said: ‘We were only slightly better off when I was with their dad but now that it’s just me on my own, the slightest thing can set me back – it’s such a precarious existence now. He pays me maintenance and still sees them every other weekend and takes them out, but it’s been really difficult money wise the rest of the time.

‘My eldest has really picked up that we’re struggling more and asks, “are we going to be OK? How are we going to do this?” and I’ll just have to say “we’ll be fine”. I’ve just about managed to cover electricity in the summer but now it’s cold in the evenings I try to save money on the gas by wrapping the kids up in double layers in bed, but I’m still just eating through the money on the meter… there are some times where my kids are like “Mummy, I’m really cold” so as well as doubling up layers, I use lots of blankets – I have so many blankets.

‘My kids’ shoes are another huge expense – I just don’t have the funds to buy them new shoes or buy them a few pieces of school uniform.’

Jasmine feels that lifting the two-child limit would make a huge difference to her family:

‘I’m noticing that I’m trying to make money stretch further and it’s just not stretching. So it could make a huge difference, just having a little more money to account for. I have four children, I don’t get any money for two of them. It’s not that I necessarily expect it – I do not. But would it help? Yes, let’s be honest, we’re in a crisis.’

ENDS

MEDIA CONTACT:

Matt Cornish, Senior Media Officer, Action for Children:

07779 866 847 / [email protected]

Out of hours: 020 3124 0661 / [email protected]

NOTES TO EDITORS

1) With funding from its charity partner Nationwide (via its social impact programme Fairer Futures), Action for Children commissioned Public First to produce the statistics and modelling projections used to inform the report. The primary data source for the modelling is the Family Resources Survey (FRS) - the most detailed account of household finances in the UK. FRS raw data has been ‘nowcasted’ and projected forward based on the known uprating of benefits for 2025/26, population projections and Office for Budget Responsibility (OBR) forecasts of inflation and earnings growth.

2) Detail needed on Labour’s child poverty strategy, says campaigners | The Standard

Asked by a reporter at the manifesto launch if he had a target for how many children he wanted to be lifted out of poverty, the Prime Minister said: “We will have a strategy for dealing with poverty, just as the last Labour government did. And we took millions of children out of poverty and we will do so again.”

Policy paper - Tackling Child Poverty: Developing Our Strategy (HTML) - Published 23 October 2024

3) This policy scenario includes investment in targeted employment support programmes for single parents, carers and disabled people, reducing the Universal Credit taper rate from 55% to 50%, and introducing a work allowance for second earners in Universal Credit of £400 a month.

4) Our estimates of the societal gains from reducing child poverty draws heavily on the work of Donald Hirsch on the impact of child poverty on public services demand. We also draw on the work of Blanden et al on the lost earning potential of adults who grew up in poverty. We used their lower bound estimate that being in poverty as a child can reduce earnings potential by 15% and reduce the probability of being in employment by four percentage points. We used ONS data on earnings and employment rate by age to produce estimates of the impact of poverty on labour market outcomes for each age of an individual. Using these two sources, we can estimate the reductions in public service demand implied by the poverty declines in our model, as well as the longer-term gains to the Exchequer as children become adults and enter the labour market. We account for both increased tax revenues and reduced welfare spending. In our assessment of societal benefits, we also considered increased private earnings for the individuals themselves.