Wednesday, 23 May 2007

The poverty line

The children's Charity Barnardo’s is complaining that the UK Government will fail to halve child poverty in Britain by 2010, as promised - unless it spends an extra £3.8bn of taxpayers money over the £1bn already set aside for tax credits in the 2007 budget.

Apparently the charity's research indicates there are one million children who should have been lifted out of deprivation by the end of the decade who will still be in poverty. They warn that while the number of children living in poor families fell slowly but steadily in the late 1990s, progress has now stalled.

Terrible, you may think – Poverty, in Britain, in this day and age. Why is the State failing in this?

Basically because they have set themselves a much more difficult task that it seems.

A household is considered to be officially below the poverty line if they are living on less than 60% of the UK’s median (average) level of household income. These figures look at incomes in Great Britain, after housing costs have been paid. Curiously the EU apparently use the same measure...

So the Poverty line is actually a moving target then. For a start, every time interest rates go up a few more people slip below this poverty line.

Let's conduct a thought experiment - Imagine you were to take every single household, that is officially poor by this definition and were to supplement their income, so it that was £1 above the ‘poverty line’.

At the end of the exercise, when you re-did your sums, you would almost certainly find that you had only actually reduced poverty by a tiny amount and that the official poverty line had become slightly higher.

You would probably have to repeat the process quite a number of times before you had evened out household incomes enough for this measure to show a significant drop off.

Another problem with this measure of poverty is that by redistributing benefits, or services away from the very poorest (who are so far below the poverty line they are likely to stay poor anyway) to those just below the poverty line (who have the greatest chance of being moved over the line), politicians can reduce the poverty rate - Hurrah! - even while deepening the deprivation of the worst off - Oh!

So now you may have an inkling as to at least one possible reason why Chancellor Gordon Brown decided to reduce the basic rate of income tax from 22% to 20% but extended the new basic rate to cover the old 10% Starter rate, more than doubling taxation on the first £2000 of taxable income in the last budget - Busted!