Poverty and inequality on the rise

The Institute for Fiscal Studies has reported that poverty and inequality have increased for the second successive year during 2006-2007. The IFS have stated that benefit and tax credit increases have failed to keep pace with rising inflation, and the richest households are enjoying the biggest increases in income.

Key findings in the report include:

• Relative poverty has risen for the second year in a row. The most widely used measure of relative poverty is the number of people living in households with income below 60% of the median. (If households were lined up from richest to poorest, adjusted for family size, the median income would be that of the household in the middle.) On this basis the number of people in poverty rose by 400,000 to 13.2 million AHC (After Housing costs) and 300,000 to 10.7 million BHC (Before Housing Costs) in 2006-07. This gives statistically significant increases of 1.2 million AHC and 700,000 BHC over the latest two years.
• Rises in income equality. The incomes of the poorest fifth of households fell by 1.6% between 2005-06 and 2006-07, whilst the incomes of the richest fifth rose by 0.8%. Neither change is likely to be statistically significant in isolation. In addition, the share of income received by the poorest fifth of the population fell slightly, while the share received by the richest fifth rose slightly compared with 2005-06. These factors suggest income inequality has risen.

The broad increase in poverty in 2006-07 is seen as no real 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. We already know that benefits and tax credits for people of working age continued to increase less quickly than prices in 2007-08, which suggests that next year’s HBAI (Households Below Average Income) figures may well show further increases in poverty among children and working-age people.