Good morning from New Economy Brief. 

It has been almost 20 years since poverty last fell for a prolonged period, according to the Joseph Rowntree Foundation (JRF), and the incoming government will inherit poverty levels around 50% higher than in the 1970s

Many campaigners have highlighted the main parties’ failure to put forward detailed plans to tackle poverty. Labour in particular – who look likely to form the next government – have come under pressure to reverse their pledge to keep the two-child benefit cap introduced by the Conservatives. 

This week, we explore what the next Government could do to reduce poverty and what, if anything, a Starmer-led government could learn from the last Labour administration. 

The state of poverty in the UK.

22% of people in the UK were in poverty in 2021/22, according to the latest figures from JRF’s UK Poverty 2024 report. Children have the highest rates of any age group, with nearly three in ten children (4.2 million) in poverty. Some groups have particularly high rates of poverty, including larger families, families whose childcare responsibilities limit their ability to work, disabled people, informal carers, families not in work, people in rented accommodation and certain ethnic groups. 

Deep poverty and destitution. Not only is the number of people in poverty rising, but their poverty is also getting deeper. Between 2019/20 and 2021/22, the average person in poverty had an income 29% below the poverty line, compared to 23% between 1994/95 and 1996/97. According to JRF, 9.7 million people live in ‘deep poverty’, with a household income less than half the UK median after housing costs. Of these, 6 million live in ‘very deep poverty’ (with an after-housing-costs income less than 40% of the median). JRF refers to the very deepest poverty as destitution, characterised as those who cannot afford to meet their most basic physical needs. 3.8 million people experienced destitution in 2022, including a million children. 

The policy landscape. 

Poverty groups like JRF and the Child Poverty Action Group (CPAG) have demanded stronger commitments from parties during the election to tackle the poverty crisis – but what have the different parties proposed, and what is missing? 

Labour. Labour has committed to a child poverty strategy, which campaigners welcomed. However, there is widespread criticism that the strategy lacks detail, and many question how a Labour government could take serious action on child poverty without abolishing the two-child social security cap. The Institute for Fiscal Studies estimates this limit would harm an extra 670,000 children across the next Parliament. (Read our previous analysis for more on the economic and political case for scrapping the two-child benefit cap.) Labour says other measures from its manifesto will also alleviate poverty, including its homelessness strategy, its plans to protect renters from arbitrary eviction and free breakfast clubs in every primary school. However, many think bigger reforms to Universal Credit are needed, and warn that without more detailed plans, Labour may not be able to “match the scale of the challenge”. 

Conservatives. JRF notes the Conservative manifesto’s failure to mention destitution, hardship or the cost of living. While plans to scrap no-fault evictions and to end rough sleeping have been welcomed, it is widely accepted that plans to slash social security spending by a further £12 billion (largely through less support for disabled people) could plunge many more people into hardship and destitution. The Conservatives’ line is that work is the best route out of poverty, even though 38% of working-age people who receive benefits are in work. (For more on the Conservatives’ plans, see our analysis from earlier in the election campaign.)

Other Parties. The Liberal Democrats, Greens and Scottish National Party have committed to abolishing the two-child limit, with the former also promising to set a target to abolish deep poverty within a decade. The Lib Dems and SNP also want to ensure Universal Credit always covers the cost of essentials (this draws on the idea of an Essentials Guarantee championed by JRF and the Trussell Trust.) The Greens, meanwhile, promise a £40 uplift to Universal Credit and legacy benefits, and to “in the long term” to set up a Universal Basic Income system, though there is no timeframe on this, and no costing so it is hard to estimate the impact on poverty. (See our analysis of smaller party manifestos for more policies from these and other parties.) Depending on the makeup of Parliament after the election, this could put additional pressure on the next government to take action on poverty. 

Will Labour learn from its legacy? 

We obviously won’t know the outcome of the general election until 5th July. But if polls are to be believed, we’ll be seeing a Labour-led government in a couple of weeks’ time. People generally expect Labour governments to tackle poverty, and this has been central to the legacy of several Labour administrations, including the most recent one. New Labour introduced Working Tax Credits, Sure Start and the National Minimum Wage, for example (though the success of its poverty reduction programme is contested). 

Waiting for growth? This side of the election, at least, Starmer’s Labour party is refusing to budge on issues like the two-child benefit cap, arguing that the fiscal position means many policies they would like to implement are not affordable. As we explained in our analysis of the Labour manifesto, Starmer and Reeves’ plan hinges on growth. They hope growth will bring higher tax receipts, which will in turn allow them to boost social security and introduce more interventionist measures to reduce poverty. The problem for many poverty campaigners, though, is that this approach lacks the urgency needed to lift millions out of poverty and destitution. People expect Labour to fight poverty, but perhaps without bolder measures they will be disappointed. (For more ideas on reforming Universal Credit, check out the New Economics Foundation’s proposal for Social Security for All and Autonomy Institute’s work on basic income.)

Weekly Updates

Election Roundup

Fixing the public finances. In the Centre for Progressive Policy’s (CPP) election briefing on the state of the public finances, Ross Mudie suggests the next government should review tax reliefs, tax capital and labour fairly, and do more to tax windfalls, as well as reforming the current set of fiscal rules to spur public and private investment. (Check out their other election briefings for more.)

Labour’s National Wealth Fund and green manufacturing potential. Commenting on Labour’s proposal to establish a National Wealth Fund (NWF), the Institute for Public Policy Research (IPPR) have suggested that the NWF could directly finance the UK’s green manufacturing industries (wind, heat pumps and green transport) and become an ‘enlightened shareholder’ to ensure reinvestment of profits, coordinate of investments and promote technological-industrial partnerships.

The cost of ‘cutting the green crap’. Carbon Brief calculated that a serious of UK climate rollbacks beginning with David Cameron’s 2015 instruction to cut 'green crap' has added £22bn to UK energy bills due to a combination of a 98% reduction in home insulation rates, more than 1.6m new homes built with low energy efficiency standards, crashing growth in onshore wind and solar energy and more.

IFS Manifesto Analysis. The Institute for Fiscal Studies (IFS) streamed their pre-election briefing on Monday. Commenting on the manifestos of major parties, Director Paul Johnson noted: “I am not going to engage with these so-called "fully costed" manifestos on their own terms. Their proposals… would be barely enough to detain us in analysing a modest one-year fiscal event. They certainly don’t answer the big questions facing us." He also noted that the “tax lock arms race” between the major parties is a “mistake” and will “constrain policy if a future government decides that it does in fact want to raise more money to fund public services”.

Could Labour’s manifesto actually lead to growth? Economists Phil Tomlinson and David Bailey have analysed Labour’s manifesto and whether it is likely to generate economic growth while retaining the current set of fiscal rules. They also note that “[t]he elephant in the room however is the UK’s trading relationship with the EU. Brexit has significantly hit UK goods trade and investment – estimates put the long term hit to UK GDP at 5-6%... If Labour wants to avoid the stop-go growth policies of the past, it will need to deal with Brexit’s drag on growth.”