Child Poverty - Trends And Policy Options

6th October 2024

Relative child poverty has increased. Which children are most likely to be affected? What policies would most effectively reduce child poverty?.

Key findings

The poverty rate is a useful summary measure of how low-income families are faring, comparing their total household income with a specified poverty line. For example, a couple with no children would need to have household income below £17,100 to be classed as living in relative poverty in 2022-23.

For a couple with two young children, the relative poverty line would be £23,900 as they are judged to require a higher household income to maintain a similar standard of living.

Relative child poverty stands at 30% (4.3 million children). Under Labour governments from 1997-98 to 2010-11, during which there was a policy focus on reducing child poverty, the relative poverty rate for children decreased from 33% (4.2 million children) to 27% (3.6 million children). Half of that decline was reversed from 2010-11 to 2022-23.

The child poverty rate is highest among families with three or more children, and almost all of the rise in child poverty over the 2010s was concentrated in this group. Children of lone parents, those in rented accommodation, and those in workless households are all also more likely to be in poverty, though the child poverty rate in working families increased from 18% in 2010–11 to 23% in 2022–23.

Overall, the benefits system provides less support for low-income households with children now than it did in 2010. Though rates of support for families with children are still much higher in real terms than in 1997, the below-inflation uprating of many benefits from 2011 to 2019 made the system less generous. Various other policies, such as the two-child limit, removal of the family premium, the household benefit cap, and cuts to housing support, have also substantially reduced the incomes of affected families.

As a result of the first three of these reforms, a typical social renting out-of-work lone parent with three young children has seen their disposable annual income cut by £4,000, or a fifth, relative to what it would have been had these reforms not been implemented.

The government has a number of levers it can pull through the benefits system if it wants to reduce child poverty. Among the policies we consider, the single most cost-effective policy for reducing the number of children living below the poverty line is removing the two-child limit. This would cost £2.5 billion a year but would reduce child poverty by 540,000 (4 percentage points) in the long run, equating to an annual cost of around £4,500 per child lifted out of poverty.

This compares to removing the household benefit cap, which would reduce child poverty by 10,000 at an annual cost of around £47,000 per child, or increasing LHA rates to the 50th percentile of local rents, which would reduce child poverty by 40,000 at an annual cost of £11,000 per child.

The poverty rate, while a useful summary measure of how those on low incomes are faring, is based on an arbitrarily drawn poverty line, and does not tell us everything about the impact of reforms on the living standards of children in low-income families. For example, whilst removing the two-child limit would lift large numbers out of poverty, many of the children deepest in poverty would benefit less if the household benefit cap remained in place, and households already capped would not gain at all.

Removing the household benefit cap alone would lift very few (10,000 children) above the poverty line but would significantly alleviate the depth of poverty faced by some of the poorest children and provide a bigger proportional boost to their incomes. When designing its child poverty strategy, the government should therefore consider effects of policies across the distribution of incomes, not just around the poverty line.

Labour market policies present another lever the government may pull to reduce child poverty, though they will necessarily be less well targeted. The government has highly ambitious plans to increase the employment rate to 80%, which could reduce child poverty by 200,000 to 350,000 if achieved – though hitting that goal will be much easier said than done.

Or it could increase the minimum wage. But neither increases in the minimum wage nor widespread increases in employment are likely to be well targeted at low-income households or to give large income gains to those who do benefit.

6.1 Introduction
Of the 14.4 million children in the UK, 4.3 million, or 30% of them, are living in relative poverty. This is 3 percentage points (730,000 children) more than in 2010. Tackling child poverty is high up the policy agenda for the new government. The government has set ‘breaking down barriers to opportunity' for children as one of its five missions, and launched a ministerial taskforce tasked with developing an ‘ambitious' cross-government strategy to reduce child poverty, to be published in Spring 2025. These words evoke the ambitions of the last Labour government, which oversaw – through big increases in the generosity of financial support for low-income families with children and in the context of favourable economic conditions – a 6 percentage point fall in child poverty. But so far, no specific policies directly targeting income poverty among families with children have been announced.

In this chapter, we begin in Section 6.2 by reviewing trends in child poverty in recent decades and how support through the benefits system has changed over time. We then consider a range of policy options the government has if it wishes to alleviate child poverty. In Section 6.3, we consider potential reforms to the benefits system, and we turn in Section 6.4 to the role that changes in the labour market could play in reducing child poverty. A careful approach to supporting children in low-income households needs to consider how policies affect not only whether children are above or below an arbitrarily drawn poverty line, but also their effects across the income distribution. Section 6.5 concludes.

Read the full IFS report HERE
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