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Summary
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This paper shows the prospects for child poverty in Britain in 2010/11 and 2020/21, as defined by the current government, under various tax and benefit scenarios. It makes use of a static microsimulation model, augmented with projections of some key
economic and demographic characteristics that affect the income distribution.
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Under present tax and benefit policies, child poverty in 2010/11 will be little different from its current level, with beneficial demographic and economic changes offset by the fact that the income from tax credits and benefits received by low-income families with children will not keep pace with growth in earned income.
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The policy for 2010/11 recommended and highlighted in the Joseph Rowntree Foundation’s (JRF’s) final report (Hirsch, 2006)
relies on increasing the child element of the tax credit by 31%, and introducing new payments for families with three or more children linked to the family element of Child Tax Credit. This would cost around Ј4.3 billion in 2010/11. Policies that relied less on meanstested benefits and more on universal benefits could cost much more. By way of comparison, the government increased spending on child-contingent support by over Ј8 billion between 1999/2000 and 2003/04.
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For 2020/21, the single policy highlighted in JRF’s final report relies on implementing the 2010/11 package, and then increasing the Working Tax Credit for couples with children by 37%, and increasing all benefits and tax credits received by families with children by 7% a year between 2010/11 and 2020/21. To implement this package, the government would need to find around Ј30 billion in 2020/21, equivalent to 1.7% of gross domestic product (GDP). This package would reduce child poverty down to
5% – consistent with the lowest levels ever recorded in western Europe – only if the extent of non-take-up of means-tested benefits and tax credits was reduced from current levels.
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The policy packages for 2010/11 and 2020/21 would increase, on average, the effective marginal deduction rates faced by working parents. In addition, the incentive to work at all would be dulled for the second worker in a couple, and these feedback effects – which would increase child poverty or increase the cost to government of meeting its targets – have not been reflected in the modelling.
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The fact that particular tax and benefit policies are analysed in this paper does not mean that the authors are recommending that such policies be introduced; instead, this paper provides further analysis and supporting materials to the policies discussed in the paper ‘What will it take to end child poverty?’ (Hirsch, 2006).
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