Daniel Lilley: Work, not welfare, is the best route out of poverty

Daniel Lilley is Senior Researcher at the Centre for Social Justice.

Children should not be the only members of their family heading off out into the world each morning.

They should not be the only ones in a household for whom Monday looks different to the weekend preceding it. Yet this is the case for a large and rising number of children. New data shows a record annual rise in the number of children living in long-term workless households, up to over 1.2 million children.

The problem of worklessness is resurfacing, having retreated in the decade leading up to the pandemic. In 2010, we had a crisis: 14 per cent of children lived in long-term workless households – over 1.6 million.

After major reforms by the Coalition government, especially the introduction of Universal Credit, the proportion of children in long-term workless households fell every year for a decade, and in 2019 it was barely half what it had been when the Conservatives took office.

This success, however, risks being lost. Lockdowns sent a shockwave through the labour market, and worklessness is rising once more.

Worklessness should be central to the perennial child poverty debate, alongside family structure.

Too often, the child poverty discussion purely focuses on income inequality. Policies like the two-child benefit cap focus on cash handouts that get families just over the relative income line needed to avoid being ‘in poverty’ – as measured by 60 per cent of median income – without properly considering their long-term wellbeing or life chances.

This reductive understanding of child poverty leads to short-termism in how to reduce it, ignoring what sustainably gets households out of poverty: meaningful work and stable families. With the Child Poverty Taskforce expected to report in weeks, the risk now is that the same mistakes are repeated.

Children who grow up in workless households are deprived in ways that run deeper than income. They are two-and-a-half times as likely to be in relative poverty as those where at least one adult is working, but they are four times as likely to be “materially deprived” – defined by the government as going without the basics of a decent life.

This is child poverty that isn’t talked about.

It is also poverty that the system is not working to prevent. New analysis by the CSJ in partnership with Tax and the Family shows that, despite significantly reduced marginal rates compared to the broken tax credit system, some families on Universal Credit face marginal tax rates of over 70 per cent when entering work.

Meanwhile health-related benefits are warping incentives. Next year, an economically inactive claimant on Universal Credit with the average housing benefit and Personal Independence Payment (PIP) for will receive £25,000 a year, a higher income than the £22,500 received by a full-time worker on the National Living Wage after tax.

We must also focus on family stability. One in fifty children with couple parents are in long-term workless households, compared to nearly one in three children with a lone parent.

This is before considering the myriad other advantages children get from stable upbringings. Children who experience family breakdown are more likely to have reduced emotional wellbeing, poorer educational outcomes, increased risk of becoming NEET, and increased likelihood of becoming homeless.

If we really want to grasp the nettle of child poverty, we need reforms that move our focus towards these issues.

First, we need to rebalance early years support by paying the working family’s childcare entitlement directly to parents to spend as they see fit. In two-earner households, the family is eligible for 30 hours a week of free childcare for children from nine months, freeing up an extra £7,524 per child annually.

This leaves families with young children with only one route to avoid poverty – formal childcare.

As well as fuelling sharp rises in childcare costs and a shortage of high-quality supply, this also leaves parents who want to be at home more and at work less to look after their children – which 71 per cent of working mothers do – high and dry.

Second, we need to tax at a household, instead of an individual, level. This can create a fairer system that reflects all circumstances and removes perverse incentives such as encouraging couples to live apart.

Third, we need to reaffirm the importance of work. We can both improve support for families and deliver savings by reforming mental health benefits: prioritising those with the most severe conditions and reinvesting some of these savings in radically expanding access to NHS Talking Therapies and back to work programmes.

These three steps would not solve everything, but they would finally show the courage to change the direction of travel away from technocratic tinkering towards real solutions that would transform life chances for good.