Thursday 1st December saw the launch of the Joseph Rowntree Foundation’s (JRF) report on poverty, entitled ‘Monitoring poverty and social exclusion’. The report looks comprehensively at poverty in the UK, analysing many important social factors and spans many different policy areas, from tax and benefits to housing. To my mind, all these factors have something to say in relation to the poverty picture in the UK. I thought I would take this opportunity to comment on a few findings of the report and how they relate to the work we do at CARE.

Firstly, the JRF is right to pick up on the incredibly high Marginal Deduction Rates (also known as Marginal Effective Tax rates) – more than 70% – that will be faced by an extra 1.4 million families due to changes in the tax credit system.[1] Indeed, this an issue that CARE has raised consistently for many years, in our ‘Taxation of Families’ publication, whereby in last year’s report we envisaged that under the Universal Credit proposals, many one-earner couple families are due to face Marginal Deduction Rates (MDR’s) of 76%.[2] It is worth saying here that MDR’s matter in relation to poverty because as the JRF correctly points out, many of those in poverty are already in work. Thus, when someone faces an MDR of 76%, they would only gain a mere 24 pence out of every extra £1 earned, when taking into account losses in tax credits and benefits and increase in taxation due to increased earnings.

Staying on the subject of MDR’s just for a moment, it is pleasing that the JRF report has picked up on the taper that currently applies to tax credits as one progresses up the earnings scale.[3] As we are finding in our research for this year’s report (due to be launched next year in Parliament), the rate at which a certain benefit or tax credit is withdrawn plays a majorly significant part in determining MDR’s for families in poverty. It is intriguing yet concerning to note for instance that despite one earner couple families at 50% average (mean) earnings faring comparatively (internationally speaking) generously in terms of the tax credits they receive, the MDR’s they face in comparison to international families are so much higher due to the rate at which the credits are withdrawn; food for thought for any government considering tackling poverty in this nation.

In addition, it is great to see that the JRF report has highlighted the fact that poverty (or rather the ways in which it is dealt with) is not just about income.[4] That is, in only looking at the individual income of a person we are missing the point. As well as income, it is crucial that household size is taken into consideration when we discuss ways in how to deal with poverty. As CARE’s ‘Taxation of Families’ research has pointed out for a number of years, a one-earner family with three children on an average wage can still be in the lower half of the income distribution, both before and after proposed changes to benefits and tax credits.[5] Perhaps worse still, our research has shown that a one-earner couple family with two children under 11 with the main earner on 50% of the average wage, is financially better off than just 20% of the population. Compare this for instance, with a single person without children on the same wage who is better off than over 40% of the population.[6]

All in all, it is great to see the JRF picking up on key issues in relation to poverty, issues which CARE has campaigned on for a number of years. Undoubtedly, there are a number of policy recommendations that could be made from both the JRF’s and CARE’s research. Nonetheless, one recommendation we would like to see implemented by the Coalition Government sooner rather than later is a transferable allowance for married couples, which as research[7] has shown, is significantly more progressive for poorer people than increasing the Income Tax threshold to £10,000. It also goes some way to extolling the virtues of marriage within society, again, which research has shown has many positive benefits associated with it.[8]

CARE’s latest ‘Taxation of Families’ report can be found here.

The Joseph Rowntree Foundation report, ‘Monitoring poverty and social exclusion’ can be found here.

[1] Aldridge et al, p.11, Monitoring poverty and social exclusion, Joseph Rowntree Foundation, 2011.

[2] Draper et al, p.53, The Taxation of Families 2009-10, CARE, 2011.

[3] Aldridge et al, p.11, Monitoring poverty and social exclusion, Joseph Rowntree Foundation, 2011.

[4] Aldridge et al, p.76, Monitoring poverty and social exclusion, Joseph Rowntree Foundation, 2011.

[5] Draper et al, p.49, The Taxation of Families 2009-10, CARE, 2011.

[6] Draper et al, p.20, The Taxation of Families 2009-10, CARE, 2011.

[7]Adam et al, Figure 5.1, Taxes and Benefits: The Parties plans, 2010 election briefing note no.13, IFS, 2010.

[8] Building a Social Recovery? A first year report on the Coalition Government, Centre for Social Justice, 2011.