Since You Asked

Pocket money will endure even in 2012

“Families with children are shouldering a disproportionate burden.” – Katherine Rake, chief executive of the Family and Parenting Institute

“Dad”

“Yes, my dear?”

“I heard that austerity was affecting families with children more severely than other groups.”

“I didn’t see much evidence of that over Christmas. You ate your own weight in Toblerone. I must have words with Father Christmas about all that sugar and fat.”

“Dad stop joking around, this is serious! It’s the Institute for Fiscal Studies. You always say they’re very serious people.”

“So they are, my love, although I always find them slightly less serious when they get tangled up in macroeconomic forecasts. The trouble is that the Today programme can’t get enough of forecast stories. ‘Central bank makes forecast! Financial institution makes forecast!’ But these forecasts never pan out because the macro-forecasting business is a mug’s game. The BBC might as well report Mystic Meg’s forecast and have done with it.”

“Dad. Have you actually read this report?”

“I have indeed. Very worrying. Relative child poverty rates to rise to 26.6 per cent by 2015. That’s for a family with three children; for a family with two children, relative child poverty rates will rise to just 18.5 per cent. If only we’d had this forecast earlier, your mother and I could have been more careful – but it’s too late to send your baby brother back now.”

“I don’t even want to think about that, Dad. Is a relative child poverty rate of 26.6 per cent bad?”

“I am not sure. It shows the percentage of households living on less than 60 per cent of the income of the household in the middle of the income distribution, so it’s a measure of inequality. I don’t think many people think it’s good news that the number is rising.”

“What about absolute poverty rates?”

“Well, the report shows something it calls absolute poverty rates. They’re rising too, although as far as I can see they’re really relative relative poverty rates.”

“What?”

“They’re poverty rates relative to what the relative poverty line was in 2010-11, rather than relative to what the relative poverty line will be in 2015-16 – according to the macroeconomic forecast, which will be wrong as all such forecasts are.”

“But don’t larger families need higher incomes?”

“Aha, all these numbers have adjusted for that. The IFS assumes that £100 for a childless couple is like £67 for a single adult, or £120 for a couple with a young child, or £186 for a couple with two teenagers and a toddler. It’s called equivilisation.”

“That makes my head spin, Dad.”

“It is complicated, isn’t it? That won’t stop politicians and media pundits confidently citing the numbers as though they were inescapable and simple truths about the universe.”

“But Dad, you’re still ducking the key issue – are families bearing the brunt of austerity?”

“You make it sound so harsh. In fact, we’re getting off lightly. Between the start of 2011 and the spring of 2014, the IFS reckons that a typical household will lose a little less than 4 per cent of net income thanks to tax and benefit changes. Those losses are concentrated among the poorest third and the richest 10 per cent, so I’m not sure why everyone keeps banging on about the squeezed middle.”

“Median voter theorem, Dad, you explained it to me on New Year’s Eve.”

“Of course. Now, where was I? Ah yes: an average loss of 4 per cent, but less than 2 per cent for pensioners and just under 6 per cent for families with children.”

“But that means families are losing more than anyone else!”

“I guess it does. But on the bright side: one day you’ll be a pensioner and you can get the Conservative party to fight to preserve every privilege you’ve got.”

“Somehow I don’t think it will work out that way.”

“Hmm, you may be right. But anyway, things aren’t so bad: the government has been running a deficit of 12 per cent of national income. Surely the obvious base case is that everyone ends up 12 per cent poorer after that particular gravy train runs out of steam.”

“You’re oversimplifying.”

“You were complaining that I was making your head spin a minute ago. But yes, I am oversimplifying. And you’re right: most people will pay more tax and take home stingier benefits, and families with children will suffer most of all. Happy now?”

“Yes, thanks. By the way, isn’t Saturday morning time for pocket money?”

Also published at ft.com.

7th of January, 2012Since You Asked • Comments off