Britain Posts Gains In Fighting Poverty

Costs and Benefits

With U.S. Methods, Britain Posts Gains In Fighting Poverty;Tax Credits, Minimum Wage Help Poor Children in U.K.;But Critics See Trade-Offs;Concern Over Budget Deficit

By EMILY NELSON and JEANNE WHALEN, Wall St. Journal

December 22, 2006; Page A1

LONDON — A decade ago, nearly one in four [25%] British children was poor — one of the worst records among industrialized nations. Today, the figure is down to 11%.

Prime Minister Tony Blair points to that progress as one of the top achievements of his nine years in power. His critics say he hasn’t helped the very poorest, and has fostered dependency while running up a budget deficit.

The costs and benefits of the Blair government’s fight against poverty offer lessons for the U.S. Many of Mr. Blair’s ideas came straight from the U.S., which has made little headway against child poverty over the past decade. Under Mr. Blair, Britain has adopted a minimum wage, created a Head Start-like program for toddlers, and bolstered tax credits for the working poor like those in the U.S.

Even British rhetoric sometimes seems borrowed from Washington, not of the current era but of the mid-1960s when Lyndon Johnson declared a war on poverty and committed the government to big new programs. “Our historic aim will be for ours to be the first generation to end child poverty,” Mr. Blair said in 1999. Backing up those words, the government has funded its programs more heavily than they’re funded in the U.S.

The proportion of British children living in poverty fell to 11% in the year ended March 2005 from 24% in the year ended March 1998, according to one official definition used by the U.K. government. That definition adjusts the poverty line each year for inflation. The U.S. experienced a much smaller drop over the same period, with 17.8% of children living in poverty in the year ended March 2005 compared with 19.9% in the year ended March 1998, according to the Census Bureau. (The official U.S. poverty line, while not directly comparable to Britain’s, is also adjusted annually for inflation.)

Britain’s success has come with some trade-offs, Mr. Blair’s critics say. New spending programs have contributed to turning Britain’s budget surplus of the late 1990s into a deficit equal to about 3% of the nation’s annual output. Last month, the leader of the opposition Conservative Party, David Cameron, accused Mr. Blair of using the “large, clunking mechanisms of the state” to address poverty. Mr. Cameron said poor Britons continue to be “treated as the passive recipients of state services” rather than being encouraged to take responsibility for improving their plight.

Britain faces another challenge — helping a hard core of those in long-term poverty. “Those in the greatest need have not been helped by the government,” says a Conservative member of parliament, Greg Clark. He points to official figures that show the percentage of those earning less than 40% of the median income rose to 4.6% in 2002 from 4% in 1997.

Mr. Blair has acknowledged the problem. In September, he wrote in the preface to a new poverty plan that “despite the huge progress we have made, there are still individuals and families who are cut off. About 2.5% of every generation seem to be stuck in a lifetime of disadvantage.” The new plan calls for steps to reduce teenage pregnancy and more personalized services for those with multiple problems such as drug abuse and mental illness.

One of Mr. Blair’s most ambitious programs is called Sure Start. The program is modeled in some respects on the older Head Start program in the U.S. but takes up a much bigger percentage of Britain’s budget. Sure Start provides 12½ hours a week of free care to all 3- and 4-year-olds, and it plans to raise that to 15 hours in 2010. The government has spent more than $33 billion on Sure Start since it was founded in 1999, nearly doubling the number of nursery-school places available in Britain, according to the Department for Education and Skills. Sure Start centers also offer services such as parenting classes.

At a center in a struggling neighborhood in East London one morning, children dug in a sandbox dotted with dinosaur toys, played educational games on computers, and sat in the shady garden where staffers read books aloud. Megan Farrow, the center’s director, says staffers draft a monthly development plan for every child and discuss the child’s progress with parents. Parents can check out “learning bags,” filled with books, toys and craft supplies, to take home for a while.

Mr. Blair’s programs mark a turnabout from the Margaret Thatcher years (1979-1990), when the Conservative government slashed spending on social programs and lowered an income-tax rate that had reached 83%. While credited with reviving Britain’s economy, Mrs. Thatcher also was blamed for spurring a doubling in the poverty rate. Britain’s childhood-poverty rate in 1997 was the highest in Europe.

After coming to office, Mr. Blair set a target of cutting child poverty by 25% in 2005, by half in 2010 and completely by 2020. That goal was based on an alternative official definition of poverty that considers a household poor if it earns less than 60% of the median income. This definition, common in Europe, is based on the philosophy that people are poor if they have considerably less than the typical family, even if their basic needs are met. The number of children in poverty by this measure fell to 3.4 million the year ended March 2005 from 4.2 million seven years earlier, meaning the government missed its target slightly.

Britain enjoys some advantages over the U.S. in pushing a nationwide antipoverty campaign. Its central government has the power to coordinate efforts, unlike in the U.S., where a tangle of federal and state programs address poverty. With Britons long accustomed to state-run health care, big government programs don’t raise nearly the political ruckus here that they do in Washington.

Compared with the U.S., “we have more public funding and we have more of a focused government view that we have to eliminate child poverty, not just ameliorate it,” says John Hutton, Britain’s secretary of state for work and pensions. “That’s a big cultural difference.”

In addition to direct spending on children, many of the planks of Britain’s policy involve helping poor adults, on the theory that as parents become better off their children are more likely to stay in school and develop skills. Britain spent an estimated £22 billion (about $43 billion at current exchange rates) on cash benefits and tax credits for families with children in 2003, up 59% from £13.8 billion in 1997, according to Mike Brewer, senior research economist at the Institute for Fiscal Studies, a London think tank. In 2003 the Blair government introduced an extra tax credit that goes exclusively to families with children.

The child tax credit was a brainchild of Gordon Brown, the chancellor of the exchequer, who is expected to become prime minister when Mr. Blair steps down by September 2007. Mr. Brown has played a central role in designing poverty programs and securing funding for them.

The growth in public spending under Mr. Brown has worsened Britain’s finances, according to the European Commission, which reprimanded the U.K. in January for an “excessive” budget deficit. Economists expect Mr. Brown to tighten spending and raise taxes once he takes office. However, Britain has enjoyed healthy growth under Mr. Blair, and its currency has been strong against the dollar and euro.

Britain’s tax credits are modeled after the Earned Income Tax Credit in the U.S. Both are designed to encourage people to take a job even if it pays badly by supplementing the job’s income. As people earn more, the payments decline. Also, Britain introduced its first national minimum wage in April 1999 and has raised it every year since.

Denise Nicholson says the tax credits helped her get off unemployment benefits after 14 years. Ms. Nicholson, 34 years old, is the single mother of Ryan, 14, and Alisha, 7. While on unemployment, she received the equivalent of about $295 a week from the government. “I thought it wasn’t worth me going back to work because I wouldn’t be able to pay for child care,” Ms. Nicholson says.

She found out she was wrong when, on the advice of a friend, she went to the unemployment agency, Jobcentre Plus, in her hometown of Leyland in northern England. After calculating that Ms. Nicholson would raise her income by working, a counselor helped her land a part-time job fashioning wire flowers and other knickknacks.

The 18-hour-a-week job pays $182 a week, and Ms. Nicholson receives a tax credit on her income plus money to cover child care. The benefits add up to $275 a week, she says. Because she was on income support for so long, she received a one-time bonus for getting a job of $1,960. The government also threw in $490 to tide her over until her tax credits kicked in and $78 a week for her first 12 months on the job.

She has purchased a basic computer for her children. This spring, the family drove to the beach for a holiday, their first in years, she says. And recently she bought a home, with help from her father after he sold his home.

As the incomes of Britain’s poor parents have risen, they are spending more on items that benefit children such as clothing, books, fresh vegetables and cars, while cutting spending on tobacco and alcohol, says Jane Waldfogel, a professor of social work and public affairs at Columbia University. Families may have prioritized spending on children because the government labeled many of the new credits as child benefits, says Ms. Waldfogel.

Counselors at the job centers help people figure out what benefits they’re eligible for and offer services such as English lessons, substance-abuse treatment and help overcoming learning difficulties. People must go through a 40-minute interview with a job counselor before receiving unemployment benefits — a shift from the past, when they got their benefits at a separate office. Then they have to revisit a center every two weeks to keep receiving the benefits.

At the Jobcentre Plus office in East Ham, a neighborhood in East London, district manager Sandra Lambert says that in the past only the most highly motivated people visited the center for help. The office says more than 2,000 of the 13,000 people it helped secure jobs last year were single parents.

Mr. Cameron, the Conservative leader, concedes the tax credits have helped people. But he contends some people end up trapped in jobs that keep them barely above the poverty level because they’re afraid they would lose benefits if they tried to move up the ladder. “People face a hugely complicated system that soaks up their time….[T]hose that do find jobs are dependent on benefits which penalize career progress,” he said in a speech on poverty last month. “And so you have a paradox whereby getting into work means you are more dependent than ever on the state.”

While vague on specifics, Mr. Cameron called for more steps to encourage entrepreneurship among the poor and suggested they would benefit if Britain “allowed families to decide where the money for child care went, rather than leaving it up to government.”

For students age 16 to 19 at risk of dropping out or having to work to support themselves, the government offers a program called Education Maintenance Allowance, introduced in 2004 after a pilot test. Children who receive the allowance, which ranges from about $20 to $60 a week, must be from families with an annual income of less than about $60,000. They also must maintain exemplary attendance at school. They are also eligible for two bonus payments of $196 a year for academic progress.

Seventeen-year-old Jennifer Chan, who lives in a poor East London neighborhood, is taking college-preparatory classes at Leyton Sixth Form College, similar to an American high school. She says the allowance she receives helps her focus on academics instead of working after school. It also gives her a little money to spend on her photography hobby. Ms. Chan is hoping to attend the London School of Economics.

The school presses its 1,800 students to sign up for the allowance because it believes the program reduces truancy. About 93% of students who start a course at the beginning of the school year finish it, up from 86% before the program, says school official Dawn Barrett. “Students who might be tempted to skip class think twice about it,” she says.

Write to Emily Nelson at emily.nelson@wsj.com and Jeanne Whalen at jeanne.whalen@wsj.com

Filed by Karen on June 23rd, 2007 under Uncategorized