Child poverty will be a test of Labour’s fiscal prudence

For a taste of the pressures that Labour will almost certainly soon be grappling with, watch a recent interview with Sir Keir Starmer on Sky News, a broadcaster. Pushed on how he would help families struggling with rising taxes and high energy bills, the Labour leader asked voters to trust his instincts: “It’s about who do you have in your mind’s eye?” The interviewer moved swiftly onto child poverty: could Sir Keir pledge to remove the two-child limit, which means families on benefits get no extra support beyond their second child? “I’m not going to make promises that I can’t keep,” he said.

Sir Keir and his shadow chancellor, Rachel Reeves, have spent years building a reputation for fiscal prudence. As a result they now face the prospect of being elected by millions of voters they are bound to disappoint. Tackling poverty would not be the only let-down but it is a good case study of how a Labour government would struggle without money. There are few more urgent causes for the party’s core voters, many of whom work in public services and charities. It is the reason many activists and MPs—and several members of the shadow cabinet—got involved in politics. But the best the party can offer, at least for now, is modest change.

It is true, as Sir Keir likes to point out, that the last Labour government was successful in reducing poverty, particularly among children and pensioners. But that government made little progress in its first term between 1997 and 2001 because, as now, it had committed to tight Conservative spending plans. When it did start lifting people out of hardship, it was due to a booming economy spurred by global tailwinds. That allowed it to “throw money at the problem”, says Mike Brewer of the Resolution Foundation, a think-tank.

The picture now is worse. The overall level of poverty, defined as households with income below 60% of the median, has hardly budged since 2010, hovering at around a fifth of the population. But poverty has deepened. There are now some 6m people “far below the standard poverty line”, according to the Joseph Rowntree Foundation, another think-tank. In 2022 around 4m experienced destitution—meaning they struggled to stay warm, dry, clean and fed—more than double the figure from 2017. In another change, hardship is now predominantly experienced by those in work, often owing to high rents.

Set against this backdrop, Labour’s proposals are timid. None of its five missions focuses on poverty. Its manifesto calls the mass dependence on food parcels a “moral scar on our society” but says little about fixing it. The party wants to develop an “ambitious strategy to reduce child poverty” but so far it has pledged an extra £315m ($400m) for free breakfast clubs (around 90p per pupil per day, depending on take-up). It will review Universal Credit, a welfare payment, so that it “makes work pay and tackles poverty”. Even if growth does tick up, there is little prospect that Sir Keir will find himself atop a government flush with cash, as happened in the 2000s.

The manifesto does offer one clue about how Labour may be thinking about squaring this circle, although it is not a promising one. The party says it will enact the socio-economic duty in the Equality Act of 2010, which would require public bodies to “have due regard” to the outcomes of all their decisions on inequality. That is more likely to gum up decision-making than to tackle poverty. A review of its implementation in Scotland and Wales found it had just created more paperwork.

In the near term the two-child limit is likely to become a totemic issue. There is plenty of evidence that this policy, which came into force in 2017 and was designed to encourage parents on low incomes to work more or have fewer children, has simply pushed children in large families into poverty. That ends up costing the state more. According to the Institute for Fiscal Studies, another think-tank, scrapping it would lift around 500,000 children out of poverty and cost £3.4bn per year by the end of the parliament. For now Sir Keir is making no promises. It is hard to see that position being tenable for long. ■

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