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Child poverty
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Economic and employment growth alone will not be enough to reduce poverty levels

Without additional targeted policy action, poverty will not fall between 2025 and 2029.

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14 minutes

1. Introduction

A strong economy can increase wages and employment but will not in itself reduce poverty. This new analysis, updating work from September 2024 with new Office for Budget Responsibility (OBR) and Bank of England forecasts, suggests that without additional action from the Government, poverty and deep poverty will remain broadly flat between January 2025 and January 2029, and may well increase unless economic growth is accompanied by employment growth. The picture for child poverty is equally bleak with no progress against the Government’s headline poverty measure under any scenario for Gross Domestic Product (GDP) or employment growth. This does differ by nation of the UK though, where the Scottish Government’s Child Payment and commitment to reverse the 2-child limit from 2026 may start to drive a diverging picture, with child poverty falling in Scotland while rising for the rest of the United Kingdom.

2. What scenarios are we looking at?

The 3 main scenarios we have looked at all focus on changes in poverty levels between January 2025 and January 2029, conditional on different growth assumptions. These take the OBR Economic and Fiscal Outlook forecasts as their inputs wherever possible (see Annex 1 for detailed source notes), and varies these to create a central scenario and 2 more positive scenarios, which are described below.

The main scenarios are:

  • Central: this uses OBR’s final central forecasts for inflation, earnings, employment and housing costs, including policies introduced in the October Budget.
  • Strong economy: this uses higher earnings and employment forecasts, a low interest rate and mortgage scenario, and central forecasts for inflation and rents.
  • Very high employment and growth: This scenario is consistent with the Government’s target for UK GDP per capita growth being the highest amongst the G7 nations over the period, and the Government’s target for an 80% employment rate for people aged between 16 and 64. It uses the higher earnings growth forecast, a low interest rate and mortgage scenario, with central forecasts for inflation and rents.

We have also looked at one more negative scenario:

  • Weak economy: this uses a forecast with higher inflation, lower earnings growth, lower employment and higher housing costs compared to the central scenario.

Positive and negative inputs into the scenarios are all based on published ranges in OBR, Bank of England and HM Treasury forecasts, and are detailed in Annex 1.

Note that these are modelled conditional scenarios. They present a series of necessarily simplified views of the future and are heavily reliant on the forecast variables that are available at the time of our research. They are therefore a guide to what might happen in the future without further policy changes, rather than a forecast. We do, however, believe this work is useful to consider the extent to which growth can tackle poverty and improve living standards, without further policy changes.

3. Economic growth and poverty

Our analysis suggests that without further policy changes, headline poverty (relative poverty, after housing costs using the usual 60% of median income poverty line) is likely to remain largely unaffected by economic growth. Poverty is likely to remain well above 14 million throughout the remainder of the 2020s. In a strong economy with employment for 16-64 year-olds at 80%, poverty is likely to be only around 200,000 lower compared with the central scenario, resting at around 14.6 million people in 2029. Without the significant employment rate boost in the very high employment and growth scenario, a strong economy is even more unlikely to reduce poverty. There is even a risk of a small rise compared to 2025, as incomes in the middle continue to pull away from the incomes of people lower down the income distribution, because of the higher contribution of earnings to their incomes (see Figure 1).

A similar picture is seen for deep poverty, which uses a poverty line set at 50% of median household income, adjusted for family size and composition. This sees small increases in both the central and the high growth scenarios, and poverty falling in the very high employment and growth scenario compared to January 2025, but remains at around 10 million.

Changes in child, pensioner and working-age adult poverty

Poverty is made up of a higher proportion of pensioners and a lower proportion of working-age individuals in the very high employment and growth scenario compared to the central scenario. This is expected given employment increases predominantly benefit working-age adults. The child poverty picture is similar to the overall poverty picture, with little difference across the scenarios (see Figure 2) with, if anything, a small increase in the central scenario. It is at the highest level in the strong economy scenario.

The lack of progress on child poverty here is deeply worrying and shows the need for a step change in the scale of ambition needed in the forthcoming Child Poverty Strategy, so it succeeds in ‘driving down child poverty’, and these disappointing conditional scenario outcomes do not come to pass.

Changes across the income distribution under each scenario

Behind this broadly static picture for poverty across the 4 scenarios are differing distributions of income growth. In the central scenario, real inflation-adjusted incomes are falling across the income distribution by between 0.3% and 0.9% on average per year, with bigger falls for lower-income households. As expected, there is income growth across all deciles in the 2 more positive scenarios, after adjusting for inflation. The strong economy scenario does, however, see inequality rising across household income deciles, with higher income deciles seeing higher income growth. The central scenario and strong growth and employment rate scenario also see slightly higher growth in the upper half than the lower half of the respective distributions. The weak scenario shows a bleak picture, with the largest reduction in real incomes of 3.4% in the second decile and around a 3% reduction across the rest of the distribution.

Another marker of the very different experiences of these scenarios is how absolute poverty might change. For it to go down, incomes in low-income households need to grow faster than inflation – the higher the growth, the larger the reduction. Put simply, this shows whether or not lower-income households are poorer than in the past. Given incomes are falling in the central and weak scenarios, we would expect rising absolute poverty under both these scenarios, but falling absolute poverty in the very high employment and growth scenario, and the strong economy scenario.

How does poverty vary by country and region?

There is a contrast in trends in Scotland, where the rate of child poverty in the central scenario falls over the period from January 2025 to January 2029, and all other UK nations where child poverty increases. This means that child poverty in Scotland moves from being 7ppts to being 10ppts below the level across the rest of the UK. The combined effect of the Scottish Child Payment and the commitment to reverse the 2-child limit from 2026 is to reduce child poverty rates in Scotland to around 80% of its level without either policy. To put this in context, a reduction by this proportion in the rest of the UK would equate to 800,000 fewer children in poverty across the rest of the United Kingdom in January 2029, meaning rather than child poverty rising by 100,000 outside Scotland, it would fall by 700,000. Relatedly, recent work by the Institute for Fiscal Studies has shown large reductions in absolute poverty by increasing the child element of Universal Credit and removing the 2-child limit. Performance on overall poverty is also stronger in Scotland under the central scenario, with poverty falling there, while it is flat in England and Wales, and falling by only half as much in Northern Ireland.

The historic differences in child poverty and overall poverty levels between Scotland and Northern Ireland on the one hand, and England and Wales on the other have mainly been driven by lower housing costs in the former 2 nations, but the differing child poverty trends over the next 4 years are mostly due to differences in Before Housing Costs incomes, as shown by Figure 4 below. Other factors driving differences in poverty levels discussed in UK Poverty 2025 include differences in labour markets (including the levels of employment, the sectors worked in and rates of pay) and rates of benefit receipt, alongside wider demographic factors (age, family types and sizes).

It is worth noting that while this represents a notable divergence from the trend elsewhere in the UK, a rate of 22% relative child poverty would leave the Scottish Government 12 percentage points away from the Scottish Parliament’s target to bring relative child poverty (after housing costs) below 10%.

Our modelling suggests none of the 9 English regions are likely to see a fall in child poverty between January 2024 and 2029, with 5 regions modelled as having increases over the period and the remaining regions showing no change.

4. Conclusion

Without a deliberate shift in redistributive policy across housing, wider costs and incomes, business-as-usual economic growth in the UK is likely to benefit higher-income households more than lower-income ones, and the gap between the middle and the bottom – relative poverty – is likely to remain broadly unchanged at best. This means that, while a faster growing economy would see average incomes and living standards rise, the experience of people with low incomes in how they feel materially or socially excluded compared to everyone else is unlikely to change. Even when accompanied by very high employment, which does improve the living standards of lower-income households more, poverty and deep poverty remains broadly flat between January 2025 and January 2029. This analysis therefore shows the need for a specific policy focus on the living standards and economic security of lower-income households if poverty is to be reduced.

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