Key economic indicators are outlined below:
In the last quarter of 2009, the economy grew by 0.4 per cent, thus ending the recession. In April, the Office for National Statistics estimated growth for the first quarter of 2010 was 0.2 per cent. In May, this was revised to 0.3 per cent. On 11 June, the National Institute for Economic and Social Research published their monthly GDP estimate, suggesting that growth in Feb - Apr was 0.7 per cent and 0.6 per cent in Mar - May.
On 14 June, the new Office for Budget Responsibility published their Pre Budget Forecast. 
The 2010 Budget Report forecast GDP growth at 1 to 1½ per cent in 2010, 3 to 3½ per cent in 2011 and 3¼ to 3¾ per cent in 2012.
In May, the Treasury published their monthly round up of independent City forecasts for the economy, which this month included medium term predictions up to 2014. The average of these forecasts is 1.1 per cent for 2010, 2.1 per cent for 2011, 2.4 per cent for 2012, 2.7 per cent for 2013 and 2.5 per cent for 2014.
The OBR forecast is less optimistic than the Budget, but less pessimistic than the City forecasts: 1.3 per cent in 2010, 2.6 per cent in 2011, 2.8 per cent in 2012, 2.8 per cent in 2013 and 2.6 per cent in 2014.
The OBR Pre-Budget Forecast predicts that Public Sector Net Borrowing in 2009/10 amounted to £156.1 billion. This is the forecast in the last government's final Budget Report, but does not reflect subsequent revisions by the Office for National Statistics.
By April, ONS revised its forecast down to £152.8 billion; by May, this was further revised to £145.4 billion. The revised estimates suggested that the figure for income and capital gains tax had been under-estimated by £2,467 million, that for NI Contributions by £1,856 million and that for VAT by £554 million. In addition, government spending had been over-estimated by £1,226 million.
From 2001 to 2008, the share of GDP accounted for by 'compensation of employees' fell. With the onset of the recession the share of wages in the economy rose sharply, but this recovery has now been versed for two successive quarters:
The picture for 'gross operating surplus of corporations' has been different. The share of GDP accounted for by corporate profits rose from 2001, fell sharply with the onset of recession, rose in the 3rd and 4th quarters of 2009 and fell back slightly at the start of 2010:
According to Incomes Data Services, (the www.IDSPay.co.uk database for the 12 months to 11 June) the whole economy median for pay settlements is 1.99 per cent, with the lower quartile being pay freezes and the upper quartile starting at 2.5 per cent. IDS Pay Report (1050) has noted that the number of private sector pay freezes is falling but the picture is different in the public sector - of 20 public sector settlements effective in April 7 are freezes.
The figures for average weekly earnings (which reflect increased hours as well as hourly rates) have been a little healthier. The percentage change for the year to March (three month average) was 4.0 per cent - but this reflects increases in bonuses, especially in finance and business services. The year-on-year increase for regular pay was 1.9 per cent, very much in line with figures since the start of the recession.
Inflation continues to be above the Bank of England's 2 per cent target, but has fallen back slightly from last month's levels. The Consumer Price Index figure for the 12 months to May was 3.4 per cent (down from 3.7 per cent in April). The Retail Price Index continues to be higher, at 5.1 per cent (down from 5.3 per cent in the 12 months to April).
The largest contribution to the CPI rate again came from transport, which contributed 1.57 percentage points; the largest contribution to the RPI rate was again from motoring expenditure, which contributed 2.16 percentage points.
On 10 June, the Monetary Policy Committee voted to keep base rates at 0.5 per cent and to maintain quantitative easing at £200 billion.
A survey of 25 economists carried out by the Daily Telegraph on 9 June asked, 'When will the Bank start raising interest rates and how high will they go?' On the timing, the median answer was that the Bank rate would start to rise next year:
On the question of how high rates would reach, the median was around 3 per cent:
Several of the economists linked their answers to the government's fiscal policy, with lower interest rates being more likely if cuts are harsher. Some predicted that the Bank would expand Quantitative Easing if massive cuts were introduced.
On 19 May, the Bank published its monthly summary of the reports on business conditions from their regional Agents. The overall picture was of a continuing recovery that was still weak.
Demand was a little healthier, with retail sales growth stable after a period in which it had been slowing. Business investment was stable, with 'occasional reports' of plans for increased investment. This improvement was tempered by the fact that 'few companies planned to invest in additional capacity, given the significant margin of slack within businesses.' Import and export volumes had grown, but exports were held back by low levels of demand in the UK's trading partners.
Output showed some hopeful signs, with business service turnover and manufacturing output recovering gradually. Output in construction was stabilising after a long decline.
On the key issue of utilization, it was clear that there was still significant spare capacity. 'Most businesses believed that, were demand to recover rapidly, they could increase output easily without additional capital or labour.'
Last Month the Organisation for Economic Co-operation and Development published its latest Economic Outlook.
This edition presented the OECD's prescription for the next stage in dealing with the global recession. It was immediately challenged by leading commentators, including Martin Wolf in the Financial Times and Paul Krugman writing in the New York Times about the recommendations in the US chapter that were similar to those in the UK chapter.
This accepted that 'the fragile state of the economy' should be taken into account 'when deciding the initial pace of the consolidation' but 'a weak fiscal position and the risk of significant increases in bond yields make further fiscal consolidation essential.'
The chapter went further than many UK commentators in arguing that, while monetary policy should remain expansionary at present, 'the process of normalisation of interest rates needs to start soon in response to the expected gradual rise in underlying inflation.'
The UK chapter forecasts unemployment at 8.1 per cent in 2010 and 7.9% in 2011, and GDP growth at 1.3 per cent in 2010 and 2.5 per cent in 2011. Elsewhere, the OECD forecasts the UK's 'output gap' (the deviation of actual from potential GDP) as 6.2% this year and 5.1% next year. These figures suggest that lack of demand is the real threat.
The UK chapter forecasts inflation falling to 1.5 per cent in 2011, and acknowledges that the current level of inflation is 'largely due to the increase in the VAT rate in January 2010' and, once this is excluded, 'inflation has been falling more or less continuously since mid-2008.'
The OECD argues that rising yields on government bonds justify tougher consolidation measures. The UK chapter forecasts rates on ten year government bonds rising to 5.3 per cent next year, but this is only a little above the 5.0% that existed in 2007, just before the recession.
Elsewhere, the Economic Outlook reports on the very long maturities of UK government securities. The average remaining maturity of UK securities is 13 years - by far the highest of the major economies surveyed. 20 per cent of UK securities mature within three years, the lowest proportion of any country; 42 per cent mature beyond ten years, the highest proportion of any country.
The Coalition has recently announced that Frank Field MP will be leading an internal review on Poverty and Life Chances considering 'poverty in the UK and what the Government can do to improve the lives of the least advantaged people in our society.'
The Prime Minister has asked Mr Field to give particular consideration to the time people spend in 'deep poverty', the gap between those in 'deep poverty' and 'mainstream Britain' and the 'problems of multiple deprivation and what keeps people trapped in poverty'.
It is likely the review will lead to significant reforms, including a re-definition of how the government measures poverty. This could make a real difference to the nature and scale of the anti-poverty policies the government chooses.
We have therefore chosen to use the second section of this Economic Report to consider how poverty is defined and how definitions of poverty impact upon the policy responses that Government make.
There is no single definition of poverty, and measuring and defining poverty is politically contentious. In recent decades, political debate around poverty in the UK has focused on whether poverty can be measured in absolute terms, or is by definition a relative term.
While early definitions of poverty focused on an absolute level of income, for example Rowntree's work on minimum subsistence levels in the late 19th century, the claim that poverty refers only to a state of being unable to meet basic physiological needs is now deeply contentious, as such an understanding takes no account of the social needs of human beings or of the lack of any absolute standard for assessing minimum levels of human subsistence. In his seminal study 'Poverty in the United Kingdom', Peter Townsend concluded that:
'Poverty can be defined objectively and applied consistently only in terms of the concept of relative deprivation... Individuals, families and groups in the population can be said to be in poverty when they lack the resources to obtain the type of diet, participate in the activities and have the living conditions and amenities which are customary, or at least widely encouraged or approved, in the societies to which they belong. Their resources are so seriously below those commanded by the average individual or family that they are, in effect, excluded from ordinary living patterns, customs or activities.'
Under the Conservative Governments from 1979 to 1997 there was no officially defined relative or absolute poverty line. In 1989, John Moore MP, Secretary of State for Social Security, claimed that as most people in UK were able to feed and clothe themselves, poverty as most people understood it had been abolished. He stated that those who criticised the Government's policies were 'not concerned with the actual living standards of real people but with pursuing the political goal of equality...their purpose in calling 'poverty' what is in reality simply inequality, is so they can call western material capitalism a failure'. Moore's view was that poverty could only be absolute, and that the abolition of relative poverty, and the greater equality of incomes that this would necessarily require, should not be a concern of Government. This view was echoed by his Assistant Secretary who stated that 'the word 'poor' is one the Government actually disputes'.
Despite softened rhetoric, this view prevailed throughout the 1990s. During this period, rather than emphasising its ideological opposition to the existence of poverty, the Conservative Government claimed that it was simply impossible to measure it: when asked how the Government measured absolute poverty John Burt MP, a Minister in the Department for Social Security (DSS) stated that 'no Government in the United Kingdom have ever accepted that it is possible to identify a single simple measure to define poverty in any meaningful way...rather than relying on narrow arbitrary definitions this Department publishes an extensive range of analyses and information of the incomes and characteristics of people in the lower half of the income distribution.'
As the Government refused to acknowledge the existence of poverty, reducing or limiting its impacts were not Government objectives. As a result, policies affecting poor families often exacerbated their poverty rather than reducing it. For example, the link between earnings and benefit uprating was broken, Local Education Authorities were no longer required to provide nursery education or school meals to children other than families claiming specific out of work benefits and child benefit was frozen for several years. The Government's management of the economy, combined with its lack of an anti-poverty focus, meant that poverty rates increased dramatically during the mid to late 1980s, and continued to increase then stabilise in the 1990s. Between 1979 and 1994 the proportion of the people living below 50 per cent of average income after housing costs had increased from 9 per cent to 24 per cent (13.7 million people) and the number of children living in poverty had more than doubled; by 1997 around a third of children in the UK lived in poverty.
Following Labour's election in 1997, the Government's approach changed. The existence of poverty in the UK was acknowledged, and in March 1999 Tony Blair announced a specific Government commitment to eradicate child poverty within a generation and to achieve significant interim reductions. He also set out the Government's aspiration to 'make sure that we are measuring child poverty in a way that helps target effective policies that make a real difference to children's lives, and in a way that clearly shows whether, and how far, we are progressing'.
An extensive consultation was then launched on how to measure progress and to define poverty. The consultation provided respondents with four options for developing a poverty measurement standard:
Consultation events were held with children, young people and adults living in poverty, and a larger number of voluntary and statutory sector organisations provided formal consultation responses. The Government published a full analysis of respondents' views, and reported that the outcome of the consultation indicated that:
The Government therefore decided upon a tiered approach to measuring poverty, using 'a set of inter-related indicators capturing different aspects of poverty while respecting the finding of our consultation that income is at the core of people's conception of poverty.' The measure considered:
The measure of relative income poverty was based on the number of children living in households with less than 60 per cent of median income, with both before and after housing cost measures taken into account. It was also agreed that all income data would be equivalised - adjusted to take into account variations in household size and composition. The equalivalisation scale used was selected to ensure comparability with other European countries.
In addition to these top level indicators, from 1999-2007, annual Opportunity for All reports published Government progress against a range of outcome indicators, covering children and young people; people of working age; people in later life and communities. These 41 indicators considered areas including teenage pregnancy, school attendance, 16-18 year olds not in education, employment or training, worklessness, rough sleeping and life expectancy - as well as measures of relative, absolute and persistent low income.
Concerned to ensure that future Governments continued to prioritise child poverty reduction, Labour also introduced a Child Poverty Bill, which obtained Royal Assent on 25 March 2010. This Act requires the Secretary of State to meet four targets to eradicate child poverty by 2020. It requires the Government to develop a strategy every three years (first being before March 2011) to meet these targets and to report annually on progress. It also conveys duties on local authorities and provides for the establishment of a Child Poverty Commission. The four 2020 targets set out in the Act are:
Labour's detailed child poverty targets led to a specific policy focus on initiatives that would reduce child poverty. In addition, despite formal poverty reduction targets, a significant focus was placed on measures that would reduce pensioner poverty.
A range of policies were deployed to meet these aims. Measure to improve family incomes, including the National Minimum wage and tax credits, improved in-work incomes, and the provision of free or subsidised services, in areas including health, education, childcare and housing, provided families with improved 'benefits in kind'. Pensioners also benefited from a number of new allowances (including winter fuel payments and free television licenses) as well as access to improved benefits such as Pension Credit.
The IFS has recently undertaken a comprehensive analysis of how successful Labour was at reducing poverty during its time in office. Key findings include:
The broad picture is that poverty fell - although not uniformly - during Labour's three terms. While both child and pensioner poverty have fallen significantly, working age poverty (for childless households) has increased. These outcomes reflect the Government's strategy of targeting poverty reduction measures on pensioner households and families with children.
It is in this context that the current Government is seeking to review the overall approach to tackling poverty. Goodman et al (1997) suggest that the approach that different Governments take rests on two central decisions:
The Government's intentions on poverty measurement remain unclear. In 2005, as Shadow Work and Pensions Secretary, David Willetts MP stated that the Conservative approach to poverty measurement needed to recognise 'that one the most important aspects of poverty is that people don't have enough money', and that tackling relative poverty (as well as focusing on decent values and 'spreading ownership and choice') was central to a Conservative poverty reduction strategy. Specifically, he informed the audience that (our italics):
'It is not the only measure, it is not by any means a perfect measure, but it has been measured consistently now for 20 years and is a very useful benchmark. I can confirm today that a future Conservative Government will continue to produce data measuring poverty as 60 per cent of median income and will accept that this is a powerful measure of our performance in tackling poverty. Putting such a measure centre stage will show the world we are serious about tackling poverty.'
The Centre for Social Justice's pre-election report to the Conservative party also made some attempt to address the 'legacy of the 80s', acknowledging that the proportion of children in poverty (on a relative measure) rose from 12 per cent in 1979 to 27 per cent by 1992 and that finding 'solutions to the high levels of inequality that still persist' should be part of the work of the modern Conservative party.
There has not been any formal statement from the Coalition Government on whether these sentiments will be reflected in its approach. We do however know that its current poverty review aims to:
Within these terms of reference it is difficult to know whether changes to what is currently measured (a combination of income and wider indicators) are being proposed, and if the review could include changes in the measurement of the poverty line, or to the specific focus on reducing child poverty. It does however seem certain that a change in policy approach the Government takes to tackling poverty will emerge.
While there is as yet no indication of how the Commission will approach its work, there has been wider recent interest in re-defining poverty.
Some have advocated a return to the pre-1997 approach, combining an ideological opposition to relative poverty measures with practical objections, based on the 'arbitrary' nature of the current poverty line and the limitations of available data (an approach which is similar to that of the Major Government). For example, Policy Exchange have claimed that 'what the Government claims when it talks of poverty is not what most people in Britain think of as poverty', criticising the Child Poverty Bill for having 'as much to do with income redistribution as with the alleviation of poverty'. The organisation has also set out detailed objections to the 60 per cent of median income poverty line, claiming that as incomes fluctuate over time, as people move in and out of poverty and as the before and after housing costs measure provide different outcomes, the targets are 'hopelessly flawed, and do not measure hardship accurately or reliably'.
Others have advocated the retention of some income measures, combined with wider criteria. For example, Demos have recently launched a project to develop 'a new, multi-dimensional measure of poverty that will take into account the full range of factors that affect quality of life and wellbeing', claiming that as access to health and education services define family living standards as well as incomes, poverty measurement needs to quantify access to public services. While they appear to support the retention of an income target, they also believe that the 60 per cent of median income definition is 'arbitrary'.
The Centre for Social Justice (CSJ) are opposed to the use of 'income alone' as a means to measure poverty and believe that 'a system - such as the current one - that trades off cost and income distribution in way that leads to large numbers of households earning little or nothing, yet receiving large transfers of income, ends up imposing greater long-term costs on society.' Their argument is that poverty measures that focus on income do not differentiate between the 'superior social value' of earned income compared to income that is provided through the benefits system. The CSJ also believe that the existing child poverty target creates work disincentives, as it relies upon relatively generous out-of-work benefits for children, and that the 60 per cent of median income measure 'skews priorities' as incomes of those 'just below' 60 per cent are raised 'just above' the target, while the problems experienced by those in 'deeper poverty' and in persistent poverty are not addressed. They state that 'a better and more even-handed approach would be to eliminate deeper poverty first, rather than monolithically halving the number below 60 per cent of median income'.
Despite these criticisms, the 60 per cent definition is not an arbitrary one - it is an internationally recognised standard that allows UK poverty levels to be compared with other countries around the world. It also represents a strong Government recognition that poverty is a relative concept, and should be defined in relation to the current social norms and incomes.
It is also worth remembering that previous Governments recognised both that income should be central to any poverty measurement and that income alone does not provide a wide enough measure of poverty. Consequently, during Labour's period in office, both income data and a range of other social outcome data have been regularly reported against. Labour's approach also moved to recognise the importance of reducing persistent poverty: the 2020 child poverty targets, set out in the Child Poverty Act, are based on both relative and persistent poverty measures.
Finally, the claim that the focus of the current poverty line means that 'severe' poverty is being ignored cannot be substantiated. The IFS have shown that while the fraction of the population living in households with an income of less than 40 per cent of median income has increased, this statistic does not provide grounds on which to argue that severe poverty has grown. In particular, they draw attention to the fact that much of the increase resulted from a rise in self-employment, meaning that while the numbers reporting an income measured as zero or between zero and 20 per cent of median income at any given time rose, living standards remained far higher (as incomes for self-employed people show high levels of fluctuation over time).
History tells us that when previous Conservative Governments have picked fights over poverty definitions they have been motivated by an ideological belief that relative deprivation should not be a Government concern - it remains too early to tell whether this Coalition will do the same.
It is also too early to determine what the Government's broader strategy on poverty will be. But the TUC believe that if the Government is serious about continuing to tackle poverty in the UK it will have to answer some important questions:
Will its poverty measure take account of relative poverty and inequality?
The Conservatives and the Liberal Democrats supported the Child Poverty Bill as it passed through Parliament. However, it is conceivable that the new Government will choose to focus on family and child outcomes rather than income levels, or that the 60 per cent of median income measure may be dropped in favour of a 'severe' poverty indicator. Losing this important and internationally comparable benchmark of relative poverty would be extremely regressive, and would indicate that inequality is not an issue that will concern the Coalition. While there may be a sensible argument for supplementing existing income measures with additional indicators, for example re-introducing the monitoring process provided by the Opportunity for All series, any attempt to measure poverty without reference to income would be extremely misguided.
Will the Government recognise the relationship between economic policy and poverty?
The TUC does not believe that it is possible to develop a comprehensive poverty reduction strategy within the fiscal parameters that the Government has set itself. Overall, public services benefit poor families more than rich ones. A commitment to make spending cuts of around £60 billion, with the majority of the adjustment borne by spending cuts rather than tax rises, makes it inevitable that outcomes and life chances for people living in poverty will suffer.
During the last Government's time in power, there were significant increases in health and education spending - leading to real improvements in outcomes. Spending cuts will lead to inevitable reductions in service quality, meaning that even non-income based measures, for example education outcomes or youth unemployment, are likely to start to decline.
Cutting spending on the scale that the Coalition are proposing will also inevitably increase poverty and inequality - access to services for the poorest will decline, meaning that the redistributive effect of good quality service provision will also fall.
Will tackling poverty be a serious priority?
Responsibility for child poverty currently sits with the Minister for Disability (Maria Miller MP), along with the Economic Secretary to the Treasury (Justine Greening MP) and the Minister of State for Children and Families (Sarah Teather MP). While the retention of cross-departmental responsibility is welcome, there has not yet been any Ministerial indication that reducing child poverty remains a key Government priority. In fact, policy decisions so far have arguably reduced the chances of poverty reduction targets being achieved: Government action to date has included scrapping the Labour administration's commitment to extend free school meals to low-income working families, cuts in schemes to support children's reading and writing and cutting funding for extended schools. In addition, in its spending review framework, the Treasury has indicated that significant cuts in social security and pensions are likely to be on the cards, and the Government has as yet failed to respond to calls to sign up to a Fairness Test (an inequality impact assessment to ensure that tax rises and spending cuts do not lead to an increase in inequality of incomes, assets or access to service). Despite much rhetoric on 'helping people in the UK escape poverty' a strategic vision for how this will be achieved has yet to be articulated.
Will some poor people be seen as more deserving than others?
The Coalition has been quick to criticise 'severe problems of family breakdown' in the UK, arguing that it is associated with a number of poor outcomes for adults and children. The Cabinet Office have stated that family 'dysfunction' will be a key Government concern. The Government is also keen to address supposed 'couple penalties' in the benefits and tax credit system, which the Centre for Social Justice have argued disincentivise couples from staying together and make lone parenthood more 'financially attractive'.
The TUC would be extremely concerned if these views led the Coalition to prioritise poverty reduction measures for some families over others - it remains the case that lone parents and their children face a far higher risk of poverty than couple families, and that reducing child poverty is the best means to improve children's outcomes. The TUC would also be concerned if a focus on improving outcomes for those in 'working poverty' led to significant reductions in social security entitlements (and consequent poverty increases) for those unable to work, including disabled people and people caring for adults or for young children.