Turning the tide on child poverty

Afternoon all,

It hasn’t been a smooth Budget process and, with apologies, we’d like to issue a correction – our Budget special erroneously stated that new policy on welfare over the course of this Parliament had increased spending by “£0.7bn in 29-30″. The correct number is in fact a drop of £0.5 billion – mea culpa. And no, that is not another error, Government policy is CUTTING welfare spending in this Parliament. We will have to rest up before any of us can even begin to think about applying to the Excel world championships.

In other news, today saw the publication of the Government’s long-awaited Child Poverty Strategy. The flagship policy is the lifting of the two-child limit announced in the Budget. Our Chart of the Week tells you more about the families who will benefit while new analysis published here explains what the strategy means for whether the share of children living below the relative poverty line rises or falls over the Parliament. This milestone was absent from the strategy. But is an important one and, even more importantly, is on track to be met – just.

Have a great weekend,

Ruth
Chief Executive
Resolution Foundation

Running for the hills. Net migration has plummeted to 204,000 in the year ending June 2025, down from 649,000 a year earlier – its lowest level since pandemic travel restrictions lifted. The ONS have a handy explainer on what’s driving the drop. First, the concrete stuff: non-EU immigration fell by 394,000 (37 per cent), with dramatic declines in dependants accompanying visa holders – down from 374,000 at the 2023 peak to just 98,000. At the same time, more international students are emigrating after finishing their courses. But data-quality is playing a part as well: improved methodology using actual administrative data (that’s a good idea) has put net migration around 100,000 per year lower than previously thought. As Alan Manning wisely advised at his book launch here at RF towers yesterday evening, though, politicians should avoid overreacting to the most recent data because changes to immigration policies have a bigger effect in the short-term than the long-term so doing so can lead to boom and bust cycles. For more wise words, read his book.

Weighing up whales. Inflation news incoming… Some clever clogs has done the maths on mammal biomass, and the results are…weird. Humans and livestock make up 95 per cent of the world’s mammal biomass, while wild mammals account for just 5 per cent. Humans alone represent over a third of all mammal weight – more than seven times more than all wild mammals combined. Farmed pigs weigh as much as all the world’s whales, orcas, sea otters, seals, and dolphins combined, whilst all the dogs in the world weigh as much as all wild land-mammals. Chickens haven’t dodged the scales either – poultry weigh more than twice as much as all wild birds. It hasn’t always been this way. Total mammal biomass (including wild animals) has quadrupled since 1850, thanks largely to intensive agriculture.

Spill the pills. This recent blog breaks down how national drug pricing decisions create global ripples that shape future medical breakthroughs. The stakes are high: new medicines added more than a year to US life expectancy between 1990 and 2015, whilst in Spain they explained 96 per cent of the rise in life expectancy for people with cancer between 1999 and 2016. But these advances come with complications. Within the EU, parallel trade – buying medicines where they’re cheaper and reselling them where they’re pricier – can cut manufacturers’ profits by up to 50 per cent, reducing investment incentives. And overall the blog explains that R&D in drugs is a global good that will tend to be underprovided for by national policies on drugs pricing. A pretty important conclusion as the US contemplates reducing drugs spend, and the UK increasing. Good for us for funding a global good – funny we announced it the week *after* the Budget.

The property problem. Had enough of tax chat? Skip on. Property taxes are widely seen by experts as overdue for reform, but politicians love to avoid them. Economists love land taxes because they’re impossible to dodge and don’t distort behaviour (i.e. very efficient). Voters hate them for the same reasons. But this blog argues that aversion isn’t just ignorance. Two separate economic models suggest that inefficient taxes (like alcohol and fuel duty) exist to constrain government power. The Becker-Mulligan model claims that painful taxes keep citizens politically active, limiting tax hikes, whereas efficient taxes go unnoticed until they’re too high. Friedman’s model suggests easy-to-enforce taxes encourage predatory collection. The standard economist prescription – shift toward more efficient taxes – apparently ignores this political economy problem. There are probably enough inefficient taxes left in the system for democracy though, so we’ll keep praising the introduction of a mansion tax I think…

Something for the weekend | Desperately seeking dynamism 

On Monday, the ONS will be publishing new data on UK business dynamism, aka the rate of economic change – how often firms fail and start up, and how fast young firms expand. We’ve already shown that since 2008 job reallocation between firms dropped by one-fifth, slowing growth.

Monday’s data could tell us whether the last few years of higher interest rates, energy prices and minimum wages are beginning to shift resources across the economy. It could be painful for those involved, but also the route to higher wages, incomes and tax revenues.

Why? Because a more dynamic economy tends to be more productive and faster growing. One recent paper made this point nicely. By scraping real-time Companies House administrative data, which indicates that new firms are picking up in recent months (yippee!), they show that an increase in new firms can boost UK GDP and create lasting gains in jobs and productivity.

If you’re keen for more on the mechanisms of why dynamism and growth are linked, this paper finds that a decline in knowledge diffusion from frontier firms to competitors is the key driver behind reduced business dynamism in the US since the 1980s.

Don’t just take my word for it – the Committee for the Nobel Prize for Economics are keen on dynamism too, having awarded half of this year’s gong to Phillippe Aghion for his dynamism-friendly theory “sustained growth through creative destruction”.

So, Monday’s ONS release may well fly under the radar, but it is a super important indicator of our current economic trajectory.

Chart of the week

Today has seen the publication of the Government’s Child Poverty Strategy – the crown jewel of which is undoubtedly the lifting of the two-child limit. For Chart of the Week I wanted to bring to life the circumstances of the families that will benefit from the lifting of the two-child limit. A common objection to supporting larger families within the benefit system is that the parents ought to simply find work to support their children. The reality is that most households subject to the two-child limit (59 per cent) already have at least one adult in work. Of the minority of households that are not in work, more than nine-in-ten (91 per cent) either have a child under three or a disabled family member with additional care needs, making any return to the labour market additionally challenging. Overall, that leaves over 95% of families benefiting from the two-child limit either working, with a child under three, or with a disabled family member.