Cash benefits boost poor families’ incomes, and if parents struggle to make appropriate spending choices, food vouchers can help them to buy more and better-quality food for their children. But many of the very poorest families fail to take up the vouchers or have restricted eligibility.
In the UK, 4.3 million children (31%) live in relative income poverty, a rate that is high compared with other European nations. One consequence of income poverty is difficulty in accessing food to make up a healthy diet, known as food poverty. The footballer Marcus Rashford brought this concern to the political foreground in 2020, campaigning for extensions of the free school meals programme into the summer holidays. Free school meals are one of several forms of government support provided to low-income families with children.
Most government support is given in the form of cash transfers into recipients’ bank accounts. Exceptions to this are the free school meals programme, which directly provides food to children at school, and the Healthy Start scheme, which provides vouchers that can only be spent on a limited set of healthy foods (fruit, vegetables and milk). One challenge that policy-makers face is how to balance the use of cash benefits compared with vouchers in supporting the incomes of poor families.
Ultimately, the main reason to expand food voucher schemes as opposed to cash benefits is that some parents – for lack of information or other reasons – do not buy enough healthy food. Voucher schemes are one policy that governments can use to boost some children’s consumption of healthy food, improving their diet, health and ability to learn in school.
But some voucher schemes have low take-up relative to cash benefits, and their strict eligibility thresholds mean that many poor working families miss out because they do not meet the criteria. The strict eligibility thresholds also create sharp incentives for people not to earn small extra amounts of income, because they would lose more in value in the vouchers than they would earn.
What are the current benefits provided to poor families with children?
There are three main types of benefits that are paid to families with children in the UK:
- Child benefit is paid to almost all families with children who are eligible (92% in 2018). Families get £21 per week for the first child and £14 per week for additional children. Families with a parent earning over £60,000 are not eligible.
- Universal Credit is a means-tested benefit paid to low-income families, with amounts varying by family size, rental costs and earnings. A means-tested benefit is one where the amount the recipient gets paid depends on their income, and higher-income families are not eligible. An out-of-work single parent with two children, for example, would receive £190 per week plus a payment related to their rent.
- Food-related benefits or vouchers for poor families with children. Free school meals are provided to children from low-income families in schools (worth around £12 per secondary school pupil per school week). Healthy Start vouchers are paid to low-income pregnant women and those with children aged under four. These can be used to buy milk, infant formula and fresh/frozen fruit and vegetables. The vouchers are worth more (£8.50 per week) for parents with a child under the age of one.
Why specifically target benefits at children?
There are good reasons for the government to provide welfare benefits to low-income families with children. For example, governments use welfare benefits to redistribute resources from richer families towards poorer families. We typically think that the value of an extra £1 of spending is higher for a lower-income family than for a higher-income family. This means that many people have some preference to redistribute income (meaning that they want the government to take money away from higher-income households and give it to lower-income households).
Welfare benefits also provide ‘insurance’ for temporary obstacles or difficulties, such as losing a job or having a young child. One of the main reasons that governments target families with children specifically is because of a desire to provide equality of opportunity. Healthy development of children is crucial for future wellbeing, and low incomes make it difficult for parents to ensure that their children are healthy and perform well at school.
There a number of complicating factors and potential costs of providing these benefits. First, there is the tricky question of how to raise the money to pay for the benefits. Higher taxes often distort productive economic activity (for example, taxing people's income reduces their incentives to work and taxing companies reduces their incentives to invest), while cutting government spending elsewhere may harm the children whom the benefits aim to help (for example, if education spending were cut) or other people (for example, if healthcare spending were cut).
Second, the payment of benefits might lead people to respond in ways that reduce economic efficiency, or that are bad for the recipient themselves in the longer run. For example, receiving higher out-of-work benefits – benefits that only go to people who do not have a job – will reduce the incentives for people to try to find paid work.
The level of benefits that poor families with children in the UK are eligible for has changed dramatically over the last 25 years. The New Labour governments substantially increased means-tested benefits: a workless lone parent with two children saw an increase of 62% (or £96 per week in 2020 prices) between 1997 and 2010. Since 2010, governments have cut back benefit entitlements. Figure 1 shows that on average, entitlements for workless families with children have fallen by 16% between 2011 and 2020, but the decrease is larger for families with three or more children.
Figure 1: Change in real average benefit entitlements for workless families with children between 2011 and 2020
Source: Bourquin et al, 2020
Notes: Adjusts for inflation using CPI plus mortgage interest payments. Excludes temporary benefits increases (to Universal Credit) in 2020, which are expiring in autumn 2021.
What is the right balance between cash benefits and food vouchers?
Regardless of the overall spending on welfare benefits for poor families with children, policy-makers have to decide how to balance welfare provision across different types of benefits, with regard to a number of important factors.
How do different types of benefits change what foods people buy?
Vouchers allow people to spend money on a certain subset of goods – for example, Healthy Start vouchers can be spent on fruit, vegetables or milk. For families that already spend at least as much on eligible items, the voucher is basically the same as a cash benefit. This is because these families will happily spend all their vouchers on the eligible foods, freeing up other income for non-food purchases.
For families who currently spend less than the value of the voucher on the eligible goods, the vouchers are likely to increase spending on the eligible items by more than an equivalent cash benefit. Previous research has found that around six in ten of people eligible for Healthy Start vouchers were previously spending less than the value of the vouchers on eligible items, and that the voucher increased consumption of the targeted items.
There may be additional effects of a voucher, even on people who already spend more on the eligible goods than the value of the vouchers. This is because labelling a benefit can potentially change the way people spend the money, and encourage them to spend more on the eligible items. This mechanism might help to guide parents towards increasing the amount of healthier foods that they buy.
What are the consequences of different eligibility rules?
The various benefits for families with children have different eligibility rules. Child benefit is near universal, meaning that almost everyone gets it (below a high income level). Universal Credit is provided to most low-income families, with the amount received gradually becoming lower the more the parents earn. In contrast, free school meals and Healthy Start vouchers both have discrete eligibility criteria – people either do or do not get them – and they are only available to families with very low post-tax earnings – families are ineligible for Healthy Start vouchers if they earn over £4,900 per year, and for free school meals if they earn over £7,400 per year.
Healthy Start vouchers are also available for low-income pregnant women before they give birth to their child. This is one of the few benefits that is available to pregnant women and is important because expectant families face costs preparing for the arrival of their child, but generally receive little government financial support for this.
These eligibility rules have important consequences. The fact that free school meals and Healthy Start vouchers are only available at very low income levels mean that 40% of poor children are not eligible for them. In comparison, almost all poor families with children are eligible for child benefit and at least some for Universal Credit.
Also, the fact that eligibility is cut off entirely at a specific level of income (as opposed to being gradually reduced as income increases) mean that free school meals and Healthy Start vouchers provide particularly strong incentives for families not to increase their income around that level. This is an important issue with means-tested benefits – making them conditional on recipients’ income level discourages people from seeking to earn more, because they lose the benefits if their income increases.
In the case of Healthy Start vouchers and free school meals, the fact that families are either eligible or not creates a sharp cut-off (or discontinuity) in the amount of government support to families. This reduces incentives to work if a new job (or extra hours or effort) would take them over the eligibility threshold.
Arguably, this is also a source of unfairness as families with small differences in income will receive very different levels of support. Although the gradual means-testing of Universal Credit also reduces incentives to work or increase earnings, it does not have this sharp discontinuity that makes people worse off from earning a few pounds more.
For some groups, policy-makers may not worry too much if work incentives are weak. Women with children under six months are unlikely to work much irrespective of the financial incentives. At the same time, the likelihood that women with children work is generally thought to be quite responsive to financial incentives, meaning that lower work incentives can have important effects on women’s employment rates and the incomes of children in poverty.
One way around this issue is to make these programmes universal, as is done for free school meals for children in reception classes and Years 1 and 2 in England and Scotland. Of course, this implies a significantly higher cost to the taxpayer.
Take-up varies across the different benefits. Figure 2 shows differences in take-up rates among eligible families. Child benefit has a take-up rate of over 90%. Free school meals have the next highest take-up rate of 87% in 2018, slightly higher than Child Tax Credit (a pre-cursor to Universal Credit).
Take-up of the Healthy Start voucher scheme has fallen to 66% in 2018, lower than the other benefits. A review of the scheme in 2018 suggested that reasons for low take-up included: the large amount of information provided by midwives alongside explaining the scheme; and low English and/or literacy levels. Low take-up of Healthy Start vouchers means that the scheme may be less effective at boosting incomes or consumption of healthy food than schemes with higher take-up such as free school meals.
Figure 2. Take-up rates of different child-related benefits, 2011-18
Source: Gov.uk Child Benefit statistics, Child Tax credit statistics, First Steps Nutrition Trust, and Holford and Rabe (2020).
Note: the decline in take-up of child benefit is related to the introduction of the High Income Child Benefit Charge since 2013
What are the options for expanding Healthy Start vouchers, free school meals or cash benefits?
How could the government direct more welfare spending towards poor families with children if it wished to do so? Expanding cash-based benefits is straightforward. The main options include increasing the amounts that poor families receive per child; increasing the amount that they can earn before having benefits tapered away; or lowering the rate at which benefits are tapered away as families earn more.
There is a wider range of options for expanding food vouchers such as free school meals or Healthy Start vouchers. One option would be to expand eligibility to a wider set of families, by increasing the earnings level below which families are eligible. This would lead to a higher fraction of poor families being eligible, although it would not mean any change for the very poorest families who already are eligible.
Another option would be to increase the value of the benefit per voucher, for example, making the Healthy Start voucher £8.50 per week to all those eligible, not just those with a child under one. For free school meals, this could involve paying schools more to provide the lunches, although this would only benefit children if it led to schools providing more nutritious meals.
A final option would be to provide free school meals at different times of the day or year. This could come through providing food parcels (where quantity and quality would presumably need to be regulated or checked) or food vouchers to be spent in school holidays, or by providing healthy free school breakfasts in addition to lunches. This could have the additional benefit of boosting concentration among those children who do not eat breakfast at home prior to the school day.
Where can I find out more?
- What difference will the COVID Summer Food Fund make to children’s lives? – Economics Observatory.
- The UK Healthy Start scheme. What happened? What next? – First Steps Nutrition Trust.
- Living Standards, Poverty, and Inequality in the UK: 2020 – Institute for Fiscal Studies.
- The Impact of the Universal Infant Free School Meal Policy – Institute for Economic and Social Research.
Who are experts on this question?
- Britta Augsburg, Institute for Fiscal Studies
- Claire Crawford, University of Birmingham and Institute for Fiscal Studies
- Jonathan Cribb, Institute for Fiscal Studies
- Ellen Greaves, University of Bristol and IFS
- Stephanie von Hinke, University of Bristol and Erasmus University Rotterdam
- Birgitta Rabe, University of Essex