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Without the recent improvements made to the tax and benefit system for those with low incomes, poverty would be much worse. But it is also clear that more help will need to be directed towards poorer households if the Government is to reach its longer-term targets. Staying on track to halve child poverty by 2010 will be increasingly hard to achieve and require substantially more redistribution of national income towards the poorest families."

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 cigarettesThe incomes of many pensioner households are clustered close to the poverty line; while their housing costs tend to be significantly lower than those of working-age adults. This means that the numbers measured 'below the poverty line' are particularly sensitive to where the line is placed and whether housing costs are included in the calculation. Calculated after housing costs, more than 1.2 million pensioners will have been raised above the poverty line by policies that include the Minimum Income Guarantee. But when household incomes are measured before deducting housing costs the expected reduction in pensioner poverty is only 270,000.

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A further analysis, looking at the impact of changes in duty on cigarettes, alcohol and petrol, and other indirect taxes, shows that poor families tend to be disproportionately affected. Even so, the overall reduction in poverty since 1997 would only be marginally lower if indirect taxation changes were reflected in official figures.

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Holly Sutherland, director of the Microsimulation Unit at Cambridge University and co-author of the report, said: "Reducing child poverty by a quarter would be a significant achievement, but our study also shows the challenge that the Government has set itself in tackling poverty. Rising employment - 'work for those who can' - has made a real contribution to reducing poverty in the past six years, but there are limits to how much further employment measures can be expected to reduce poverty."

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