Setback for Labour as child poverty rises for the first time since 1997

Relative poverty has risen in Britain for the first time since Labour came to power in 1997, according to the Government's own figures.

Child poverty has increased for the first time in six years, prompting fears that ministers will miss their target of halving the number of children living in poverty by 2010. The statistics are a huge setback for Labour and were described by charity Barnados as "a moral disgrace".

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The Department of Work and Pensions figures showed that the number of people in relative poverty, defined as households with income below 60 per cent of the median (after housing costs), rose from 12.1 million in 2004-05 to 12.7 million in 2005-06. The number of children in poverty rose by 200,000 to 3.8 million, while the number of working age adults without children below the poverty line reached its highest level since records began in 1961.

Although 600,000 children have been lifted out of relative poverty since 1997, Labour will now have to lift an additional 1.6 million children above the poverty line by the end of the decade to hit its target.

The independent Institute for Fiscal Studies (IFS) forecast that, on current trends, the Government would fall 800,000 short of its goal and needs to spend an extra £4bn on helping poor families to have a 50-50 chance of achieving it.

Apart from a 100,000 fall in pensioner poverty, most measures of income poverty and inequality increased in 2005-06, said the IFS. It added that the figures would be of particularly concern to the Government because the tight squeeze on public spending announced in last week's Budget would limit its room to pay more generous benefits and tax credits.

Ministers remained commit to the anti-poverty target and played down the figures as a statistical blip caused by self-employed people not disclosing their full incomes. But Jim Murphy, the Minister for Welfare Reform, admitted more needed to be done. "Despite these figures we have, over the past decade, had the fastest falling levels of child poverty in Europe," he said.

Opposition parties said the figures showed the limitations of Labour's tax credits. George Obsorne, the shadow Chancellor, said: "We need a different approach. Simply throwing money at the problem has failed."