Weak pay rises and dearer housing fuel jump in working poor, says IFS

Number in poverty rises to 8m, with 60% living in households where someone works

Britain has seen a big jump in the working poor since the 1990s, with almost three out of five people below the official poverty line living in a household where at least one person is working.

The Institute for Fiscal Studies found that a drop in the number of workless households, better-off pensioners and higher rents had resulted in 8 million in poverty from working households.

The thinktank said that between 1994 and 2017 the share of poverty accounted for by working households had jumped from 37% to 58%.

The in-work poor were living in relative poverty because they were living on less than 60% of median income. The IFS said the less well-off had been financially hit by more expensive housing and by weak earnings growth, but were still better off than they would have been had they been unemployed.

The main poverty indicator used in the Joseph Rowntree Foundation's study is the number of households that have income levels of less than 60% of median income. Using the same measure, the UK was ranked 22nd out of 35 in an international league table of child poverty rates in rich nations put together by Unicef in 2012.

In a 2016 league table of all measures of poverty, the UK did rather better compared with other nations. The study, also by Unicef, ranked the UK joint-14th out of 35 rich nations. This was just above the US, but well below many European countries, notably Denmark, Finland and Norway. On some specific measures the UK did less well, notably education, where it ranked 25th out of 39 countries, and health, where it was 19th out of 35.

In the latest official comparison of poverty across the 28 countries in the European Union, the UK ranked 15th. This was some way behind the Czech Republic, Sweden and the Netherlands but ahead of Ireland, Spain and Italy. The European figures confirmed the JRF’s observation that the number of people at risk of poverty in the UK has risen since 2008.

It added that success in cutting the number of households with nobody in paid employment had been a key factor in increasing in-work poverty.

In the mid-1990s, 18% of working-age households had no one in work but by 2017-18 that figure had dropped to 11%. “Over the same period, the worklessness rate of lone-parent households fell from 66% to 36%. Because lone parents and other groups that have moved into work tend to have low earnings, earnings inequality and in-work poverty have increased, even though by moving into work, these households are themselves better off,” the IFS said.

Another development of the past quarter century – the rapid growth in pensioner income – had also been a factor in concentrating poverty in working households because the impact had been to push up both median income and the relative poverty line.

That meant more working-age families fell below the poverty line and helped explain why there was an increase from 13% to 18% in the proportion of people in working households living in relative poverty. Excluding pensioners from the calculations, the increase in in-work poverty would be closer to 3 percentage points rather than 5 percentage points.

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Xiaowei Xu, a research economist at the IFS, and an author of the research, said: “The gradual rise in relative in-work poverty rates from 13% in the mid 1990s to 18% in 2017 are the result of complex trends.

“The rise in pensioner incomes driven by state and private pensions has pushed up the relative poverty line. Higher employment rates of people who are likely to have low earnings – such as lone parents – are a positive trend, even though this pushes up in-work poverty figures. However, higher inequality in earnings for working households, and considerably higher growth in housing costs for poor households have been key reasons for higher in-work poverty.”

The IFS said that it could find little evidence of an increase in severe poverty – the proportion with very low incomes and spending – during the period since the Conservative-Liberal Democrat coalition came to power in 2010.


Larry Elliott

The GuardianTramp

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