Rise in working poor

The proportion of children in poverty living in a working family rose from 54% in 2009–10 to 63% by 2013–14, according to a report by the Institute for Fiscal Studies.

Its report Living Standards, Poverty and Inequality in the UK: 2015, funded by the Joseph Rowntree Foundation, found that rising employment in the period bewteen 2009 and 2014 combined with a fall in earnings meant absolute child poverty made no progress in the period.

The report found that the proportion of children in workless families fell from 18% to 16% in the six-year period which reduced absolute child poverty by more than 1 percentage point. However, the rate of absolute child poverty in working families rose from 19% to 21%.

The report states that benefit cuts over this parliament “will put upward pressure on absolute poverty for working-age households – including those in work”. It adds: “The planned rises in the minimum wage will help many of those on the lowest hourly pay, but are smaller in overall magnitude than the benefit cuts and less tightly targeted on low-income households.”

The report also found that ‘material deprivation’ (according to what families say they cannot afford) is much higher for social renters, lone parents and disabled people than for owner-occupiers, the self-employed and those with some savings. Among families with children, social renters with averge incomes (after housing costs) are at least as likely to be materially deprived as the lowest-income owner-occupiers. The IFS says this shows the importance of looking at more than just current income to understand low living standards.

It adds that cuts to council tax support and the introduction of the so-called ‘bedroom tax’ in 2013–14 have caused “clear increases” in arrears, on council tax and rent respectively.

The report also examines changes in average living standards and finds the “winners” in the income stakes have been pensioners, whose average income rose by 7% in the period, compared to non-pensioners whose income fell by 2.7%.

It says recent income growth has been much weaker than in the equivalent periods around previous recessions.

The report also analyses changes in inequality, over the short and longer run. It finds that inequality has fallen since the 1990, driven mainly by rises in pensioner income, but in recent years the top 1% have taken an increasing share of household income, up from 5.7% in 1990, to 8.4% in 2007–08 prior to the crisis (and 8.3% in 2013–14).

Workless households have also been catching up with those in work. Excluding pensioners, average income (after housing costs) for workless households is 46% of the average among working households, up from 39% in 1990.

Inequality among working households was rising before the recession, but has fallen since 2007–08. The IFS says this fall reflects the fact that lower-earning working households get more support from in-work benefits, which have been more stable than earnings.

“The recent stability in absolute income poverty among children has masked important and offsetting trends,” said Chris Belfield, a Research Economist at the IFS, and an author of the report. “Since 2009–10, a fall in the number of workless families has acted to reduce poverty, but this has been offset by a substantial rise in in-work poverty. This largely reflects the wider nature of the labour market since the recession: robust employment and weak earnings.”

Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, said: “A strong economy and rising employment have masked the growing problem of in-work poverty, as years of below-inflation wage rises have taken their toll on people’s incomes. The upcoming minimum wage rise will help, but many low-income working families will still find themselves worse off due to tax credit changes. Boosting productivity and creating more jobs which offer progression at work is vital to make work a reliable route out of poverty.”

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