5 December 2018

There’s more to in-work poverty than the alarming headlines suggest


At first glance, yesterday’s report on poverty from the Joseph Rowntree Foundation looks like pretty grim reading.

“In-work poverty has risen faster than employment.” “Four million workers in poverty.” “People in poverty now more likely to be working than not working.” There are indeed some sobering conclusions to be taken from the report – but they are more nuanced than the headlines suggest. The one thing we should not conclude is that the UK’s astonishing rates of employment growth have been a bad thing. What does shine through is that making work pay for those on the lowest incomes, and for certain groups in particular, should be at the very top of the Government’s agenda.

Let’s take the first of those headlines: “In work poverty has risen faster than employment”. This is a statement which could mean a number of things, so let’s be absolutely clear: it does not mean what that wording makes it sound like it means. It does not mean that the number of working people who are in poverty has grown by more than the number of people who are in work generally. All it means is that the percentage increase in the number of workers in poverty has been greater than the percentage increase in the number of workers. These are two very different things.

Really, the question should be whether a greater proportion of people in work are in poverty, and if so why. The answer to the first part of that is; yes, but by a lot less than the media coverage would lead you to believe. The proportion of people in work who are in relative poverty stands at 13.5 per cent, compared to around 12 per cent in 2010. These are much more modest figures than are suggested by some of the headlines.

Over a 20 year period the rise has been more significant – four percentage points — but this means that most of the rise in in-work poverty is actually accounted for by the Labour years. I’m not saying this to suggest it doesn’t matter because “it’s Labour’s fault”. Rather, I’m saying it because of the JRF’s own explanation for this, which is that in the pre-recession years “the value of in-work benefits increased at a slower rate than average income”. In other words, because wages were growing faster than tax credits and other benefits paid to people on low wages, more low-paid workers were falling below the 60 per cent of median income threshold.

The question we have to ask ourselves is: would most people really see that as a bad thing? Isn’t high wage growth what we aim for in our economic policies?

We must also remember that a big part of the story is being left out, namely pensioners. You have to remember in all of these poverty statistics that “it’s all relative”. Compared to 20 years ago, we have seen a very significant drop in levels of pensioner poverty, falling from roughly 30 per cent to around half that level today. That is a huge success story for which successive governments deserve credit. But when we are measuring “relative poverty”, this inevitably has an effect on the make-up of the “in poverty” population. Median pensioner incomes are in fact now higher than median working age incomes. In this context, it makes complete logical sense that a greater proportion of those people who fall below the 60 per cent of median income measure are working age people.

Claims are also made that if someone is in poverty, they are now more likely to be in a working household than a workless one. This is true, but not in the way a lot of people read it. Many people will read this as saying that someone is more likely to be in poverty if they are in work than if they are not in work – in other words, that you’re better off not working.

This is categorically not the case, as the JRF’s statistics make very clear. The rate of poverty among non-pensioners who live in a household where no one works is 64 per cent. The equivalent rate for working households is 18 per cent, and for working age adults in a couple where both work full time it is just 5 per cent.

Yet there is little recognition of the fact this clearly demonstrates the benefits of work for alleviating poverty. Indeed, some of the statements in the report seem to completely reject any notion that rising employment has been a good thing for some of the poorest in our society. “The employment rate is at a record high, but this has not delivered lower poverty” – is the suggestion here that, had employment not risen, people would not be any worse off? Would many of the millions who have moved into work since 2010 be better off on benefits than in work?

The message to be taken from the report is most certainly not that people are better off unemployed than in work. The JRF’s own statistics show very clearly that work does pay. So what are the real issues we should be thinking about when it comes to tackling the burning injustice of in-work poverty?

The first is the growing importance of the “lone parent penalty”, which the JRF have rightly given prominence to in their report. More than 50 per cent of working single parents are classed as being in low pay, compared with 37 per cent of second earners in couples and 21 per cent of main earners in couples. This partly explains why in-work child poverty has risen faster than in-work poverty overall. It is something which should be a major concern for the Government in its policy thinking for welfare and the labour market, and in particular childcare policy.

There is a similar point to be made about disabled people, which the JRF perhaps should have explored too. Since 2013, the number of people with disabilities who are in work has risen by almost one million, an increase of 34 per cent. This compares to the figure of 1.1 million more non-disabled people in work, an increase of 4 per cent. In other words, of the millions more people who have moved into work in the last five years, almost half have a disability or health condition. This is another big success story which hardly anyone seems to be aware of.

But many disabled people face significant barriers to finding work or are severely limited in the jobs which are available to them. Many workplaces are still not disability-friendly, disabled people are often prevented from looking as far afield as they might because of travel limitations, and some groups in particular, such as people with learning difficulties or autism, are still misunderstood and ignored by employers.

Because of this, disabled people are much more likely to be in low-paid work than non-disabled people, something the TUC have actually been doing some admirable work in highlighting. We hear a lot about the gender pay gap, and actually a fair bit about the disability employment gap, but not so much about the disability pay gap. When so much of the rise in employment has been among this group, this will undoubtedly have contributed to the rise in in-work poverty rates, and the Government needs to look at ways to close that gap.

Another issue is the housing market. Rising housing costs have hit lower income families the hardest – again, lone parents are particularly affected, as they need the same number of bedrooms as a couple with children does. The JRF are very clear that “the fall in home ownership and expansion of the private rented sector have affected low-income families far more than those who are better off.”

They point out that mortgage costs are actually lower now not just than average private rents but also social rents, but due to high deposit requirements, the poorest are locked out of ownership. There is a poverty premium for housing. This is actually something we at the Centre for Policy Studies have focused on in our recent work. Put simply, we need to build more houses, and ensure more people are able to buy them.

More broadly, policy needs to focus on in-work progression and delivering higher wages. Increasing work incentives within Universal Credit is vital. The work allowance increases announced in the Budget are welcome, but lowering the taper rate should also be looked at.

Ultimately, however, there is only one way to deliver rising living standards in the long-term, and it’s a word which doesn’t appear at all in the JRF report: productivity. The incomes of the lowest paid have been helped by the National Living Wage in recent years, but above-inflation rises in the National Living Wage cannot go on forever. If we want workers to be earning more per hour, we need them to be producing more per hour.

There are millions of people in this country who go out to work every week and struggle to feed their family. That is not a new phenomenon, but that does not mean we don’t need to do everything we can to raise the pay and living standards of those people. Rising employment and falling worklessness have been hugely positive for the poorest in society, but we do now need to focus on ensuring certain groups are not losing out, and people have the best possible opportunities and incentives to get better paid, full-time jobs. It does pay to work – but for some, not as much as it should.

James Heywood is a Senior Researcher at the Centre for Policy Studies.