Why is in-work poverty on the rise?

The number of working people living in poverty has risen sharply over the past 25 years, driven in part by higher rents and slower wage growth, research from the Institute for Fiscal Studies (IFS) has revealed.

The IFS report, commissioned by the Joseph Rowntree Foundation, estimates almost a fifth of working households are affected by relative poverty - defined as a household income lower than 60% of median income – meaning it afflicts around eight million people in Britain.

Xiaowei Xu, one of the authors of the research, said the gradual rise - from 13% in the mid-1990s to 18% in 2017 - “are the result of complex trends”.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Two key reasons “are steeper housing costs for the low-paid, including higher rents and lower housing benefits, and much slower growth in their earnings compared with higher earners”, according to The Independent.

“On the other hand, many in the previously jobless groups, such as lone parents, have moved into low-paid work, pushing up the rate despite becoming themselves better-off,” says the newspaper.

The Guardian’s economics editor Larry Elliott says: “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.”

On Wednesday, as Theresa May defended her legacy at Prime Minister’s Questions in the House of Commons, she faced accusations from the Scottish National Party that in-work poverty has risen dramatically during her watch despite her promises to fight for the “just about managing”.

Citing a separate UN report examining poverty in the UK over the past decade, Bloomberg reports that “in-work poverty has scarred the UK since the financial crisis, the result of years of wage stagnation and cuts to benefits as the government sought to bring down the budget deficit”.

Another report from the Joseph Rowntree Foundation, published last year, claimed more than half a million British workers have been swept into working poverty over the past five years.

The Guardian said it was “the latest sign that the link between entering work and making ends meet has become increasingly frayed in 21st-century Britain”.

“Nearly all of the increase comes as growing numbers of working parents find it harder to earn enough money to pay for food, clothing and accommodation due to weak wage growth, an erosion of welfare support and tax credits and the rising cost of living,” says the newspaper.

The growing number of in-work poor will raise further questions about record levels of employment. Unemployment has dropped to its lowest level since the 1970s, but this includes underpaid or precarious job roles.

Campbell Robb, chief executive of the Joseph Rowntree Foundation, told the BBC: “Our economy should work for everyone, but the rise of working poverty across the UK shows that success in increasing employment isn’t always a reliable route to a better living standard.

“High housing costs, low pay and insecure hours are holding many people back, despite more people moving into work. Our next prime minister must further reform Universal Credit so that it helps more people get on, and bring forward an ambitious plan to rebalance the economy by investing in places where low employment and widespread low pay trap people in poverty.”

May claimed that the IFS report “shows that people are better off when they move into work”.

She told MPs: “It shows that under this Government, more people are in work than ever before, that material deprivation rates have fallen by a fifth since 2010, and that the reason for the relative poverty figures is that pensioners are better off.”