Eight million people in working households in relative poverty – IFS report

The proportion of people in working households living in relative poverty has jumped by 40% since 1994, according to the Institute for Fiscal Studies (IFS).

But it said the reasons behind the increase are more complex than just low pay.

Between 1994 and 2017, the proportion of people in working households living in relative poverty increased from 13% to 18% – an uplift of around 40%.

By 2017, eight million people in the UK living in working households were in relative poverty, the IFS said.

A “key driver” behind the increase has been higher housing costs for low earning households, with higher private and social rents and lower rates of home ownership.

Fast growth in housing costs for lower income working households has pushed up the in-work poverty rate by one million people, according to the research, funded by the Joseph Rowntree Foundation.

Meanwhile, there has been a rapid growth in average pensioner incomes over the past 25 years which has pushed up average incomes – meaning more working age families fall below the relative poverty line.

The relative poverty rate measures the percentage of people whose household income is lower than 60% of median average incomes in a particular year.

The increase in in-work poverty rates is also partly due to more lower-earning people, such as single parents, being in work, the IFS said.

They may be better off than if they were not working, but some are still defined as being in poverty.

Campbell Robb, chief executive of the Joseph Rowntree Foundation, said: “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 better living standards.

“High housing costs, low pay and insecure hours are holding many people back despite more people moving into work.

“Worrying from day-to-day whether your income will cover the cost of housing, childcare and other essentials can make building a better life for your family all the more difficult.”

He called for further reforms to Universal Credit and more efforts to rebalance the economy “by investing in places where low employment and widespread low pay trap people in poverty”.

Xiaowei Xu, a research economist at IFS, and an author of the research, said: “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.”

Tom Waters, research economist at IFS, and another author of the research said: “Severe income and expenditure poverty rates are little changed, and rates of material deprivation – which measures whether households feel unable to afford basic items such as keeping the home warm – have clearly declined, with falls seen across the income distribution.

“While these results suggest that very low living standards have not become more common, they do not tell us what has happened to the frequency of ‘destitution’, such as rough sleeping.”

A UK Government spokesman said: “Tackling poverty is at the heart of our reforms to improve people’s lives – ensuring that work pays and there is a strong safety net for people who need it.

“We’re supporting low earners by raising the personal allowance to take 1.74 million of the lowest paid out of income tax altogether.

“We’ve also increased the National Living Wage, providing the biggest pay rise for low paid workers in 20 years and there are now 300,000 fewer working-age people in absolute low income compared to 2010.”

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