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In-work poverty hits record high in the UK

High housing costs, low pay, a failing benefit system and costly childcare are creating an in-work poverty trap, according to a new study
More than 30 per cent of couple households with one full-time earner face in-work poverty. Image: Pexels

The UK’s “broken system” is pushing a record number of working households into poverty, new research has revealed, with wealth diverted away from people who “already have very little” and into the hands of those who are ”steadily accumulating more”. 

The number of families struggling to make ends meet hit a record high just before the pandemic, according to the Institute for Public Policy Research (IPPR) , with one in six working households – or 17.4 per cent – living in poverty.

Relative poverty is defined as a household earning less than 60 per cent of the median income, or about £18,000. Labour said the research showed that the “link between work and prosperity has been broken” under the current government.

“That level of need amongst working people has been driven by the low-wage, insecure economy the Conservatives have overseen in the last decade,” said Jonathan Reynolds MP, Labour’s shadow work and pensions secretary.

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A government spokesperson said: “We’re spending billions to boost welfare support for those most in need, help parents access free child care and by increasing and maintaining Local Housing Allowance rates in recent years, support for private renters is still significantly higher now than it was before the pandemic with £12 billion being invested in affordable housing over the next five years.”

The Westminster government prefers to define poverty in absolute terms, measured as a household earning less than 60 per cent of the median annual income in 2010/11. By this measure, 10 per cent of individuals in working families were in poverty last year.

The IPPR research showed the UK had hit its highest in-work poverty rate in the 21st century, researchers said, and the chance of households with two people in full-time work being pulled into hardship has doubled since the millennium.

Soaring housing costs, low-paying jobs, a failing benefits system and costly childcare were all making it difficult for working families to afford essentials, the report said.

The figures – calculated using the government’s Households Below Average Income data – span the period of time between 1999 to 2020, so do not account for the economic impact of the pandemic on household incomes.

An increasing number of people cannot afford to buy property so instead are forced to rent, but rent costs rose by almost half (48 per cent) in real terms in the past 25 years, trapping people in poverty.

It means increased housing benefits are “effectively channelled into the pockets of private landlords,” according to the report, with an estimated £11.1bn of state support for tenants ending up with landlords.

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“The government’s response to the crisis of in-work poverty is a cut [to] universal credit, taking £1,000 from five million families already struggling,” Reynolds added. Ministers plan to cut the benefit by £20 per week in September, an increase introduced to support people at the start of the pandemic.

More than 30 per cent of couple households with one full-time earner are in poverty, nearly as high as the rate of hardship for families without any full-time workers.

Poverty increased across the entire country but rose most sharply in London (22 per cent of households), Wales and the north of England (both 18 per cent of households).

Two-earner families where one partner works full time and the other works part-time are twice as likely to be pulled into poverty now compared to two decades ago.

“The system is broken and it is our responsibility to see that it is changed,” said Right Reverend Rose Hudson-Wilkin, a member of IPPR’s welfare state advisory panel.

“Providing a home and building a future for your family is something we all strive for and this report shows that one in six households are trying as hard as they can but still finding it impossible to feed their families and provide a safe roof over their heads. 

“The gulf between the rich and the poor is growing, as the pandemic showed us all too clearly. We must do more as a country to ensure that the resources we have been blessed with are shared more equally – now, and in the future.”

Ministers must raise the minimum wage by 20 per cent for people on zero hours contracts as well as increasing housing benefits if they are to tackle poverty in the short-term, the researchers said.

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But without long-term reforms the government will face a perpetual choice between paying “constantly rising” social security bills or “allowing the number of working families in poverty to increase unchecked, as is currently the case,” according to the report.

That should involve more bargaining power for unions as well as transforming the benefits system – which was “eroded during the transition to universal credit” – to ensure people are better off.

Tackling in-work poverty with an eye on the future also means minimising the proportion of household income that must be spent on housing costs, IPPR said, calling for higher taxes for property owners and radical investment in building more homes. 

Parents and carers with children under five should be given cash support to cover childcare, they added, and the families of school-age kids should have access to wraparound care.

“These shocking new figures should be a wake-up call for everyone concerned about our future,” said Clare McNeil, associate director for IPPR.

“A growing private rented sector coupled with high rents enriches property owners at the expense of renters, and represents a transfer of wealth away from people who already have very little, into the hands of others who are steadily accumulating more.  

“We need an alternative to what the government calls ‘levelling up’. That should look beyond headline incomes to the true costs and obstacles people face when struggling to make work pay. Otherwise more and more families who were once ‘just about managing’ will join the growing number who are ‘no longer managing’. 

“Short-term fixes are needed to alleviate the immediate crisis, but to solve the underlying problem we need a far deeper rethink of housing, childcare, social security and work.” 

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