UK’s number of working poor has risen since 1990s, IFS says

Severe poverty is highest in London, the IFS say. Credit: Claire Jones-Hughes from Pixabay

Britain’s number of working poor has shot up since the mid-1990s with millions more people in poverty living in working households, new research has found.

The findings, published by the Institute for Fiscal Studies (IFS), show that both the proportion of those in poverty who live in working households and the number of working people living in relative poverty both went up from 1994 to 2017.

The share of poverty accounted for by working households rose from 37% to 58% in 2017, while the number of working people in relative poverty also jumped to reach 8 million people.

The institute has blamed rising housing costs, pensioners being better off, and weak earnings growth for the rise in the numbers of the working poor.

Despite this, the IFS says the figures should also bring optimism, as they evidence a decline in the number of workless households and in poor pensioners.

Xiaowei Xu, a research economist at the IFS, and an author of the research, said: ‘The gradual rise in relative in-work poverty rates from 13% in the mid 1990s to 18% in 2017 are the result of complex trends.

‘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.’

One key reason for the rise in in-work poverty is more lone parents finding work – in 2017 just 36% of lone parent households were unemployed, compared to 66% in 1994-95.

The IFS also highlighted that the rapid growth in pensioner incomes has pushed up median income and the relative poverty line, leaving more working households below it.

Rent increases, lower levels of housing benefit and reduced homeownership have all played their part in rising housing costs, the institute explained, pushing up the in-work poverty rate by 2.4 percentage points or 1 million people.

Increases in housing benefits during the 2000s also helped to reduce in-work poverty, although subsequent reductions in entitlements since 2010 have increased it since.

Despite this, the IFS found little evidence of an increase in severe poverty – marked by very low incomes and spending – since 2010, explaining that severe poverty is ‘hard to define’.

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.’