The problem of modern poverty is that work doesn’t pay enough

The poor you will always have with you. Yet as a society we can have more or less poverty. And it’s a depressing fact that British poverty has been on the rise again in recent years.

A new report from the Joseph Rowntree Foundation (JRF) highlights that a long period of reduction in poverty (defined as those living on less than 60 per cent of median incomes after housing costs) came to an end around 2010.

The child poverty rate fell from 33 per cent in 1996 to 27 per cent in 2010. But it has now risen again to 30 per cent. Pensioner poverty two decades ago was 30 per cent. It dropped to 13 per cent in 2012 but has since crept up to 16 per cent. For the population as a whole the poverty rate glided down from 24 per cent in 1995 to 21 per cent in 2014. But it has now edged back up to 22 per cent.

The poor, with more essentials in their regular outgoings, have faced higher effective inflation rates than the more prosperous over the past decade. For those on the breadline, the latest above-inflation increase in rail fares announced by the train operating companies will feel like yet another kick in the teeth.

To a large extent this increase in poverty is a consequence of benefit cuts in the years of coalition and Conservative austerity. And the real-terms cuts in tax credits still in the pipeline, which the Chancellor Philip Hammond declined to alleviate at last month’s Budget, are set to increase the numbers in Britain living in poverty still further. Yet government cuts are not the whole story when it comes to underlying UK poverty trends.

It probably sounds rather odd to hear about a rise in UK poverty given that, as government ministers frequently remind us, more people than ever are in work. But dig into the detail and it emerges that employment is by no means the shield from poverty in modern Britain that we might imagine it to be.

As the JRF research shows, 2.7 million of the four million children in poverty in the UK live in households where an adult works. In fact, of the 13.9 million people in this country who are in poverty, some 3.7 million (a quarter) are actually in employment.

Some say poverty in working households reflects the fact that the adults don’t work enough hours.

It’s true that work by the Institute for Fiscal Studies has identified a surge in part-time employment by low-income working-age men over the past two decades. In 1995 only 5 per cent of men on low hourly wages worked part-time. Today 20 per cent do. What explains this dramatic shift? The truth is we don’t fully understand it. But it seems unlikely this group has decided, en masse, to put their feet up and accept the financial consequences of a deep decline in weekly take-home wages. If they could do more hours they probably would.

Moreover, other IFS work suggests that the prevalence of poverty among working families with children stems from weak earnings among full-time male earners in single-earner households, rather than an explosion of part-time work. 

The labour market does not seem to be providing the opportunities and rewards it used to, particularly for lower earning men. The tax-and-benefits system has taken up a degree of the slack by boosting the incomes of the low-paid through tax credits. The minimum wage has helped too. But the underlying problem of a labour market that is not providing for those at the lower end is significant and seems to be getting bigger.

What’s the answer? Halting the working-age welfare cuts is an obvious imperative. Ramping up social-housing construction should alleviate this group’s punishing housing costs (as a share of their income). Further increases in the minimum wage are useful, although they cannot be the dominant lever of assistance. For the long term, a serious step-up in public and private investment in skills is sorely needed. To some extent the poverty problem today is chickens coming home to roost; underspending on education and training have almost certainly contributed to weak productivity and low pay.

For the immediate term, more stimulative government fiscal policy to support demand would likely help. The surge in part-time work among low-income working-age men is further evidence of a degree of hidden slack in the economy.

Perhaps the first job, though, is to change our public discourse. Despite propaganda to the contrary, poverty in 21st century Britain is not the consequence of a feckless or work-shy section of the population. It is the consequence of work that does not pay enough and a labour market that is not providing the opportunities that we need it to.

This article was published in The Independent on 05/12/17

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