Rising levels of poverty in working families

As a care worker Liam Doherty knows all too well, if you’re in a low-paid job, the slightest setback can capsize your finances.

The Irishman moved to the UK in September 2013, bringing his wife Debbie and four children from County Limerick to take up a job in Dawlish in Devon.

“We were struggling to get by,” he says. With his wife unable to work because of ill-health, he was the sole provider in the family.

“Sometimes friends would help us out. They would just arrive with food.

“You want to work, but low-paid work can sometimes make it harder financially.”

In an effort to make ends meet, they were advised to claim tax credits and housing benefit, but that was when their problems really began.

The benefits were worth £400 a month to them, but then they were told that they had been given too much and had to repay £3,000.

Liam remembers the authorities asking for £50 a month, but he pleaded that he couldn’t afford that. “Then we got a letter asking for more.”

Other bills started to mount up. Finally, thanks to the aid of charity Christians Against Poverty, the Doherty family were able to get out of debt.

Now aged 64, Liam says he can’t see himself retiring any time soon.

“I have to keep going,” he says. “But at least we’re not in debt and we live within our means. All our bills are paid each month and then we manage what’s left, for food and other things.”

Housing costs

Liam is far from an isolated example. Poverty among people who are working has risen sharply since the mid-1990s, partly driven by higher housing costs and lower earnings growth, says the Institute for Fiscal Studies (IFS).

The proportion has risen from 13% in 1994-95 to 18% in 2017, meaning that about eight million people living in working households are in relative poverty, according to the IFS research, funded by the Joseph Rowntree Foundation.

“In the mid-1990s, 37% of those in poverty lived in a working household. That has reached 58%,” said the IFS.

But the rise also reflected the fact that many more people were now in work, it added.

“They are better off than they would have been had they stayed out of work, but they remain in poverty. In addition, pensioner incomes have risen faster than working-age incomes – pushing up the relative poverty line,” the IFS said.

People with less than 60% of median income are classified as poor. The IFS said the rapid growth in pensioners’ incomes over the past 25 years had pushed up median income and therefore the relative poverty line.

More worryingly, the institute said that fast growth in housing costs for lower-income working households had pushed up the in-work poverty rate since the mid-1990s by 2.4 percentage points, equivalent to one million people.

At the same time, increased earning inequality had caused in-work poverty to rise by 1.4 percentage points, or 600,000 people.

Benefits reform

As well as relative poverty, the research also looked at “severe” poverty, defined as having living standards meaningfully below those on the poverty line.

“Severe poverty is a clear policy concern, but it is hard to measure. We find little evidence that there are significant rises in it,” said Tom Waters, a research economist at the IFS and one of the authors of the research.

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 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.”