Government policies over the past seven years have made progress in making work financially worthwhile for many families, and have helped to cut the number of children living in poverty.
But research studies from the Joseph Rowntree Foundation show that most workers in the lowest-paid jobs do not earn enough money to escape poverty through their wages alone. This leaves them heavily dependent on income from other family members and on means-tested help from the state to achieve an adequate standard of living.
Three reports published today by the Foundation review the progress made by the present government in reforming the welfare system and reducing poverty:
• Low pay, household resources and poverty
A study of low incomes by Professor Jane Millar and Karen Gardiner of the University of Bath finds that nearly a quarter (23 per cent) of employees are classified as low paid*, a figure that is little changed from before the introduction of the National Minimum Wage in 1999.
Of those who are low paid, 14 per cent are in households living in poverty*, a proportion that has increased from 11 per cent in the mid-1990s. Among the 86 per cent who escape poverty, only a tiny minority (8 per cent) of low-paid workers manage to do so through their wages alone. Those in couples tend to rely on partners’ earnings to stay above the poverty line, while lone parents rely mainly on benefits and tax credits.
The research also shows differences between what has happened to low-paid families with two parents and those with one parent since the mid-1990s. Couples with low-paid fathers are finding it just as hard as before to support their families, with 37 per cent remaining in poverty. Low-paid lone parents have fared better, and their poverty rate has fallen from 28 per cent to 20 per cent.
Professor Millar said: “Our evidence shows that many low-paid workers manage to escape household poverty through help from the government or through the contribution of other people they live with, including their friends, parents and grown-up children. However, there has been little change in the extent of low pay itself.
“Despite the minimum wage we remain a low pay culture in which a large proportion of workers have to get help from other members of their households and from the state to avoid poverty. This contrasts with the situation in the past. In the 1970s, only about a quarter as many low-paid workers were in poverty as today, even without the help of tax credits. Then, low pay was mainly restricted to people who were not the main earners in the family, but today it is more prevalent among breadwinners.”
A study of financial incentives to work, by Mike Brewer and Andrew Shephard of the Institute for Fiscal Studies, confirms that lone parents have seen the most distinct improvements. It finds that the overwhelming majority have a stronger financial incentive to work than in 1997, and that those who are low paid lose less in benefits and tax credits than in the past if they increase their earnings by working longer hours or getting promotion.
For couples, the improvement in incentives has been less clear-cut. In particular, the study notes that tax credits create disincentives for a second person in a couple to work, because reductions in the family’s tax credit have to be offset against the additional wages.
Mike Brewer, Programme Director on Direct Tax and Welfare at the Institute for Fiscal Studies, said: “A key reason why the Government has succeeded in reducing child poverty is that the proportion of children in workless households has fallen since 1997. A particularly high rise in employment rates for lone parents can be attributed in large part to government reforms, including the improvement in work incentives.
“However, the picture is more mixed in the case of incentives to work for other households. In many cases, incentives for people to earn more have worsened. These need to be given greater priority. Unless the government changes its strategy for tax credits, this problem can only get worse in future.”
• Labour's welfare reform - progress to date
In a wider review of the Government’s welfare reforms, Donald Hirsch, Special Adviser to the Joseph Rowntree Foundation, and Professor Jane Millar draw together the lessons from a number of recent JRF research studies. They conclude that although progress has been made in removing barriers to work, the aims of reform need to be broadened. On the one hand, the needs of people remaining outside work need to be recognised – not least through a proper system for raising benefits in line with growing prosperity.
On the other hand, people who have crossed the line into work cannot just be forgotten, since many end up in insecure, low-paid employment with little chance for progression. Measures are needed to improve job quality, prospects and incentives for this group.
Donald Hirsch said: “The Government’s anti-poverty strategy has so far emphasised the importance of reducing the number of households, especially those with children, where nobody works. However, crossing the divide from ‘welfare’ into work is only part of the picture.
“It is now time to think more widely about people’s welfare, both inside and outside work. Millions of people in low-paid, insecure jobs need better training and working conditions and incentives, in order to realise their full potential and improve their living standards.”
He added: “Among those who remain outside work, families with children have seen substantial rises in income recently, but others of working age have tended to become progressively poorer relative to the rest of the population. It is time to reverse this trend and to ensure that people not in work, including disabled people who may be unable to sustain employment, have incomes that move closer to those enjoyed by most of the population.”
