Austerity in the UK - Spotlight on Income

"You're actually thinking every day, have I got enough to last me two weeks?"

Key facts

By Sharon Telfer

  • One person must earn £16,400 a year or £8.38 an hour to achieve a minimum income standard. (stat from MIS 2012)
  • Two parents must earn £18,400 a year each to support themselves and two children. (stat from MIS 2012)
  • Out-of-work benefits and the National Minimum Wage are well below the minimum income standard. (stat from MIS 2011)The cost of a 'minimum' basket of goods and services rose by 43% over the past decade. (stat from MIS 2011)
  • Families needing childcare had to earn over 20% more in 2011 than in 2010 with changes in benefits and tax credits. (stat from MIS 2011)
  • The gap between the incomes and needs of the worst-off households is widening, especially for families with children. (stat from MIS 2012)
  • 1.4 million families face an effective marginal tax rate over 70%. (stat from MPSE 2011)

Insights

Poverty is about more than pounds and pence.

But breaking the crippling low-pay, no-pay cycle that keeps so many in poverty would be a start.

  • What do we know?
  • What can we do?
They're always saying, 'Mummy did you get paid today?' ...'Can I have an ice-cream?' and I say, 'No 'cause I can't afford one' and they're only 50 pence. It's not nice is it?

What do we know?

Getting work may not stop you being poor.

Many people in work struggle to get by.

53% of poor, working-age adults live in families where they or their partner works. This trend is increasing.

61% of children in poverty have working parents. This is up from 45% in the mid-1990s.

Being poor when working is affected by:

  • the nature of the job, especially short-term intermittent work
  • household composition
  • household costs
  • personal debt

People move in and out of poverty

Moving between work and unemployment repeatedly is an endemic problem. It has risen by 60% since 2006, mostly due to the recession.

The chances of suffering poverty repeatedly are high, once poor.

Particularly prone are:

  • those with limited education
  • skilled manual and lower skilled workers
  • single parents
  • unemployed and economically inactive people

Quality of employment – not employment itself – is key to preventing repeated spells of poverty.

Some groups are more likely to have low incomes

The risk of poverty for children in households where at least one but not all adults work is 38%. This is nine percentage points higher than that for all children.

Family events – like divorce or having more children – increase the chances of recurring poverty.

People from ethnic minorities are less likely to:

  • get jobs
  • be paid equal salaries
  • be promoted

Working-age adults without dependent children form the largest group living in the deepest poverty.

Many rural jobs are poorly paid. But people in rural areas must:

  • spend 10–20% more on everyday needs than those in urban areas
  • earn well above the minimum wage to make ends meet.

Low income goes hand in hand with other problems

Housing costs for households in the bottom fifth are twice those on average incomes, and three times those in the richest fifth, as a proportion of income.

Training is less available to lower paid workers than higher paid ones.

Fuel poverty affects almost everyone in the bottom tenth incomes, and half those in the second bottom tenth.

Water poverty is an emerging risk.

People moving in and out of work may tip into problem debt when using credit to 'smooth' income.

The poorest 20% of households have almost no property wealth or assets.

It's just not worth it to work with two kids. Whatever you're earning you're just going to pay out in childcare.

Benefits and tax credits aren't enough

The official poverty line is below what the public agrees to be an acceptable minimum standard of living.

Out-of-work benefits are well below the minimum income standard.

Families needing childcare had to earn over 20 per cent more in 2011 than in 2010 due to changes in benefits and tax credits.

The National Minimum Wage (2012) is well below the rate of the minimum income standard: £6.08 compared with £8.38 an hour.

Income inequality is widening

From 1979 to 1994/95:

  • for the richest tenth, income grew 60-68%
  • average incomes grew 40%
  • for the poorest tenth, income grew 10% before housing costs or fell 8% after housing costs

By 2008, income inequality had risen to its highest level in 30 years. It hasn't changed since.

By 2009, the poorest 20% of households had 5% of all income.

By 2020, the extent of low-paid and low-hour jobs, alongside benefit cuts, is likely to increase poverty among all groups.

What can we do?

Create more jobs

Then: Solutions need to be local, with jobs people are likely to be able to get (2008).

Now: There is not enough emphasis on job creation at the heart of anti-poverty policy (2011).

Create better jobs

Then: Work is the most important route out of poverty for working-age people, but not a guaranteed one (2004).

Now: Ending recurring poverty requires better pay, job security and training for the lowest paid (2010).

Improve skills

Then: Where people live matters most for those with poor skills (2006).

Now: Reducing income inequality means raising the skills of the lowest earners much closer to middle and top earners.

Close gaps in education

Then: Low income is a strong predictor of low educational performance, but policy focuses on improving teaching (2007).

Now: Getting parents involved in children's education can improve outcomes (2012).

Understand the links between poverty and ethnicity

Then: Employment policy must tackle discrimination and benefit policy focus on 'ethnic penalties' in take-up (2007).

Now: We need to know more about how people respond to the opportunities and constraints facing them.

The bottom end of the labour market is a murky place, with neither certainty nor progression. Jobs come and go, and in the current climate they mostly go. Work can trap many people in poverty. But those on benefits can also be trapped, unable to move into work.

How can every one of us afford a socially acceptable standard of living?

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